Did India's retail investors lose out in the share purchase and sale deal involving Axis Bank entities and Max Financial Group? Between March and April 2021, Axis Bank and it is related entities Axis Capital and Axis Securities purchased more than 12 per cent stake in Max Life Insurance largely from Max Financial Services, a listed company. It is alleged that the share purchase deal was highly undervalued and it gave windfall gains of nearly Rs 4000 crore to Axis Bank and related entities. But public shareholders, comprising mainly of mutual funds and retail investors in the country's share market, were on the losing side since they hold nearly 94 per cent stake in Max Financial Services, the company which is alleged to have sold Max Life Insurance shares at a grossly undervalued price. Promoters hold a mere 6 per cent stake in Max Financials making retail investors the biggest losers in the Axis Bank-Max Financial deal if the allegations of undervaluation come true.
Market regulator SEBI has issued notices to the top officials of Max Financial and Axis Bank group, who were involved in the undervalued share deal, sources told Businessworld. The notices were issued by SEBI a few weeks ago following complaints by insurance regulator IRDA, which had highlighted the suspicious share transfer to SEBI. In October 2022, IRDA imposed a fine of Rs 3 crore on Max Life and Rs 2 crore on Axis Bank due to violation of rules in the deal. Also, the role of independent directors of Max Financials is now under the scanner of SEBI, the sources said. To make matters worse, one of the independent directors of Max Financials, K Narasimha Murthy was appointed on the board of Axis Finance in 2023 after the deal. SEBI is investigating all this, the sources said.
A Controversial Deal
According to former Member of Parliament and BJP leader Subramanian Swamy, the share purchase deal between Axis Bank, its connected entities and Max Financial and Max Life involves a scam worth Rs 5000 crore. Swamy has filed a petition in the Delhi High Court and sought investigations by the Central Bureau of Investigations and the Enforcement Directorate. Swamy has alleged that the gains made via an undervalued deal constitute proceeds of crime and also attract charges of money laundering, all of which need to be investigated.
Swamy's petition, a copy of which is with BW says that 12.002 per cent of shareholding in Maxlife was bought by the Axis Bank group companies at Rs. 31.51 to Rs. 32.12 per share for a total consideration of Rs 736 crores, which was below the fair market value. "On simple calculation, the undue profits/gains from the purchase on the sale of equity shares of Max Life in a non-transparent manner, Axis Bank has unlawfully gained approx. Rs.4000 crores between March 15 2021 and April 6 2021. Advocate Satya Sabharwal and Jagdish Shetty, National General Secretary, Virat Hindustan Sangam assisted Swamy in filing his petition.
Filings by Maxlife show that three directors from Axis Bank and group companies were inducted on the board of Max Life on 6 April 2021, immediately after the share purchase transactions took place.
"It is evident that Axis Bank has sold its stake of 0.998 per cent shares of Max Life in March 2021 to MFSL (Max Financial Services) & Mitsui Sumitomo International at Rs 166 per share. Subsequently, in a very short span of time i.e. in March-April 2021 itself, Axis Bank and its group entities acquired 12.002 per cent shares from MFSL between the price range of Rs 31.51 - Rs 32.12 per share," the petition says.
"Notably, the said act of Max Life and Axis Bank establishes that there was a certain conspiracy, as per which Axis Bank and its group companies were allowed to make undue profits/gains from the purchase and sale of equity shares of Max Life, thereby misusing the dual relationship of the bank as a shareholder and corporate agent," Swamy said in his filing to the court.
Swamy's petition also says that IRDA had charged Max Life and Axis Bank for misrepresentation to obtain prior regulatory approval for the transfer of shares, which led to undue monetary consideration of substantial amounts to Axis Bank.
"Penalty of Rs3 Crores levied by IRDAI is negligible as against the total fraud of Rs 4000 Crores played by Axis Bank. Thus, the same deserves the intervention of this Hon’ble Court. The amount pocketed by Axis Bank in collusion with Max is proceeds of crime, which deserves to be attached immediately," Swamy told the Delhi High Court.
Further, Swamy has also sought a jail term for those involved in the massive fraud. "It is further submitted that under Section 447 of the Companies Act, 2013, Punishment for fraud has been enshrined, wherein the fraud in question involves public interest, the term of imprisonment shall not be less than three years and has defined "wrongful gain" as the gain by unlawful means of property to which the person gaining is not legally entitled," Swamy told the court.
"If the claims are true then the board of Max Financial Services has a lot to answer as to the reason why they short-changed minority shareholders," said Sriram Subramanian, founder of InGovern Research, a proxy advisory firm that advises on the interests of minority shareholders.
Axis Bank and Max Financial Group have denied any wrongdoings in the deal. They said they had obtained all necessary regulatory approvals for the transactions related to the sale/purchase of shares of Max Life Insurance.