Context: Inconsistencies between accounting treatment and accounting policies, understandably give rise to questions that impact on credibility.

  • Financial statements of a Company in the telecom industry, showed that it had been following an accounting system which was different from the standard followed by most of the companies in the same industry.
  • In February, 2017, the Company announced that its paid services will be provided from April, 2017. The Company offered three months of free services in a four-month package.
  • In the reporting period for July-September, 2017, revenue for 6 months was mentioned, whereas expenses for only 3 months were included, due to which the revenues were projected to be higher than they were. Some analysts felt that 13-20% of the revenue stated in the 6-month period had come from the first 3 months.
  • This was justified by the Company on the grounds that the service for 3 months was free.
  • However, some financial analysts did not agree. They felt that services provided, irrespective of whether or not they were free, should be considered in the respective quarter.
  • Some analysts also pointed to the irregularity in sales. The income statement of the Company, during the rollout period did not show the expenses incurred during that period.
  • The expenses such as salaries, sales and distribution costs, interest payments etc. incurred during the roll out period were classified as capital expenses. These expenses were transferred to the balance sheet as an asset, that were to depreciate over a period of time. This resulted in the expenditure being low.
  • This practice was unusual. However, according to the Company, this was compliant with local laws which state that such expenses can be capitalised till a commercial launch of the product was done.
  • The Company also reported lower average tower rent costs due to self-owned towers.
  • Company's depreciation and amortization costs/ rate were also described by analysts as “too good to be believed.” The annualised rate was 2%, which was a quarter of the rate reported by its competitors. The estimate of depreciation made by the Company was almost less than half than earlier stated, and the straight line method was used. Analysts said that this could be a warning signal that they could write down the assets later on.
  • The Company’s response was that it was depreciating the wireless portion of the business since it had been put to commercial use, though it was spending on other future services too, like broadband for business, which were yet to be capitalised.
  • 99% of equity was from the holding company, a listed company, and the debt was shown at a lower rate. Analysts believed that this was not correct since the holding company had taken the debt, and part of it was passed on to this Company, and so the interest was being paid by the holding company.
  • The Company reported a loss of Rs. 271 crores in July-September, 2017.
  • As per the Company, accounting treatment was reviewed and approved by Audit Committee and the Auditors, one of the big 4 audit firms. The approach followed by the Company was stated to be very aggressive.
  • The October- December, 2017 quarter showed profits of INR 504 crores, with INR 1192.6 crore depreciation and amortisation charge in the quarter.
  • Some analysts believed that if the Company had followed the accounting methods practiced by its competitors, the Company would have reported a loss of INR 2,410 crore in Q3. The loss in Q2 would have been INR 2,700 crore.
  • As per the Auditors’ Report for FY 2017-18, the company has followed all the relevant accounting policies.

Points to ponder

  • Does the Board have the duty to ensure that accounting policies are complied with?
  • Should IDs acquiesce in the accounting treatment, by remaining silent or ineffective?


Context: A listed infrastructure Company and its material subsidiary came to adverse notice because of alleged siphoning off of funds. Processes, integral to the functioning of the Company, seem to have been ignored.

  • In July, 2020, an FIR was filed by CBI against a listed entity, its material subsidiary, its promoter Chairman and Managing Director (CMD), its Vice Chairperson (VC), who was the CMD’s son and also a promoter, and 9 private companies for cheating, forgery and causing wrongful loss to the public exchequer between 2012- 2018 to the tune of INR 805 crores.
  • The material subsidiary, a Joint Venture (JV) between the listed entity (50.5%), a Public Sector Enterprise (PSE) (26%) and a few foreign entities, was formed to modernise a busy airport in India.
  • The CMD was the Chair of this subsidiary, and the VC was its Managing Director.
  • As per the agreement signed between the material subsidiary and the PSE in 2006, the subsidiary was to run the airport, and share 38.7% of the revenue with the PSE as annual fees. The remaining amount was to be used for the modernisation, operation and maintenance of the airport.
  • It was alleged that
    • The subsidiary had siphoned off INR 310 crores, by showing execution of bogus work contracts with 9 private companies.
    • The promoters of the listed entity, with criminal intention to cause loss to the PSE, used the surplus funds of the subsidiary, to the tune of INR 395 crores, to finance their other group companies between 2012 and 2018. They fraudulently created forged Board Meeting resolutions of the subsidiary, authorising to keep the reserve surplus funds as FDRs with PSU banks in a city other than the city where the subsidiary was based. Overdraft facilities and loans were availed by the Group against these FDRs.
    • Premium retail areas of the airport were given to the family members of the promoters and employees at exorbitantly low rates, thereby reducing the revenue of the subsidiary.
    • The funds of the subsidiary were used to book air tickets and hotel stay for family members of the promoters.
    • They had siphoned off more than INR 100 crores by inflating the expenditure of the subsidiary, by methods such as showing salary paid to employees who were not on the payrolls of the subsidiary.
    • The wrongful gain to the accused, mainly the promoters, was approx. INR 805 crores.
    • The accused had also under-reported the revenue of the subsidiary during the same period, and the likely loss to the exchequer from this was approx. INR 1000 crores.
    • The subsidiary used fake input credits for tax purposes.
  • The listed entity, in a clarification on July 3, 2020 to the Stock Exchanges, stated that the FIR was registered based on unknown source of information received by CBI and that they will fully co-operate with the agency.
  • A spokesperson of the subsidiary also stated that the Company was surprised about the case since it would have provided assistance, had the agency sought explanation or any document even if a preliminary enquiry had been initiated.
  • As per a media report, in July, 2020, the Board of the subsidiary suggested to the Audit Committee to seek legal advice for future course of action.
  • In early July, 2020, the Enforcement Directorate (ED) too registered a case against the Group, and conducted multiple raids at various locations of the Group.
  • The Statutory Auditors, one of the big 4 audit firms, who were appointed on September 29, 2017, tendered their resignation as Auditors on August 13, 2020 from the listed entity and one of its Wholly-Owned Subsidiaries (WOS).
  • The reason given in the resignation as Auditors of the listed entity was that they did not receive information and explanations from the Company, which was sought in 6 different communications, starting from July 6 to August 12, 2020, without which they were not able to conclude the audit of the financial statements for the year ended March 31, 2020. They also stated that in view of various matters described in their communication, including the recent events in relation to Company’s subsidiary, they had assessed the appropriateness of their continuance as Statutory Auditors of the Company in terms of standards of Quality Control, and had decided to resign.
  • In the resignation letter dated August 13, 2020 to the WOS, received by the Company on August 19, 2020, they stated that the recent events in relation to Company’s subsidiary, they had assessed the appropriateness of their continuance as Statutory Auditors of the Company in terms of standards of Quality Control, and had decided to resign.
  • On August 28, 2020 lenders of the subsidiary (3 big banks) red flagged the subsidiary’s account as a fraud account. They also appointed one of the big 4 audit firms to conduct a forensic audit of the accounts of this Company for the past 10 years.
  • Parallelly, another major Group, with interests inter alia in airports business, showed interest in acquiring control of the material subsidiary. A consortium of foreign investors served legal notice on the listed entity, stating that the stake sale would be a breach of their agreement that they had signed in 2019.
  • On August 31, 2020 the major Group acquired 74% stake in the material subsidiary, despite the legal notice. This 74% included the 50.5% of the listed entity and 23.5% from 2 other foreign entities. The listed entity, in a Stock Exchange filing, stated that it had notified the foreign investors that that the transaction documents stood terminated, and were “no longer effective and implementable”. They had also given reasons for this.
  • At the end of December, 2020, the probe by CBI was not completed, and the listed Company had not finalised and published the audited financial results for FY 2019-20. Quarterly results were available on its website only till Q2 of FY 2019-20. The AGM for FY 2019-20 had also been delayed. The Company, vide a filing to the Stock Exchanges, stated that this was because the financials of the material subsidiary had not been submitted to it, due to the filing of the FIR.
  • In 2019, some media reports had suggested that Ministry of Corporate Affairs (MCA) had conducted an inspection of the group companies of the listed entity, including the material subsidiary, on the basis of a whistleblower complaint.

Points to ponder

  • Were the Audit Committee members mute spectators while alleged diversion of funds was taking place?
  • Were the Statutory Auditors and the Internal Auditors found wanting?
  • With alleged forged Board meeting resolutions, was the Board asleep at the wheel or turning a blind eye?


Context: A large chemical company knew that allegations and complaints cannot be wished away. Corporate Governance is about analysing complaints, taking corrective action when required, and communicating to the relevant audience. Could anything better have been done?

  • In December, 2020, there were media reports of a whistleblower having reportedly alleged that the promoters of a large listed Company had siphoned off money.
  • He had alleged that the promoter CEO, along with his family members, was in control of 8 shell companies, through nominees, and these companies were used to carry out illegal transactions, including questionable Related Party Transactions (RPTs). Some of these companies had the same address as the head office of the listed Company. Some others had all the same address, and that was opposite to another office of the listed Company.
  • He also raised concerns on the promoter’s remuneration and pointed out that while the Company’s profits fell, the promoter CEO’s compensation rose substantially (192%) over the previous year.
  • He also alleged that the Company had rented a property from one of these shell companies, and used the rent agreement to siphon off funds, as the house in question was owned by the promoter CEO.
  • On the same day, the promoter CEO clarified, in an interview, that the Company’s Board had not received any whistleblower complaint. The complaint was an old complaint from a Board member, made in 2016-17. At that time, the Auditors had reviewed the transactions between the companies that had rented the property. At present, the rental agreement had been cancelled, and the property was no longer rented by the Company.
  • On the same day, Stock Exchanges sought clarifications on the news of promoters siphoning off funds, and the Company responded by saying that there was no new complaint against the Company, and the Company believed that it was an attempt to malign its image.
  • The Company further stated that ‘An identical whistleblower complaint was received by the Audit Committee (AC) on June 2, 2017. The Whistle Blower Committee, which comprised only Independent Directors, was constituted by the AC, to investigate the allegations, and all the contents of the complaint was fully disclosed. It undertook a detailed review, including of each RPT, with the help of an independent law firm, and had concluded that those transactions were at arm’s length, and in compliance with applicable laws. Thereafter, the complainant was duly informed about the findings of the AC and the matter was closed.’
  • On December 13, 2020, the Company further issued another clarification letter to the Stock Exchanges denying initiation of any forensic audit by SEBI with respect to the whistleblower complaint, as reported by media reports, and further urged SEBI to inquire about such malicious reporting.


Context: The foreign subsidiary of a leading chemical company saw its auditors resign. Auditors resign for several reasons. However, resigning for want of capacity is not normally heard of. Was it a case of biting more than one can chew?

  • On October 8, 2020, one of the big 4 audit firms resigned as Auditors of a material subsidiary of a large listed Indian Company. The Indian sub-licensee of the big 4 firm is the Auditor of the parent Company.
  • On October 14, 2020, the material subsidiary informed the parent Company about the Auditor’s resignation.
  • On October 15, 2020 late evening, the parent Company informed the Stock Exchanges about the same, but did not disclose any details.
  • On October 16, 2020, the shares of the Company fell by almost 10%.
  • On the same day, the Company sent a clarification to the Stock Exchanges, and attached the resignation letter of the Auditor. The Indian sub-licensee continued to be the Auditor of the parent Company, and its Indian subsidiaries.
  • The resignation letter cited the reason for the resignation to be ‘‘to reorganize audit process and improve productivity’’. The letter did not disclose any detailed reasons, and was not in the prescribed format. Also, it was not by any partner or authorized representative of the audit firm, but only mentioned the name of the firm.
  • On October 16, 2020, to control the damage, the parent Company’s promoter CEO, in a media interview, stated that the Company had asked the Auditor to resign. However, the Auditor was to remain the Company’s global Auditors, including in India. He stated that the Auditor firm had a small presence in the country where the material subsidiary is situated, and so it was unable to close the accounts on time, because appropriate resources were not available to close accounts of more than 100 subsidiaries.
  • On October 22, 2020, Stock Exchanges sought further details with respect to resignation of the Auditor.
  • On October 27, 2020, the Audit Committee of the Company met to review circumstances relating to resignation of the Auditor. As per the response that the Company filed with the Stock Exchanges, they were of the following view -
    • The Auditor had stated that there are no circumstances that according to them should be brought to the notice of members of the Audit Committee.
    • Reason for change in Auditors was to reorganize the audit process and improve efficiency. The auditor had been advised by the Company to resign.
  • On October 29, 2020, in response to details required by the Stock Exchanges, the Company stated that in a letter dated October 28, 2020, from the Auditor who had resigned, it was stated that the Auditor was governed by the laws of the other country, and the firm was therefore unwilling to share details or anything else in addition to what was already provided, as it did not consider it obligatory on its part to provide the information, and it could not sign any document to be submitted to an authority outside of its country, as advised by their risk management team.


Context: An FMCG company with pan-India presence, which was the flavour of the season, turned sour because of poor Corporate Governance. With Statutory Auditors rapidly moving through the revolving door, should alarm signals not have been seen and acted upon?

  • In May, 2018, Deloitte Haskins & Sells, Statutory Auditors of a listed entity, resigned owing to lack of information provided to them by the Company. On the same day, the Company appointed M/s Mehra Goel & Co. as Statutory Auditors.
  • The Whole-time Director (WTD) of the Company said in an interview that Deloitte was auditing their books of accounts for approx. 8 years, and had never expressed any concerns on the financial performance, and no information which they sought had been denied to them.
  • In July, 2019, M/s Mehra Goel & Co., resigned citing that the firm had policies and procedures to evaluate client continuation on a regular basis. In accordance with this process, and considering the then developments, including action and investigation initiated by the GST authorities in relation to the Company, and the resignation of some of the Directors and the Company Secretary, they had decided to resign.
  • In August, 2019, M/s Batliboi & Purohit was appointed as Statutory Auditors for 5 years. In October, 2019, they resigned, with immediate effect, citing that the firm had policies and procedures to evaluate client continuation on a regular basis. In accordance with this process, and considering the then developments of an ongoing litigation among the Board of Directors, and subsequent resignation of some of the Directors and the Company Secretary, they had decided to resign. Also, the audit team members were not allowed to enter the Vadodara factory of the Company for conducting the statutory audit.
  • News reports also indicated that the Auditors had found several discrepancies in the Company’s financial statements related to sales, purchases, expenses, GST returns, debtors and creditor accounts, among others.
  • In the same month, the Company appointed M/s Bagaria & Co. LLP., as Statutory Auditors. Their report had Matter of Emphasis related to GST searches and investigations. No explanation regarding the Matter of Emphasis or resignations of Auditors was provided in the Annual Report of the Company.


Context: A large private sector bank, with disproportionate high visibility for a few years, faced a unique problem. The Chairperson of the Audit Committee, which is the ultimate custodian of the stakeholders’ interest, saw several things going wrong, and decided to confront the management. What were the failings, and on whose part?

  • In January, 2020, Chairperson of Audit Committee of a private sector bank resigned from the Board citing serious concerns regarding deteriorating standards of the Corporate Governance, failure relating to compliance, improper management practices and the manner in which state of affairs of the Bank were being conducted. He also stated that he was not satisfied with the process of raising capital that was being followed by the Bank.
  • He further mentioned that the Bank was management-driven, and not Board-driven.
  • A little time before this, RBI had refused to grant a new term to the promoter-Managing Director (MD). The Bank had then onboarded a new MD. The Director also alleged that the new MD was responsible for several regulatory breaches and non-compliances, and was influencing a number of Board members.
  • He alleged that he had raised his concerns on these critical matters from time to time, including by raising these matters at the Board level, and had left no stone unturned while discharging his duties as an Independent Director.
  • He also wrote letters detailing all the matters to all the regulatory authorities.
  • The Bank intimated the Stock Exchanges about his resignation. In the same filing, they mentioned that as directed by RBI, the Bank was re-assessing the ‘fit and proper’ status of the resigning Director. This was because he had failed to disclose details of criminal cases that had been filed against him before his appointment to the Board. The Bank had received a whistleblower complaint, questioning the Director’s fit and proper status soon after he was appointed to the Board.
  • In this respect, the Bank had obtained legal opinions from eminent jurists. These opinions were to be considered by the Nomination and Remuneration Committee (NRC) and the Board in their meetings scheduled on the same date on which the director resigned. However, prior to the commencement of the proceedings of these meetings, the Bank had received the resignation letter.
  • Around 2 months after the Director resigned, the Bank was put under Moratorium by RBI, and the Board was superseded.


Context: Corporate Governance lapses in a large media company, led to the exits of some Directors, with others staying on while concerns continue to surface. Simultaneously, the Promoters were in the news for the wrong reasons. Was it a case of the Audit Committee doing too little too late?

  • Two Directors (one Independent Director (ID) and one Non-ID) resigned from the Board of a media company on November 22, 2019, citing several instances of poor Corporate Governance in FY 18-19.
  • Some of the concerns raised by them were as follows:
    • The Board, at its meeting held on October 17, 2019, decided to conduct a special audit by EY for all subsidiaries and all transactions for treasury investments, all Related Party Transactions (RPTs), and advances and security deposits given for various activities. Owing to absence of minutes of that meeting and the Action Taken Report (ATR), it was not known whether any action was taken as per the discussions. The minutes of the meeting were not finalised till the date of the resignation of Directors on November 22, 2019.
    • There was no action taken by the Company against a bank for squaring off loans of promoter related companies of the group against a matured Fixed Deposit of the Company.
    • Advances given for film acquisition and aggregation amounting to Rs 2200 crore in FY 18-19 were highly unusual and presented yet another instance of poor controls.
    • oThe Company did not take any action on the large outstandings from two group companies, for the content supplied by the Company.
    • oThere was non-implementation of some decisions relating to treasury operations from the Board meeting held on October 17, 2019.
  • Stock Exchanges sought clarification regarding the resignation of Directors. The Company gave the following clarification:
    • The audit of the issues pertaining to RPTs and advances was underway by Auditors.
    • The issue of squaring off Rs. 200 crores of the Company’s Fixed Deposits towards promoter loans, pertained to the wrongful revocation of bank guarantee. The issue stood resolved with the Company having secured the same from the promoter companies, and appropriate legal notices being sent to the bank at the relevant time.
    • Information regarding advances given for film acquisition and aggregation had already been disclosed in its annual report and was clarified in various investor interactions.
    • The outstanding from the two group companies had been secured by definitive plans and situation which was being strictly monitored, as instructed by the Board and was also discussed in various analyst calls.
    • The Company was exploring options to withdraw Fixed Deposits in a phased manner, without effecting the long-term relationship with the banks.
  • The Company also said that its Board of Directors had noted all of the issues raised by the resigning Directors. The issues had been duly discussed, deliberated and acted upon from time to time in the previous committee/ Board meetings in which the resigning Directors were also present.
  • On November 24, 2019, another ID resigned stating that his resignation followed the sale of shares by the promoter group and the reconstitution of the Board.


Context:In a large listed company in the garments and apparels segment, Related Party Transactions demonstrated clear conflicts of interest. They did not meet either of the requirements of the transactions being in the ordinary course of business and at arm’s length pricing. Should the Audit Committee have been caught napping, while this drama was being played out?

  • In 2017, a Proxy Advisory Firm (PAF) asked shareholders to vote against a resolution for selling a valuable property of the Company situated in a posh area of Mumbai to the promoters of the Company.
  • According to the PAF’s estimates, this transaction would result in an opportunity loss of over INR 6,500 crores for the Company and its shareholders. The Company’s valuation report had put the value of the transaction at INR 7,100 crores, but it was proposing to sell the property to the promoter at over 90% discount to market rates.
  • The fairness of the Audit Committee (AC) of the Company was also questioned, especially since one of the promoters, who was a direct beneficiary from the transaction, was a member.
  • The explanatory statement to the shareholders stated that
    • The promoters/ Directors have been staying in the said property for years.
    • In March 1994, the Company entered into an agreement with one of its wholly owned subsidiaries (WOS), for a period of 9 years, to lease 4 flats at INR 6,000 per month per flat. Sub-leasing was allowed under this agreement.
    • In March, 2003, the Company entered into a fresh lease agreement with the WOS, for a period of 9 years, at the rate of INR 6,000 per month per flat. In turn, the WOS executed fresh deeds of sub-lease with 4 sub-lessees for 9 years at INR 7,500 per month per flat. (The sub-lessees included 2 promoters/ Directors and 3 members of the promoter’s Greater HUF).
    • Since the building needed reconstruction, in 2007, a Tripartite Agreement was entered into between the WOS and the 4 sub-lessees, to demolish the building and erect a new structure. Pursuant to each of the Tripartite Agreements, the terms of which were identical, all the 4 sub-lessees were to hand over possession of the said flats to the Company, and agree to surrender their tenancy rights.
    • The Company further agreed that upon completion of the new structure, it would offer to sell to the sub-lessees, apartments in the new structure, at the rate of INR 9,000 per square foot (carpet).
    • 4 separate Tripartite Agreements were entered into in November, 2007.
    • Temporary alternate accommodation was provided to all 4 sub-lessees.
    • In 2016, the occupancy certificate for the property was received. The capital work costed approx INR 270.27 crores.
    • In 2016 and 2017, 3 of the sub-lessees sent letters to the Company exercising their option to purchase the new apartment.
    • Meanwhile, 2 of the sub-lessees had filed 2 separate arbitration petitions in the Bombay High Court.
  • The explanatory note ended by stating that
    • The shareholders should bear in mind that if they reject the resolution, then dispute would happen between the counterparties as per the Tripartite Agreement. Such potential disputes would be protracted and costly, and would result in financial or other liabilities on the Company. In such a situation, the Company would also be entitled to take appropriate legal defences and remedies.
    • In case of approval, the Company would offer apartments for sale to its related parties (being the sub-lessees), at a price which was significantly lower than the current prevailing market rate. This might result into a significant loss to the Company.
  • The total expenditure incurred by the Company for providing the alternate accommodation was INR 40.95 crore (INR 8 lakhs per month for each sub-lessee, which later increased to INR 12 lakhs per month for each sub-lessee). The Company had provided alternate accommodation to sub-tenants at approximately 99% discount, giving an unfair economic benefit to the promoters.
  • In response to the report of the PAF, the Company stated that it adhered to the highest level of Corporate Governance. Consequently, and given that the offer was required to be made by the Company under the Tripartite Agreement, the Company took a legal advice, and deferred the matter to shareholders for their decision. This was since the transaction was a related party transaction (RPT), which was in not in the ordinary course of business.
  • The Company further stated that all the relevant facts pertaining to this matter had been set out in the Annual General Meeting (AGM) notice for shareholders to take a considered view. Needless to say, the promoters, being interested parties, would abstain from voting on this matter.
  • Shareholders rejected the resolution in the AGM, with 97.67% of the votes being cast against the resolution.
  • Based on news, in June, 2017, SEBI initiated a preliminary enquiry against the Company over Corporate Governance lapses. It issued notices to the Board and the Audit and Remuneration Committee for not complying with SEBI LODR Regulations. SEBI had questioned as to why the information about the Tripartite Agreement relating to the property was not disclosed to the Stock Exchanges and investors over the last ten years.
  • In January, 2019, SEBI issued a Show Cause Notice against the Company.
  • The SEBI order stated that the Tripartite Agreement was a deemed RPT. Any payment arising out of the Tripartite Agreement should also have been considered as an RPT. Therefore, AC approval was required for payments made pursuant to the tripartite agreement from December 1, 2015 under SEBI LODR Regulations.
  • It was also noted by SEBI that the Company had failed to disclose the litigation, and its expected financial implications, filed against the Company by the sub-tenants in January, 2017 for possession of apartments in the newly constructed property, as per the Tripartite Agreement. As the disclosure was material in nature, the Company had violated SEBI LODR Regulations.
  • SEBI imposed a penalty on the Company stating that considering the stature of the Company, it was expected that the Company would maintain a higher level of due diligence in its compliance with the provisions related to Corporate Governance. However, the Company had not only failed to do so but also allowed the sub-lessees to unduly benefit at a loss to itself and its public shareholders.


Context:This large and popular airline company, which had seen good times, discovered that the truth does not remain hidden for very long. When numbers do not add up, and the future of the airline is a matter of doubt with the auditors, irregularities surface with gay abandon. Could the Audit Committee have seen the writing on the wall, and could the high profile Board have behaved in less sub-servient fashion?

  • In May, 2018, Joint Auditors of a large airline opined that due to a huge fourth quarter loss of over INR 1,000 crores, the "appropriateness of assumption of going concern" for the Company depended on its ability to raise necessary funds, among other factors.
  • The Auditors’ report for the previous two FYs had stated under Emphasis of Matter that the appropriateness of assumption of going concern was dependent upon realisation of the various initiatives undertaken by the Holding Company and/or the Holding Company’s ability to raise requisite finance/generate cash flows in future to meet its obligations, including financial support to its subsidiary companies.
  • The notes in the financial statements stated that the Company had incurred a loss during the year and had negative net worth as at the close of FY that may create uncertainties.
  • However, various initiatives undertaken by the Company in relation to saving cost, optimizing revenue management opportunities and enhancing ancillary revenues were expected to result in improved operating performance. Further, the Company’s continued thrust to improve operational efficiency and initiatives to raise funds were expected to result in sustainable cash flows, addressing any uncertainties. Accordingly, the financial statements continued to be prepared on a going concern basis, which contemplated realization of assets and settlement of liabilities in the normal course of business, including financial support to its subsidiaries.
  • In August, 2018, the Audit Committee (AC) did not recommend to the Board, the financial results of the first quarter of 2018, since closure of certain matters was pending.
  • The Chair of AC later resigned. Post adverse comments, especially at the Annual General Meeting (AGM), the Company gave an explanation to the Stock Exchanges that the term of the AC Chair expired at the conclusion of the AGM.
  • A number of issues surfaced thereafter with respect to the Company.
    • It was alleged that the founder and the Chairperson had siphoned away INR 5,279 crores from the Company, and its wholly owned subsidiary, for personal gains, at the cost of minority shareholders, through several related party transactions (RPTs) between these two companies, and his private companies incorporated in India as well as outside India.
    • He had also allegedly indulged in window dressing of financials through manipulative means like change in method of depreciation and lease back transactions etc.
    • A whistleblower, wrote to Ministry of Finance, SEBI, RBI and the Chief Vigilance Commission, complaining about irregularities. He questioned the AC’s inability to "prevent the promoters from siphoning off INR 5,125 crores from the companies".
  • Several events transpired, such as resignation of promoters, Directors, including Nominee Directors, and Key Managerial Personnel (KMPs), and subsequent halt of operations.
  • In parallel,
    • There was initiation of preliminary enquiry by the Ministry of Corporate Affairs (MCA) on the suspicion of siphoning off funds.
    • Inspection by Income-tax department to examine whether there was any falsification of the account books, siphoning of funds, and issue of suspicious bogus expenses booked to group entities.
    • Non-payment of salaries to the employees.
    • Forensic audit of the books to examine the feasibility of restructuring its debts and identify potential red flags in accounts.
  • The Company finally went for Corporate Insolvency Resolution Process.