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Debt-hit Gammon wants shareholders' nod for excess pay to CMD Rajan

N Sundaresha Subramanian | New Delhi Jun 29, 2017 02:36 AM IST
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Photo: Wikipedia
The Ministry of Corporate Affairs (MCA) has directed financially distressed engineering company Gammon India to recover the excess remuneration paid to its Chairman and Managing Director, Abhijit Rajan.
 
In an order in March, the ministry rejected the company’s application to approve the remuneration for financial years 2012-13 and 2013-14. Following this, the company has moved a resolution to take shareholder approval for the higher remuneration and to again appeal to MCA.
 
While the total excess remuneration paid to Rajan stood at Rs 26.29 crore at the end of March 2016, the company is seeking approval for payments totalling Rs 17.2 crore for the period between April 2012 and September 2014. The resolution will come up for approval at an Extraordinary General Meeting on Thursday.
 
Under Schedule V of the Companies Act, the government has defined the monetary limits for remuneration beyond which approval of central government is necessary. These limits based on capital of the company are applicable to all loss making companies and those with inadequate profits.
 
Proxy advisory firm Stakeholders Empowerment Services (SES) advised shareholders to vote against the proposal. “The company has not disclosed reasons for such rejection. SES is of the opinion that the reasons behind the non-approval by ministry of corporate affairs are important information to be considered by shareholders before making an informed decision regarding the waiver of executive remuneration. Further approval by shareholders will amount to nullifying rejection of ministry without knowing proper reasons. Therefore, due to lack of adequate disclosure, SES recommends that the shareholders vote against the resolution,” it said in a report.
 
It has also asked investors to vote against proposals to convert debt into equity and change the name of the company, citing insufficient information.
 
An email seeking comments sent to Gammon executives last week and a reminder on Wednesday did not elicit any response. Calls made to the office also went unanswered. Following the strategic debt restructuring, a clutch of banks now hold over 60 per cent in the company.
 
Justifying Rajan’s remuneration, the company said in the explanatory statement that it was facing difficult times since 2011-12 and that the promoter had put in his best efforts.
 
It blamed various factors including “government inaction, delay in awarding projects, delays in clearances by various government agencies, bureaucratic apathy, inflationary pressures” for pressure on profitability and it falling into a debt trap.  “The company’s financial performance was affected due to the overall slowdown in the infrastructure industry and the company started facing a severe liquidity crisis. The company had no option but to go for Corporate Debt Restructuring (CDR) in June, 2013. As a precondition to the CDR Package implementation, Rajan along with his promoter group contributed a total amount of Rs 100 crore out of which Rajan personally contributed a sum of Rs 83 crore. In addition he has also given his personal guarantee to the CDR Lenders. All this was undertaken by Rajan as his commitment to improve the company’s financial position and to protect the interests of all stakeholders,” the company said.
 
It also highlighted how following the invocation of strategic debt restructuring, Rajan’s stake has been reduced from 35 per cent to 11.52 per cent. Rajan continued to devoted all his time and efforts in managing the company’s affairs, it said adding that he has been working without any remuneration over two years. “The rejection of remuneration to him will be highly unjust and unfair, while the lenders had given their No Objection to the payment of remuneration which was earlier approved by the shareholders,” the company said.
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