Anew season has opened in the Religare series. This time, the events revolve around the new controlling shareholders, who are trying to clean up the books, and the former promoters, who are putting in efforts to get back what they believe is rightfully theirs and fix accountability for losses made.
Malvinder Mohan Singh and Shivinder Mohan Singh have launched a broadside against Religare Enterprises (REL), the financial services company they once led.
RHC Holding, the investment firm controlled by the brothers, has slapped a couple of legal notices against Religare for claims and damages to the tune of close to INR2,500 crore.
The Singh brothers, who once controlled the financial-services player with over 50% stake, saw their holdings decline over the last year or so. In February, they had to step down from the board after sale of shares pledged to lenders brought their holdings down to around 3%. They have since been blaming former Religare chairman Sunil Godhwani, once a close friend, for the troubles facing the group. Today, the brothers and their companies own a little over 1% in Religare and have been reclassified as general-category shareholders.
The legal notices pertain to two key firms within the REL ecosystem — Religare Capital Markets (RCML) and Finserve Shared Services (formerly known as Religare Corporate Services.)
Notice #1: Breach of agreement and the Mauritius link
RHC Holding has served legal notices dated June 19 on Religare Enterprises and RCML, seeking refund of preference capital of over INR1,300 crore infused in RCML between 2011 and 2016.
The Singh brothers have alleged that the then management committed breach of trust and concealed losses made by RCML and its Mauritius subsidiary in a deceitful manner.
E-mails and subsequent reminders sent to a Religare spokesperson seeking comment for this story did not elicit any response. RHC Holding and Godhwani also did not respond to requests for comment.
The brothers have alleged that investments made in RCML were bound to be used for certain purposes only, but these have been diverted for other uses, thereby, making a case for material breach of the arrangement between RHC and RCML. The notice warned of legal proceedings if steps were not taken in 30 days.
RCML was conceived as Pan-Asian institutional equities and investment-banking platform partnering emerging-growth companies, focusing on quality of research and execution. RCML and its subsidiaries obtained licences to carry out the institutional equities and investment-banking businesses in various jurisdictions. However, the expensive people it hired could not apparently bring in commensurate business.
“Upon perusal of the financial statements of RCML for the period ending March 31, 2017, however, my client was shocked to discover that RCML has suffered huge losses to the tune of INR731,84,90,576 inter alia on account of the provisioning/write-off of amount equal to the value of investments made by RCML in Religare Capital Markets International (Mauritius) Ltd. Such colossal losses have cast an enormous doubt over the ability and intention of REL and RCML to pay the promised benefits in terms of the above arrangement,” the legal notice said.
Sources say this huge figure could have popped up because of bunching up of losses accumulated over the years, which had not been brought to book. The transactions between RCML and its Mauritius arm had hit the limelight when in September 2017, India Horizon Fund, a minority shareholder in Religare, had moved the company courts to remove the then management of Religare on grounds of oppression and mismanagement.
The fund was objecting to the fact that Religare was infusing funds of over INR500 crore to repay a loan taken by RCML’s Mauritius subsidiary. It had sought a stay on the move. Earlier, proxy firms had also questioned the infusion of funds into RCML and lack of disclosures. However, the deals went through, as shareholders approved them and the National Company Law Tribunal (NCLT) also refused to order any stay. India Horizon fund, operated by Bay Capital, is the largest institutional shareholder of REL today with a 9.3 % stake. Bay Capital and its entities are said to have taken control of REL, though these have not been officially classified as promoters yet. Earlier this month, Milind Patel, a former IL&FS executive, was named the Group CEO of Religare.
The RHC legal notice further added that the doubts about RCML’s credentials have further been validated by the fact that REL has in FY17 accounted for loss of INR449.99 crore on sale of investment aggregating to INR450 crore in preference shares of RCML. “My client thus has been clearly hoodwinked by REL and RCML in to believing that the business of RCML was profitable and valuable and the investments made by RHC entities would yield the promised returns.”
Citing these irregularities, the Singh brothers, in the notice, have asked the two companies to “repay/refund the amount of preference-share capital outstanding as on date (INR524.47 crore), along with premium of INR538.41 crore till March 31, 2018, totalling INR1,062.88 crore.”
Notice #2: Shared services that led to a conflict
The second legal notice is on Finserve Shared Services, an RHC subsidiary which was created to provide Religare and its subsidiaries shared services and a common corporate centre housed in the premises owned by the Dhillon family. (We have already told you how the Singh brothers became victims of a realty play).
According to a master-services agreement of November 2011, Finserve would provide services related to “administration, branding, finance, human resources, information technology, legal compliance, and CSA; customer-support services and strategy inter alia”.
In the notice, RHC has alleged that Religare had agreed to buy out Finserve by the end of the financial year ending March 2017. “… It was assured and committed that the company will buy the preference share capital owned by my client in RCSL (Religare Corporate Services, Finserve’s old name) over a period of four years from financial year ending 2014 onwards, and buy back the entire equity in financial year ending 2017.”
It added that the overall cash flow was structured to generate an 18% internal rate of return (IRR) per annum for RHC.
RHC claimed that it had invested INR839 crore over the years by way of equity, preference shares and debt, with assurance of return on investments as above. In addition, it has also guaranteed debt of around INR230 crore on Finserve’s books from Yes Bank.
The notice alleged that Religare had unilaterally terminated the arrangements after it received a letter from its institutional shareholder in June 2015. The termination, which took effect from September 2015, was ex facie illegal and untenable, RHC contended in its legal notice. It said the termination was done to wriggle out of the buyout obligations in the agreement.
“From the events that have transpired in the last few years, it emerges that the company had painted a glossy and profitable picture to my client, with no other motive but to induce investment,” RHC alleged, adding “therefore, it is clear that the company acted in a highly mala fide and orchestrated manner to achieve the objects and agendas set by it with respect to the aforesaid shared services and corporate set up at the cost and expense of our client.”
RHC demanded that Religare pay INR1,430.85 crore, which is due on account of its investment and 18% IRR thereon. It also sought that the liability of Yes Bank be settled separately.
JN Gupta, managing director of SES, a proxy advisory group, tells ET Prime that though he was not aware of these notices, there is a lingering suspicion around the movement of funds around Religare. “All other non-banking finance companies have been doing well. Be it Edelweiss or IIFL or Motilal Oswal. They are 2X, 3X, or more. On the other hand, Religare has been losing business, they are a fraction of what they were a few years ago. They were not doing the right thing,” says Gupta.
Clearly, things won’t look up till the legal scores are settled.
(Graphic by Ankita Mehrotra)
Malvinder Mohan Singh and Shivinder Mohan Singh have launched a broadside against Religare Enterprises (REL), the financial services company they once led.
RHC Holding, the investment firm controlled by the brothers, has slapped a couple of legal notices against Religare for claims and damages to the tune of close to INR2,500 crore.
The Singh brothers, who once controlled the financial-services player with over 50% stake, saw their holdings decline over the last year or so. In February, they had to step down from the board after sale of shares pledged to lenders brought their holdings down to around 3%. They have since been blaming former Religare chairman Sunil Godhwani, once a close friend, for the troubles facing the group. Today, the brothers and their companies own a little over 1% in Religare and have been reclassified as general-category shareholders.
The legal notices pertain to two key firms within the REL ecosystem — Religare Capital Markets (RCML) and Finserve Shared Services (formerly known as Religare Corporate Services.)
Notice #1: Breach of agreement and the Mauritius link
RHC Holding has served legal notices dated June 19 on Religare Enterprises and RCML, seeking refund of preference capital of over INR1,300 crore infused in RCML between 2011 and 2016.
The Singh brothers have alleged that the then management committed breach of trust and concealed losses made by RCML and its Mauritius subsidiary in a deceitful manner.
E-mails and subsequent reminders sent to a Religare spokesperson seeking comment for this story did not elicit any response. RHC Holding and Godhwani also did not respond to requests for comment.
The brothers have alleged that investments made in RCML were bound to be used for certain purposes only, but these have been diverted for other uses, thereby, making a case for material breach of the arrangement between RHC and RCML. The notice warned of legal proceedings if steps were not taken in 30 days.
RCML was conceived as Pan-Asian institutional equities and investment-banking platform partnering emerging-growth companies, focusing on quality of research and execution. RCML and its subsidiaries obtained licences to carry out the institutional equities and investment-banking businesses in various jurisdictions. However, the expensive people it hired could not apparently bring in commensurate business.
“Upon perusal of the financial statements of RCML for the period ending March 31, 2017, however, my client was shocked to discover that RCML has suffered huge losses to the tune of INR731,84,90,576 inter alia on account of the provisioning/write-off of amount equal to the value of investments made by RCML in Religare Capital Markets International (Mauritius) Ltd. Such colossal losses have cast an enormous doubt over the ability and intention of REL and RCML to pay the promised benefits in terms of the above arrangement,” the legal notice said.
Sources say this huge figure could have popped up because of bunching up of losses accumulated over the years, which had not been brought to book. The transactions between RCML and its Mauritius arm had hit the limelight when in September 2017, India Horizon Fund, a minority shareholder in Religare, had moved the company courts to remove the then management of Religare on grounds of oppression and mismanagement.
The fund was objecting to the fact that Religare was infusing funds of over INR500 crore to repay a loan taken by RCML’s Mauritius subsidiary. It had sought a stay on the move. Earlier, proxy firms had also questioned the infusion of funds into RCML and lack of disclosures. However, the deals went through, as shareholders approved them and the National Company Law Tribunal (NCLT) also refused to order any stay. India Horizon fund, operated by Bay Capital, is the largest institutional shareholder of REL today with a 9.3 % stake. Bay Capital and its entities are said to have taken control of REL, though these have not been officially classified as promoters yet. Earlier this month, Milind Patel, a former IL&FS executive, was named the Group CEO of Religare.
The RHC legal notice further added that the doubts about RCML’s credentials have further been validated by the fact that REL has in FY17 accounted for loss of INR449.99 crore on sale of investment aggregating to INR450 crore in preference shares of RCML. “My client thus has been clearly hoodwinked by REL and RCML in to believing that the business of RCML was profitable and valuable and the investments made by RHC entities would yield the promised returns.”
Citing these irregularities, the Singh brothers, in the notice, have asked the two companies to “repay/refund the amount of preference-share capital outstanding as on date (INR524.47 crore), along with premium of INR538.41 crore till March 31, 2018, totalling INR1,062.88 crore.”
Notice #2: Shared services that led to a conflict
The second legal notice is on Finserve Shared Services, an RHC subsidiary which was created to provide Religare and its subsidiaries shared services and a common corporate centre housed in the premises owned by the Dhillon family. (We have already told you how the Singh brothers became victims of a realty play).
According to a master-services agreement of November 2011, Finserve would provide services related to “administration, branding, finance, human resources, information technology, legal compliance, and CSA; customer-support services and strategy inter alia”.
In the notice, RHC has alleged that Religare had agreed to buy out Finserve by the end of the financial year ending March 2017. “… It was assured and committed that the company will buy the preference share capital owned by my client in RCSL (Religare Corporate Services, Finserve’s old name) over a period of four years from financial year ending 2014 onwards, and buy back the entire equity in financial year ending 2017.”
It added that the overall cash flow was structured to generate an 18% internal rate of return (IRR) per annum for RHC.
RHC claimed that it had invested INR839 crore over the years by way of equity, preference shares and debt, with assurance of return on investments as above. In addition, it has also guaranteed debt of around INR230 crore on Finserve’s books from Yes Bank.
The notice alleged that Religare had unilaterally terminated the arrangements after it received a letter from its institutional shareholder in June 2015. The termination, which took effect from September 2015, was ex facie illegal and untenable, RHC contended in its legal notice. It said the termination was done to wriggle out of the buyout obligations in the agreement.
“From the events that have transpired in the last few years, it emerges that the company had painted a glossy and profitable picture to my client, with no other motive but to induce investment,” RHC alleged, adding “therefore, it is clear that the company acted in a highly mala fide and orchestrated manner to achieve the objects and agendas set by it with respect to the aforesaid shared services and corporate set up at the cost and expense of our client.”
RHC demanded that Religare pay INR1,430.85 crore, which is due on account of its investment and 18% IRR thereon. It also sought that the liability of Yes Bank be settled separately.
JN Gupta, managing director of SES, a proxy advisory group, tells ET Prime that though he was not aware of these notices, there is a lingering suspicion around the movement of funds around Religare. “All other non-banking finance companies have been doing well. Be it Edelweiss or IIFL or Motilal Oswal. They are 2X, 3X, or more. On the other hand, Religare has been losing business, they are a fraction of what they were a few years ago. They were not doing the right thing,” says Gupta.
Clearly, things won’t look up till the legal scores are settled.
(Graphic by Ankita Mehrotra)
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