In a move that may spark a fresh legal tussle, Care Health has argued against the insurance regulator’s powers over stock options granted to anyone in an Indian insurance company.
Last week, Care Health wrote to the Insurance Regulatory and Development Authority of India that no action should be taken against the company for awarding equity stock options (Esops) to Saluja despite the regulator rejecting its proposal.
Irdai’s approval was not “not required” for granting the Esops, Care Health said in its letter, which Mint has reviewed. The letter was in response to a 14 June show-cause notice by Irdai asking why Care Health should not be penalised for granting Esops to Saluja despite the regulator’s rejection.
Saluja’s stock options from Care Health, issued in 2022, are worth at least ₹250 crore, as per the last valuation of the company’s shares.
The Burman family, which owns over 25% in Religare, has alleged in a complaint to Indian financial regulators that Saluja was drawing an excessive remuneration worth over ₹450 crore by granting herself bulky stock options from Care Health and Religare, both of which are chaired by her.
On 13 May, the Burman family, which owns consumer goods major Dabur India and other firms, warned Care Health of legal consequences if it did not act to prevent Saluja from cashing out the stock options.
A rejection and an approval
In its reply to Irdai’s notice, Care Health revealed for the first time that it had cancelled all prior stock options of Saluja after receiving the regulator’s letter of rejection.
Care Health said it had subsequently issued fresh stock options to Saluja after obtaining advice from former Irdai chairman J. Hari Narayan and senior advocate Arvind P. Datar. Only then did it issue fresh stock options, which cannot be construed as contravening any regulation or letter of Irdai, Care Health argued.
The insurer said confusion regarding Saluja’s stock options was created because the regulator was allegedly under the impression that the same Esops for which Care had sought Irdai’s permission in December 2021 were issued to Saluja despite the rejection.
Care apologised to Irdai for creating the “confusion” and asked the regulator to consider the fresh grant of Esops to Saluja on its “own individual merits”.
Queries sent to Care Health, Saluja, Religare, Irdai and the Burman family remained unanswered.
For Religare, not Care
Care Health had in December 2021 sought Irdai’s approval to grant 27.7 million stock options to Saluja. The regulator rejected the proposal in May 2022, arguing that a non-executive director was not qualified to earn a remuneration of more than ₹10 lakh.
Care Health later approved 22.7 million stock options to Saluja at ₹45.32 per share. That same year, it launched a rights issue of shares at ₹110 per share, basis which Saluja’s shares via stock options are valued at about ₹250 crore now.
Care Health argued in its reply to Irdai’s show cause notice that since the stock options were issued to Saluja as an employee of Religare Enterprises, and not in her capacity as the non-executive chairperson of Care Health, Irdai’s approval was not required.
Care Health is worth at least ₹10,000 crore, based on the price of its shares at ₹110 apiece in its last rights issue in 2022. The company, India’s second-largest standalone health insurance firm, underwrote a premium of ₹6,864.5 crore in fiscal year 2023-24, recording a 33.51% year-on-year growth.
Religare ended Friday’s trading on NSE at ₹251.50 per share.
Expert opinions: Approval not required
Care Health revealed in its latest letter to Irdai that Narayan had in his legal opinion on 23 May, 2022 said neither India’s company law nor its guidelines on remuneration to non-executive directors made any distinction between a chairman and a non-executive chairman.
“Accordingly, Narayan was of the view that no approval or permission of Irdai is required for the grant of Esops to Dr. Saluja,” Care Health said in its letter.
Mint has independently reviewed a copy of Narayan’s expert opinion dated 23 May, 2022.
Narayan had also opined that as per the rules prevailing then the board of the private insurer had the right to decide the chairman’s remuneration.
Care Health said it had also obtained a legal opinion from senior advocate Arvind Datar 28 May, 2022, who agreed with Narayan.
Datar had also opined that since the issuance of Esops to Saluja was in her capacity as the executive director and chairperson of Religare, and not in her capacity as non-executive chairperson of Care Health, the company was not required to seek Irdai’s approval.
Both Narayan and Datar declined to comment for this report.
Care Health in its latest letter said it had also granted 3.78 million stock options to Nitin Aggarwal (then the group chief financial officer) and 1.26 million stock options to Nishant Singhal (president and general counsel then). It argued that the stock options were granted from a pool created especially for Religare employees and not the pool created for the insurance company’s employees.
Draconian and excessive
Care said in its latest reply to Irdai that it had written to the regulator earlier on 9 November 2023 and 7 June 2024 on the matter. Irdai issued its show-cause notice to Care Health the following week.
“We note that the show cause notice proceeds on the basis that the submissions made in the letter dated 7 June 2024 (i.e., that Dr. Saluja was granted the Esops in her capacity as executive chairperson of Religare) cannot be accepted and that the grant of Esops to Saluja is objectionable as it is in defiance of the rejection communicated by Irdai vide the Irdai 2022 letter,” Care Health said its reply to Irdai’s notice.
“The company seeks an opportunity to present its case and provide cogent and justifiable reasons demonstrating that the grant of Esops to Dr. Rashmi Saluja does not contravene any applicable legal provisions…” Care Health said.
The insurer said the consequences “threatened” by Irdai in its show cause notice are “draconian” and “excessive”, which, if levied could lead to prejudicing the interest of the insurer’s policyholders and stakeholders.
It also said that if Irdai disagreed with the arguments in its reply, it should consider the principles of fairness before taking any action against Care Health.
“As a matter of fact, the only compensation drawn by Dr. Saluja from the company (Care Health) is the annual sitting fees of ₹8,40,000 (during November 2019 to February 2020), which is well under the ₹10 lakh threshold set out by the 2016 NED Remuneration Guidelines as payable to non-executive directors of private sector insurers, and outside the purview of the 2018 circular,” Care Health said.
“Furthermore, the 2016 NED Remuneration Guidelines do not regulate the grant of Esops at all,” Care Health added, arguing that regulations for Esops for non-executive directors of insurers were introduced for the first time in 2023.
An acquisition in waiting
The debate over Saluja’s stock options erupted after the Burmans announced their intention to take over Religare on 25 September 2023. After the Religare board opposed the proposed takeover, the Burmans alleged that Saluja had received unusually high stock options from Care Health.
The Burman family owns 25% in Religare through four associate firms—M.B. Finmart Pvt. Ltd, Puran Associates Pvt. Ltd, VIC Enterprises Pvt. Ltd, and Milky Investment & Trading Co.
The Burman family had on 25 September 2023 announced its plan to take over Religare via an open offer, which is awaiting approval from the Securities and Exchange Board of India. The Burmans’ majority stake purchase in Religare will cost at least ₹3,400 crore.
Last month, Sebi criticised the board of Religare for delaying the open offer and directed it to submit its application for the offer without further delay.
Religare appealed to the Securities Appellate Tribunal, which last week upheld Sebi’s order and gave Religare time till 22 July to file the open offer application. Post the open offer, the Burman family will effectively be the owners of Care Health. The Burmans have already secured the competition commission’s nod for the takeover.
