Yeh Rishta kya kahlaata hai! – the strange case of “promoters-in-law”

Vinod Kothari | vinod@vinodkothari.com

Here is a tale of three families, and trust, almost every business family in the country may fit in the tale. (All names are completely hypothetical.)

Family One – Jaani family, owning large number of listed companies in the country. Ashok, son of the founder, got married to Rani, daughter of the founder of Maani family.

Maani family – once again another leading industrial houses in the country. Rani, daughter of the founder, has two siblings – Prashik, and Vimla. Prashik runs the family’s businesses. Vimla got recently married to Varun, from Dhyaani family.

Camera shifts to Dhyaani family, where Vimla got married to Varun. Relations are made between equals – hence, Dhyaani family is no less in stature than the Maani family and the Jaani family.

All the families have variety of listed and unlisted companies in their control. In most cases, shareholdings of operating entities are through investing vehicles, which are held in the name of individuals of the families.

Given the definition of “promoter group”, Ashok is a promoter. Ashok’s wife, Rani is obviously an “immediate relative” and hence a part of promoter group.

By definition (if we read it to mean parents, brother, sister and child of the spouse too), Rani’s father, the founder of the Maani family, becomes a part of the “promoter group” for Jaani family. So also will be Prashik. Vimla, though married in Dhyaani family, being sister of Rani, will also be part of “promoter group”.

Now look at the consequences. All bodies corporate where 20% shareholding is held by the individuals of Maani  family – founder, Prashik and Prashik’s mother, will form part of the promoter group of the Jaani family. 

We don’t stop here – all entities where Vimla, now a part of Dhyaani family, will also need to identify bodies corporate where she holds 20%, and these entities will be reported as a part of the PG for Jaani family.

The same process will have to run for Maani family and Dhyaani family – hence, the focus may actually shift over to the country’s business tycoons one by one.

The sweep of the definition of “promoter group” may have had its own intent, but it cannot be stretched to include सगे सम्बन्धी where there is no evidence of commonality. Sadly enough, SEBI rules require a listed company to list out the names of all such सगे सम्बन्धी entities, no matter whether there is a shareholding overlap or not. And all these entities will be identified as “related parties” too.

Our other resources on promoter/promoter group can be accessed below:

• “Immediate relatives” and not “relatives” for determining promoter group
• No shares, no say, yet a promoter: How marital ties create fictional “promoter groups”
• NAME THEM ALL: SEBI reiterates mandatory disclosure of all promoter group entities in shareholding pattern, regardless of shareholding
• The triumphs and tribulations of being a promoter in listed entities
• SEBI revisits the concept of Promoter and Promoter Group
• Making one’s way out – Promoter & Promoter Group
• RPT resource centre