Asian Paints Limited (APL) has issued a lengthy clarification to InGovern’s allegations of related-party transactions and the demand for removal of promoters Ashwin Dani and Malav Dani from the APL board. InGovern, a corporate governance research and advisory firm, had alleged a conflict of interest in Dani-controlled entities that also supplied raw material to APL. Additionally, a whistleblower also alerted market regulator SEBI about certain irregularities.
In its reply, Asian Paints has stated that InGovern based the report on “incorrect facts and premise based on hearsay rather than any serious investigation”. “We specifically, refute all the allegations made by InGovern in this Report relating to the Company and its practices with all the emphasis at our command,” it further stated.
Asian Paints stated that related party transactions are undertaken for various reasons including certainty of supplies, better understanding of cost, prevention of cartelisation, benefits of innovation and experimentation. It is a common practice among companies and is legal and valid under Indian laws. It added that the company has been entering into such related-party transactions with entities controlled directly by promoters for three decades now.
It said that these transactions are related to purchasing of “raw materials, packing materials, intermediaries”. “The value of transactions with all the related parties put together, has been around 4.5 per cent to 6 per cent of the purchases done by the Company in the last ten years clearly implying that over 90 per cent + purchase transactions are with independent unrelated parties,” stated Asian Paints.
The company said that InGovern erred by considering only raw materials, while related-party transactions involve both raw and packing material purchases. “If we consider the total purchases by the Company (raw material and packing materials), the total related party purchases would be 5.5 per cent of the total purchases as against 6.6 per cent reported for the FY 2019 - 20 (likewise for the other financial years mentioned in the report),” stated the paints company.
It further clarified that related parties are picked only after it seeks multiple quotes from both related and unrelated parties and the latter is found to be feasible. Asian Paints said that the documents on the contracts are then submitted to the audit committee that comprises majorly independent directors. “It is noteworthy to mention that the Promoter Director who was a member of the Audit Committee, did not participate in the discussions concerning transactions with any related party as mandated under Law. Hence, the question of Directors having a conflict of interest does not arise,” it added.
Asian Paints stated that the following statement by InGovern – “Paladin formed 7 per cent of the value of goods purchased from promoter-controlled entities” – is incorrect. It said that out of Rs 553.88 crore of total purchases from related parties for FY2019-20, purchases from Paladin amounted to only Rs 1.3 crore, which is 0.2 per cent and not 7 per cent, as mentioned by InGovern.
The company said that it has voluntarily disclosed all transactions of similar nature to Indian Accounting Standards 24 on Related Party Disclosures (Ind AS 24), as well as in the Annual Report for FY 2019-20 and Standalone Financials Statements.
It added that 85 per cent of the transactions with related-parties have been disclosed. The rest that’s not been disclosed are infinitesimal in nature, including Paladin.
“The remarks made by InGovern in the Report asking the promoter directors to immediately resign, Audit Committee to enhance disclosure practices, allegations on inadequate disclosures and inaction by the Board, etc. are uncalled for and based on incorrect assumptions,” Asian Paints stated. It urged InGovern to issue an addendum, including the reply and correcting the facts.
The statement comes after InGovern had stated in its report that 5.8 per cent of goods procured by Asian Paints is from related parties, the details of which it has not disclosed. The report stated that APL entered into a technical consultancy agreement with one Jayram Nadkarni (ex-employee of the company), and Paladin Paints and Chemicals in 2005-06, for which these entities were paid upfront and monthly consultancy amounts. It added that they found out that Paladin was owned and controlled by the Dani family that first acquired 49 per cent shareholding in the company that was later picked by Ria Enterprises through its partners Rituh Enterprises, Ashwin Dani, Ina Dani, Ramesh Shah, Ajit Shah and Deepak Shah. “As of 30th July, Ria Enterprises, controlled by the Dani family, held 93.08 per cent of Paladin,” the firm had reported.
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