Context:
This large public sector undertaking, witnesses an instance of unprecedented activism by an international hedge fund, acting on behalf of minority shareholders. When Independent Directors, facing the threat of litigation, decided to act independently, the majority shareholder showed them the door. Is a forced exit, the price to pay for independence?

• An international hedge fund, with a little over 1% stake in a Public Sector Undertaking (PSU), created ripples through its activism on behalf of minority shareholders.
• Government of India, being the majority shareholder, controlled the pricing of the products of the Company and set it significantly below the market price.
• The Fund felt that this alleged undue interference from the Government was depriving the Company of its potential revenue and hurting the interest of shareholders, especially minority shareholders. The Government felt that it had to resort to this step-in order to help other PSUs and to achieve their social objectives.
• The Red Herring Prospectus of the Company had stated upfront that the Company’s operations were extensively regulated by the Government and by various statutory and regulatory authorities, and that they sold their product at prices lower than the market price.  The Fund had still gone ahead with its investment in the Company.
• There was a standoff between the Fund and the Company’s management. The fund alleged, inter alia, that the Independent Directors (IDs) were not acting in the interests of the Company and its shareholders, and commenced legal action, against the Company’s management and the IDs.
• Subsequent to the commencement of the litigation, the IDs opposed the management’s decision.
• Thereafter, the IDs were removed at the instance of the majority shareholder.
• After raising their concerns, and taking note of inaction, the Fund sold its entire stock within a year.
• Incidentally, the Fund did not raise any objection to the fact that the PSU, one of world’s biggest in its sector by output, was being run without a Chairperson for close to 6 months.