On November 22, officials from the Insurance Regulatory and Development Authority of India (Irdai) summoned Care Health’s Anuj Gulati and Anoop Singh and questioned them about “excessive” stock options issued to Saluja and Gulati, the people said on condition of anonymity. While Gulati is managing director and chief executive of Care Health, Singh is chief executive officer.
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“Irdai is very concerned about 22.7 million employee stock options (Esops) approved by the Care Health board headed by Dr. Saluja to Dr. Saluja himself. This is worth hundreds of crores of money for one person who is not an advertiser, just an employee,” said one of the two people.
The issue of stock options came into focus after the Burmese family (of Dabur) made an open offer for Religare Enterprises Ltd, the parent of Care Health. After Religare’s board opposed the proposal, the Burmese alleged that Saluja, who is also a non-executive chairman of Religare, received large stock options from Care.
The Burmese family’s opening bid for Religare, where it already owns a 21.54% stake, was announced on 25 September. The offer for the additional 26% at ₹235 per share will cost ₹2,116 crores. The total 51% stake, which the Burmese aim to own, is worth approx ₹3,400 crores. After a brief initial welcome, the Religare board claimed the bid price was low and accused the Burmese of having links with Radha Soami Satsang Beas (RSSB) and Religare founders Shivinder and Malvinder Singh, who are facing fraud charges.
The Burmese rejected these allegations and said Religare’s board failed to meet corporate governance standards; Saluja traded in shares of Religare while being in possession of privileged insider information; and her average annual compensation is as high as ₹150 crore, including Religare’s Esops and Care Health Insurance.
However, in a statement defending Saluja, Religare dismissed allegations of insider trading. The statement stated that the vesting of Care Health Esops over a period of time subject to conditions, and said even after adding the value of performance-linked Esops, Saluja’s FY23 remuneration was at ₹42.06 crore, against ₹150 crore as claimed by the Burmese.
Meanwhile, proxy advisory firm InGovern said Care’s stock options were not explicitly disclosed to Religare shareholders and no approval was sought to grant them.
“The board of Care Health, Gulati and Singh have been asked to respond or explain within a week on any questions from Irdai relating to the excessive issuance of Esops in Care Health to Dr Saluja and Gulati,” said the second of the two people mentioned. earlier
Care Health’s premium income has jumped fivefold since Saluja took over from parent Religare in 2018, making it the second-largest standalone health insurer in the country.
Religare’s largest subsidiary, Care Health is estimated to be at least valuable ₹10,000 crore based on its embedded value. Religare’s market value is lower than Care’s estimated value, but its stock reflects Care’s business performance.
The Religare stock stood at ₹175.62 at the beginning of the year. On 21st and 22nd September, the two days when Saluja sold some of her shares, it touched the highest levels at ₹279 and ₹280.3, respectively. It fell to ₹258.14 on the day of the Burmese opening bid on 25 September, and it declined further to close at ₹218.15 on Friday. The board led by Saluja stated that any offer price below ₹275 is not fair; however, market research reports predicted that Religare’s shares may gain after the Burmese takeover.
Encouraging someone to ignore a regulatory directive raises a “serious issue” about governance, a corporate lawyer at a leading law firm has said. “As a material subsidiary of a listed company (Religare), at least one of the independent directors of Care Health is also on the board of Religare, and it is the duty of such independent directors to immediately report the matter to the board or the regulator, asking how the shares were given to a particular individual despite Irdai’s rejection. In this case, after Irdai rejected the Esop offer for Saluja, instead of giving her the shares directly, the board did it indirectly by calling her a Religare employee. He suggested that Irdai should initiate a thorough investigation and take appropriate action, and rope in Securities and Exchange Board of India as well.because it involves Religare, a listed holding company.
The three independent directors serving on the boards of both Religare and Care are Malay Kumar Sinha, Hamid Ahmed and Praveen Kumar Tripathi.
According to an InGovern note on November 15, in the past 3-4 years, the total valuation of Religare and Care Health options issued to Saluja is more than ₹480 crores.
Emails sent to Irdai, Religare, Saluja, Gulati and Singh remained unanswered.
Neither Religare nor Care Health disclosed in their FY23 annual reports that Saluja received 22.7 million Esops of Care Health.
Religare’s annual report only stated that 27.7 million Esops of Care Health were issued to Religare employees on 17 January 2022 under the insurer’s Series VIII New Esop scheme; of this, 22.7 million options were re-granted on 13 June 2022, which is a month after Irdai rejected the Care proposal.
On 28 December 2021, the Care Health board approved issuing Esops to Saluja. On 10 May 2022, Irdai rejected the proposal, stating that non-executive directors of insurers are allowed payment of “only profit-related commission to the tune of. ₹10 lakh per annum” and secondly, her roles and responsibilities as a non-executive chairman are “largely similar to those of a non-executive director”; therefore, the remuneration payable to her should be commensurate with that of other non-executive directors.
However, Care Health did not wait for Irdai’s approval; instead, it issued the Esops in January 2022 itself. Despite the Irdai rejection that came later, those options were not clawed back, on the ground that the Esops were given to Saluja in her capacity as the director of Religare and not as non-executive chairman of Care Health.
The regulator is not happy with the way the Care Health board, also headed by Saluja, encouraged her by giving stock options at a premium. ₹250 crore despite rejecting the plan. Certainly, it is not clear whether Saluja attended the board meetings that approved the grant of stock options.
Irdai officials discussed this issue at length with the two Care Health executives at the meeting, the two people said.
“Irdai demanded a detailed explanation from Care Health board for going against its intention in the Esops directive. Also, every rule must be followed both in letter and spirit. After Irdai’s rejection, Care Health decided to encourage Saluja in the same way but through a different route. This is worrying,” the second person said.
The regulator also wants to know why Religare’s annual report did not mention the Care Health Esops as part of Saluja’s compensation. “This is disrespectful to basic corporate governance practice,” the second person said.
The Care Health options granted to Saluja are about 2.5% of the total share capital of the insurer, which is significant and “material”, especially since the entire ownership concerns a single person and not a group of employees or individuals, said a corporate lawyer . under condition of anonymity.