Vardhman Textiles Limited, a leading Indian textile manufacturer, has formally signed a Shareholders Agreement with Aichi Steel Corporation (ASC) and other promoter entities associated with Vardhman Special Steels Limited (VSSL). This strategic move, approved by the Board of Directors on 2 June 2025, aims to redefine the mutual rights, obligations, and relationships between the shareholders of VSSL following a major increase in ASC’s stake in the company.

The agreement was finalised and executed on the same day as the board approval, during a meeting that began at 10:00 a.m. and concluded at 10:40 a.m. This development is in line with Regulation 30 of SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 and the SEBI Master Circular dated 11 November 2024.

ASC stake increases to 24.90 percent

The signing of the Shareholders Agreement was necessitated by Aichi Steel Corporation’s recent investment in VSSL, which raised its shareholding from 11.33 percent to 24.90 percent on a fully diluted basis. This increase gave ASC significant rights in the company and prompted the need for an updated agreement to ensure alignment among all major stakeholders.

Key provisions of the new Shareholders Agreement

The agreement includes detailed terms governing the shareholding relationship between the Promoter Group (including Vardhman Textiles) and ASC. Key features include:

• Transfer Restrictions:
  Promoters are prohibited from transferring shares to ASC’s competitors, except for up to 7 percent of VSSL's share capital, known as liquidity shares. These shares are still subject to specific restrictions.
  ASC is similarly restricted from selling its newly acquired VSSL shares to third parties for a period of three years, and to competitors even after the three-year period unless they receive prior consent from the Promoters.

• Right of First Refusal and Drag-Along/Tag-Along Rights:
  The agreement features standard transfer-related provisions such as Right of First Refusal, Tag-Along Rights, and Drag-Along Rights to maintain investor security and protect existing shareholder interests.

• Non-compete and non-solicitation clauses:
  Both the Promoters and ASC are bound by non-compete and non-solicitation obligations for as long as they remain shareholders in VSSL. This ensures no unfair competition or poaching of business or employees.

• Representations, Warranties, and Indemnity:
  The agreement includes detailed representations and warranties by both parties. Any breach will trigger indemnification obligations, ensuring financial protection for the non-defaulting party.

• Termination and fall-away clauses:
  The agreement will automatically terminate if ASC’s shareholding falls below a pre-agreed threshold or if ASC or the Promoters exit VSSL entirely. Mutual termination is also permitted. However, survival provisions ensure that certain obligations will continue post-termination.

No related party or conflict of interest

The disclosure further clarified that this transaction does not involve related party dealings under SEBI norms. Vardhman Textiles confirmed that ASC is not related to the promoter group, and no conflict of interest is expected to arise from the agreement.

Impact on Vardhman and VSSL

This shareholder agreement is likely to enhance governance transparency, protect minority shareholder interests, and promote long-term strategic alignment between Indian promoters and the foreign investor. It will also ensure controlled transfer of ownership, protect confidential business strategies, and avoid hostile takeovers or dilution risks.

The agreement is a proactive step to ensure smooth cooperation and operation within VSSL’s ownership structure. The increasing presence of ASC as a strategic investor may also result in technology transfer, quality improvements, and expansion of global footprint for VSSL in the coming years.

Company background

Vardhman Textiles Limited, incorporated in 1965, is a prominent player in yarns, fabrics, garments, threads, fibres, and steels with its headquarters in Ludhiana, Punjab. It is the non-individual promoter of VSSL and plays a critical role in India’s integrated textile and specialty steel industry.

Board approval and regulatory compliance

The company has confirmed that the board meeting held on 2 June 2025 followed all necessary corporate governance procedures. The filing has been made in accordance with SEBI’s disclosure obligations, and the shareholder agreement document is available for inspection on the company’s website at www.vardhman.com.

This development is being closely watched by analysts and institutional investors, especially given ASC’s increasing commitment to the Indian steel sector and its alignment with VSSL’s future growth plans.

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