SAT Upholds SEBI’s Order Against Linde India, Rules All Transactions With a Related Party Must Be Aggregated for Materiality Assessment
Pranav B Prem
The Securities Appellate Tribunal (SAT) has upheld a July 2024 order passed by the Securities and Exchange Board of India (SEBI) directing Linde India Ltd. to aggregate all related-party transactions (RPTs) undertaken with a single related party in a financial year for determining materiality. The Tribunal also affirmed SEBI’s conclusion that the business allocation arrangement entered into between Linde India and Praxair India Pvt. Ltd. under their Joint Venture and Shareholders’ Agreement constituted a related-party transaction that required a valuation exercise. The appeal was dismissed on December 5 by a Bench comprising Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dheeraj Bhatnagar.
SAT rejected Linde India’s interpretation that only transactions within a single contract needed to be aggregated, describing the company’s reading of the regulations as “absurd and cannot be countenanced because it defeats the entire purpose of the Regulation.” The Tribunal held that Regulation 23 of the LODR Regulations consistently uses the plural expression “related party transactions,” making it clear that the aggregation requirement applies to all transactions undertaken with a related party during the financial year. According to SAT, the definition contained in Regulation 2 does not prescribe the machinery for determining materiality, and therefore cannot be relied upon to restrict the aggregation requirement.
The dispute arose following the global merger of Linde AG and Praxair Inc., after which Linde India, Praxair India Pvt. Ltd., and Linde South Asia Services Pvt. Ltd. entered into a Joint Venture and Shareholders’ Agreement in March 2020. Under this agreement, business territories and product lines were divided between the entities. Linde India was allocated the eastern, northern, and western regions of India, while Praxair India was assigned the southern and central regions along with certain product categories such as CO₂ and HYCO. SEBI later examined this arrangement and found that it involved a transfer of economic value, observing that it amounted to a “clear cut transfer of ‘profit making apparatus’ from one entity to another,” including assets, liabilities, goodwill, brand value, order book, and future cash flows.
In 2019, Linde India had sought shareholder approval for all transactions with Praxair India and the joint venture entity for the years 2021 to 2023, stating in its explanatory statement that the “aggregate of all transactions” could exceed the materiality threshold prescribed under the LODR Regulations. Public shareholders rejected the proposal. After this rejection, the company adopted a different stance, asserting that aggregation was necessary only for transactions within the same contract. This interpretation was relied upon to justify not placing certain transactions for shareholder approval. Subsequent investor complaints prompted SEBI’s investigation, leading to the July 2024 order now under challenge.
Before SAT, Linde India argued that Regulation 2 of the LODR Regulations supported its interpretation and that aggregating all transactions with a related party would unreasonably interfere with ordinary business decisions. The company contended that the Joint Venture and Shareholders’ Agreement did not involve the transfer of assets or resources but merely delineated future opportunities, and therefore did not amount to a related-party transaction. It also described SEBI’s direction requiring valuation as speculative.
SEBI, however, maintained that Regulation 23 clearly mandates aggregation of all transactions undertaken with a related party in a given year. It submitted that Linde India’s interpretation would allow companies to divide their dealings across multiple contracts to escape the materiality threshold, undermining the protection afforded to minority shareholders. SEBI further argued that the business allocation under the JVSHA transferred goodwill, order books and future cash flows, making valuation necessary to assess the true impact of the arrangement.
SAT accepted SEBI’s reasoning in full. It held that aggregation must be viewed in relation to the related party itself, not in relation to individual agreements, and concluded that Linde India’s contrary interpretation would defeat the regulatory purpose underlying the RPT framework. With respect to the business allocation, the Tribunal noted that Linde India had exited certain geographic territories “without having received any compensation whatsoever,” reinforcing the need for a proper valuation. SAT also observed that valuation methodologies such as discounted cash flow are routinely used in assessing business transfers, and there was no basis for Linde India’s claim that SEBI’s valuation direction was speculative or unwarranted.
In light of these findings, SAT dismissed Linde India’s appeal and upheld SEBI’s directions in their entirety, reiterating that RPT regulations must be interpreted in a way that preserves transparency and prevents circumvention of shareholder approval requirements.
Appearance
For Appellants: Senior Advocate Janak Dwarkadas with Advocates Kunal Dwarkadas, Tamanna H.V.,Prasad Shenoy, Sandeep Parekh, Anil Choudhary, Parker Karia, Navneeta Shankar, Manas Dhagat instructed by Finsec Law Advisors
For Respondents: Senior Advocate D J Khambata with Advocates Mihir Mody, Vidhi Shah Ajmera, Yash Sutaria, Tushar Bansod, Aavish Shetty, Karthik K. P., Vijay Chockalingam instructed by K Ashar & Co fir SEBI; Advocates Akshay Petkar with Harsh Kesharia for an intervenor.
Cause Title: Linde India v SEBI
Case No: Appeal No. 527 of 2024
Coram: Justice P. S. Dinesh Kumar, Presiding Officer Ms. Meera Swarup, Technical Member Dr. Dheeraj Bhatnagar, Technical Member
