Proxy advisory firm InGovern has alleged Asian Paints of related-party transactions and sought the removal of promoters Ashwin Dani and son Malav Dani from the board of APL. The firm alleged conflict of interest of Dani-controlled entities that also supply raw material to APL. This development comes after a whistleblower alerted SEBI about the alleged irregularities.
SEBI and NSE wrote to the company seeking clarifications on the reports. Asian Paints said that it has provided all required information regarding the transactions. “We would like to reiterate that all the transactions involving related parties are undertaken in strict compliance with the provisions of law and necessary disclosures have been made in accordance with the applicable disclosure norms,” stated the report. The company also, additionally, sent a mail to InGovern, responding to its allegations.
InGovern took to social media to disclose part of its 8-page report and stated, “Surprising to see that over 5.8 per cent of goods procured by Asian Paints is from related parties. Company does not disclose details of value and logic of procuring from related parties. For a company of Asian Paints' standing, this is completely surprising.” It said that details of Rs 511 crore of related-party transactions have not been provided.
The firm said that it first took notice of the possible irregularities after Asian Paints issued a statement mentioning that it had entered into a technical consultancy agreement with one Jayram Nadkarni (ex-employee of the company), and Paladin Paints and Chemicals in 2005-06. An upfront consultancy and monthly consultancy amounts were also paid. In 2015-16 the company was informed of the acquisition of interest, it had said.
InGovern said that once they dug deep, they found that Paladin was owned and controlled by one of the promoter families. Dani family first acquired 49 per cent of equity shareholding of Paladin. This shareholding was acquired 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 reported.
In FY2019-20, APL procured over 5.8 per cent of raw materials from companies controlled by the promoters, InGovern said. Around 7 per cent value of goods purchased from such entities was by Paladin. The firm listed around 36 companies that had related party transactions with APL and were controlled directly or indirectly by Danis.
The firm alleged that the board of APL failed to mitigate the conflict of interest. “The inaction by the board raises questions of intent,” it said, adding that the lack of proper disclosure about the transactions are raising questions of related-party transactions. InGovern also sought details of transactions with Paladin, including values, nature and logic. “Promoter directors who ‘control’ entities supplying goods to APL should immediately resign,” InGovern said.
What Asian Paints says
Asian Paints responded to the allegations and said that it had received the report of the firm only on November 24 and that it would suitably respond to the same along with clarification on some “factually incorrect” information.
It said, “‘Paladin formed 7 per cent of the value of goods purchased from promoter-controlled entities’ is factually incorrect. Out of Rs 553.88 crore of total purchases from related parties during the FY2019-20, total purchase from Paladin was Rs 1.3 crore (which is lower than 0.2 per cent) of total purchases from related parties.”
“Additionally, the Company has been disclosing transactions with each of the related parties where the transaction value is more than 10 per cent of the total transactions of the same type with related parties during the year,” it said.
Asian Paints stated that all the transactions with related parties are approved by the Audit Committee. It said that any Promoter Director, member of the committee, does not participate in the concerned meetings.
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