IiAS Questions Gautam Singhania’s Attempt To Distance Himself From JK House Sale

Raymond Ltd. chairman Gautam Singhania’s altruism has failed to cut ice with proxy advisory firm Institutional Investor Advisory Services.

He issued a statement on Friday asking shareholders, in the interest of the company, to go by their “conscience” and vote against a proposal which stands to benefit him and his family. The proposal is for the sale of Raymond’s JK House property in Mumbai to the promoters – the Singhania family – for Rs 9,200 per square feet. IiAS had raised concerns about it, saying that the price offered is even lower than the total cost of building the four duplexes.

In its recent note titled ‘For Gautam Singhania is an honourable man’, the proxy firm questioned the chairman's attempt to distance himself from the proposal that received the board’s consent during his term. The advisory firm said that Singhania “abdicates responsibility” through the statement he issued.

IiAS has listed a few questions that it encourages shareholders to ask the chairman.

Why were the disclosures not timely?

IiAS alleges that annual reports between 2006 and 2008, when the board had approved the agreements that were signed by the company, had no mention of the transaction. The disclosures during these years had stated that there has been no materially significant transactions made by the promoters that would have a conflict with interests of the company.

It was only in the 2013-14 annual report that Raymond specifically mentioned capital work-in-progress towards the JK House, IiAS said. By March 2014, Rs 1,500 crore had been spent on its redevelopment and even then the company did not disclose the proposal to sell the residential property to promoters at Rs 9,200 per square feet.

Why did Singhania change his mind?

The JK House was demolished and rebuilt for over Rs 2,700 crore when Singhania was the company's chairperson and managing director. The entire effort took about 10 years to complete.

IiAS argues that if Singhania had changed his mind during the redevelopment, then it would have been prudent on his part to change his decision.

The report also said shareholders must ask for more such disclosures that Singhania might refuse to endorse in the future.

Does the board support Singhania's stance? If yes, then why call for a vote?

Singhania has clearly agreed that the transaction is not in the interest of the company. If the board agrees with this view, then why was the transaction not quashed before bringing it to shareholders, IiAS questioned.

It added that even if legal implications forced the board to put the matter to vote, then an explicit guidance note should’ve been provided to the shareholders in the notice itself to reject the proposal.

Why is Vijaypat Singhania on the board of directors?

IiAS contends that by saying that the transaction is not in the interest of the company or minority sharholders, Singhania has not exercised his right to the property. However, Vijaypat, his father, had exercised his rights.

This would imply that Vijaypat is not acting in the company's interests and yet remains to be a board member and a member of the audit committee, IiAS said.

The proxy advisory firm says that the board and Gautam Singhania are now stuck between a “rock and the hard place”. The board has decided to defer the decisions to shareholders, while Singhania is seeking to protect his personal reputation by disassociating himself from the issue.

IiAS has also recommended shareholders to vote against Gautam Singhania's reappointment as a director on Raymond's board.