Why is SEBI Pursuing Action Against Religare?

Religare Enterprises’ chairperson, Rashmi Saluja, finds herself in a difficult situation. SEBI (Securities and Exchange Board of India) has been pressuring her company’s Board to secure approvals from various regulators to comply with a takeover bid by the Burman family, the owners of Dabur.

Why is SEBI doing this?

It’s a matter of regulatory compliance. SEBI, as the market regulator, is enforcing its rules to ensure fair play. To understand these rules, let’s look back a few years.

In 2018, Shivinder and Malvinder Singh, founders of Fortis Hospitals and Religare, were accused of defrauding ₹2,400 crores from Religare’s subsidiary, Religare Finvest. This scandal shook investor confidence in Religare, a listed financial services firm, prompting the company to appoint Rashmi Saluja as the new chairperson. Saluja, with her medical background, law degree, MBA in finance, and extensive administrative experience, was seen as the ideal candidate to restore Religare’s reputation.

However, Saluja’s challenges began immediately. The Burmans, starting in 2018, steadily increased their stake in Religare from around 10% to 26% by 2023.

This 26% stake has now become a critical issue.

When investors acquire a significant portion of a publicly listed company, SEBI requires them to follow specific rules, including those protecting minority shareholders. If an investor’s stake exceeds 25%, they must make an open offer to buy shares from minority shareholders, allowing them to exit the investment if they choose. This rule ensures transparency and fairness in the stock market.

The Burmans made an open offer to acquire more shares in Religare, effectively initiating a hostile takeover bid.

Why are the Burmans, owners of FMCG giant Dabur, interested in a financial services firm like Religare?

Dabur, founded nearly 140 years ago by Ayurvedic physician S.K. Burman, has diversified into healthcare, hospitality, education, media, and financial services. The Burmans now aim to build a comprehensive financial services platform, including lending, broking, and health insurance. Religare fits perfectly into this vision.

However, the Burmans’ takeover would allow them to influence Religare’s operations significantly, potentially replacing Saluja with their own appointee. Naturally, Saluja is resisting this takeover.

Religare, as an NBFC (Non-Banking Financial Company), is regulated by both SEBI and the RBI (Reserve Bank of India). According to RBI rules, Religare must seek approval from the Central Bank for the takeover. Additionally, due to its insurance business, approval from the IRDAI (Insurance Regulatory and Development Authority) is also necessary.

Without these approvals, the Burmans cannot proceed. Religare’s Board must initiate these applications, not the Burmans. However, Religare’s Board has delayed seeking these approvals, arguing that the Burmans do not meet the ‘fit and proper’ criteria under RBI rules, citing alleged involvement in scams and frauds. Religare also claims that the Burmans are offering an unfairly low price for the company.

SEBI, observing these delays, recently issued a notice to Saluja and her company, demanding they secure the necessary regulatory approvals.

Will Religare’s Board comply? Only time will tell.