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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.