SAT Upholds SEBI Order Against Linde India, Says All Related Party Deals Must Be Aggregated For Materiality
The Securities Appellate Tribunal (SAT) has upheld a July 2024 SEBI order directing Industrial gas supplier company Linde India Ltd to aggregate all related-party transactions (RPTs) with a single related party in a financial year to determine materiality and to undergo a valuation of business allocated under a joint venture agreement.
A coram of Presiding Officer Justice PS Dinesh Kumar and Technical Members Meera Swarup and Dheeraj Bhatnagar dismissed Linde India's appeal on December 5, holding that the company's reading of the law was “absurd and cannot be countenanced because it defeats the entire purpose of the Regulation.”
The tribunal also endorsed SEBI's conclusion that Linde India's geographical and product allocation arrangement with Praxair India Pvt Ltd amounted to a related-party transaction.
It said the agreement “amounts to a clear cut transfer of 'profit making apparatus' from one entity to another and vice versa along with all assets and liabilities including intangibles (goodwill, brands), order book and future cash flow.”
Linde India, majority owned by Linde Plc, entered into a joint venture and shareholders' agreement in March 2020 with Praxair India and Linde South Asia Services Pvt Ltd following the global merger of Linde AG and Praxair.
The agreement split future business, Linde India was allocated eastern, northern and western India, while Praxair India received southern and central India and several product lines, including CO2 and HYCO.
A year earlier, in 2019, Linde India had sought shareholders' approval for all RPTs for 2021-2023, stating that the “aggregate of all transactions” with Praxair India and the joint venture entity could cross the materiality threshold under SEBI rules.
Public shareholders rejected the proposal. After the rejection, the company adopted the position that aggregation was needed only for transactions within a single contract, relying on legal advice. Investor complaints later prompted SEBI's investigation and the impugned order.
Before SAT, Linde India argued that Regulation 2 of the LODR Regulations permitted aggregation only of transactions within one contract and that aggregating all transactions with a related party would interfere with ordinary business decisions.
It also contended that the joint venture agreement did not transfer assets or resources but only outlined future opportunities and therefore did not qualify as a related-party transaction. The company described SEBI's valuation direction as speculative.
SEBI maintained that Regulation 23 clearly required aggregation of all transactions with a related party during the year. It said Linde India's interpretation would allow companies to split dealings across many contracts to avoid shareholder scrutiny.
SEBI also argued that the business allocation transferred goodwill, order books and future cash flows, making a valuation essential to assess the impact on minority shareholders.
SAT agreed. It held that Regulation 23 “consistently uses the plural term 'related party transactions' for addressing RPTs for aggregation, which implies that all transactions qua 'a related party' are to be considered for testing the materiality' (and not qua a single contract).”
It added that the definition in Regulation 2 “is not in the nature of the machinery provision for laying down the procedure of testing materiality.”
On the business allocation, the tribunal noted that Linde India exited certain geographies “without having received any compensation whatsoever” and that valuation methods like discounted cash flow are routinely used for business transfers.
Case Title: Linde India v SEBI
Case Number: Appeal No. 527 of 2024
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.