SEBI Directs 'Linde India' To Address Related Party Transaction Issues

Capital markets regulator Sebi on Monday directed Linde India to address issues related to transactions with Praxair India and Linde South Asia Services and ensure compliance with the market norms.

The matter relates to various transactions and agreements by Linde India Ltd. (LIL) with its related parties, Praxair India Pvt. Ltd. (PIPL) and Linde South Asia Services Pvt. Ltd. (LSASPL).

Transactions between 'LIL' and 'PIPL'

The order came after the Securities Appellate Tribunal, in its order on May 22, set aside Sebi's interim order and asked the National Stock Exchange (NSE) to designate a valuer to conduct the valuation of related party transactions (RPTs) between LIL and PIPL following complaints by shareholders.

"The endeavour of LIL to go ahead with transactions that had been voted down by the shareholders by taking cover of the legal opinions, in my view, cannot be allowed to pass muster.

"The attempt to colour the prima facie findings made in this regard in the interim order as 'bald innuendos' can, therefore, only be looked at as an elaborate effort on the part of the company to cover up its earlier actions," Sebi's whole-time member Ashwani Bhatia said in the order.

LIL's Attempt to override the shareholders

As per Sebi's order, the legal opinions that were obtained by LIL were part of a desperate attempt to override the shareholders' vote. It also noted that a valuation exercise would have illuminated whether the decision required approval solely from the audit committee or necessitated shareholder approval as well.

"The business allocation between LIL and PIPL, a related party, is fundamentally flawed because a valuation exercise was not conducted prior to the Board granting approval for the transaction," Bhatia said.

SEBI's measures

In its order, Sebi has asked NSE to appoint a registered valuer to carry out a valuation of the business foregone and received, including by way of geographic allocation, in terms of the joint venture and shareholder agreement entered between Linde India and Praxair India that led to the formation of Linde South Asia Services.

Further, Sebi has directed Linde India to reimburse the expenses incurred by NSE in respect of the valuation to be carried out and test the materiality of future RPTs as per the threshold under the norms based on the aggregate value of transactions entered into with any related party within a financial year, regardless of the number of transactions or contracts involved.

Additionally, if the total value of RPTs (related party transactions) surpasses the materiality threshold, shareholder approval must be obtained.

Also, the regulator instructed NSE to provide the valuation report to both Sebi and the company. Within two weeks of receiving the report, Linde is required to present it to the audit committee and board of directors.

Subsequently, Linde India must disclose a summary of the observations from the valuation report along with management comments on the stock exchanges.

Entities in question

Linde India, formerly known as BOC India, was part of the UK-based BOC Group. LIL is engaged in manufacturing and selling industrial, medical, and special gases, equipment, and related products, and has a project engineering division.

In 2006, Germany-based Linde AG acquired BOC Group, and consequently, BOC India changed its name to Linde India in February 2013.

Later in 2018, there was a global merger between Linde AG and Praxair Inc. This resulted in the formation of Linde Plc, a NASDAQ-listed entity.

After the merger, Linde Plc had two subsidiaries in India: Linde and Praxair India.

Subsequently, the two entities—Linde and Praxair India—entered into a joint venture and shareholder agreement, whereby both LIL and PIPL were to hold a 50 per cent stake in Linde South Asia Services, a company engaged in providing administrative and support services to both LIL and PIPL.

Earlier, the company had moved to the Bombay High Court for a stay on the probe, which was not granted by the court.