Vadodara-based beverage maker Manpasand Beverages (MBL) has been charged with fraud not just by its erstwhile auditor Batliboi & Purohit, but also by the Mumbai-based Finquest Financial Solutions, which had signed a term-sheet with MBL for a Rs 100-crore loan. The auditor, in a report, has said that Manpasand's revenue is barely Rs 144-odd crore as opposed to the reported number of Rs 1,078 crore in financial year 2018/19 (FY19). The company is also accused of fudging its market share numbers. Earlier this year, MBL's MD Abhishek Singh and CFO Paresh Thakkar, were arrested for violation of GST laws and MBL's Chairman Dhirendra Singh is known to have approached Finquest to raise money to bail out his senior management as well as pay salaries to his employees.
Later, Singh filed a police complaint against Finquest, accusing the latter of a hostile takeover bid. He also said that Finquest had not released the promised money. In an interview with Business Today, Bharat Patel, Chief Mentor, Finquest Financial Solutions had said that his term sheet always said that they would first do the due diligence and then give the money. Patel claimed that he had released Rs 12-odd crore as employees' salaries were to be paid.
Abhishek Singh, Director, Manpasand Beverages, in an interview with Business Today, has said that the allegations made against his company are "baseless".
Business Today: Manpasand Beverages, as per reports of EY and Batliboi & Purohit, has been indulging in fraud. The reports say while the company has reported a turnover of Rs 1,078 crore in FY19, in reality the turnover is only around Rs 144 crore. What would you say in defence?
Abhishek Singh: The company is yet to announce its results for FY19. The audit for the quarter and year ending March 31, 2019 is still pending due to resignation of our erstwhile auditors M/s. Mehra Goel & Co. on July 4, 2019. Thus, we cannot comment on the exact turnover figure for FY19. However, we would like to state that the number quoted by both EY and Batliboi are far from the reality and completely baseless. Batliboi has commented on our Books of Accounts by gaining unauthorised access. They accepted the audit engagement without getting a valid NOC from M/s Mehra Goel & Co. Such act accounts to multiple violations of laws. ?
Batliboi was appointed when the three nominee directors of Finquest were on the board of MBL. The audit committee consisted of two such directors. These directors were supposed to act as nominee directors but instead wrongfully acted as independent directors. EY was appointed by Finquest to conduct due diligence. ?
Both these audits/review took place when there were hardly any employees present from the finance and accounts department of MBL. Almost all employees from finance and accounts department were terminated by the professionals deployed by Finquest to run the operations of MBL. Thus, under such a scenario, in the absence of people authorised from the audit's side, one cannot rely on the data gathered by these auditors. Also, both these auditors were directly or indirectly appointed by Finquest. Both these auditors commented on the books of accounts of MBL on the same day. Both these auditors shared their comments and concerns firstly and majorly to either Finquest or representatives of Finquest. Hence, it appears that such acts have been conducted on the guidance of Finquest and have a malafide intention to damage the reputation of MBL. We are exploring the legal remedies available against such acts and violations.
The company has been accused of fudging numbers by Finquest. What really has transpired between you and Finquest?
Singh: All accusations made by Finquest are baseless and far from reality. Finquest has defrauded MBL and its stakeholders by various means. The same has been taken up with relevant authorities such as NCLT, Local Crime Branch and SEBI. The relief we got from NCLT confirms the malafide intention of Finquest to illegally and fraudulently acquire control and assets of MBL. We firmly believe in the Indian judicial process. Finquest never had any intention to give Rs 100 crore. In return, it has created charge on all assets of MBL and entire stake of our Promoter, Dhirendra Singh, in MBL. The security on which charge has been created is worth more than Rs 1,000 crore.
Dhirendra Singh has accused Finquest of a hostile takeover bid, while Finquest claims that it was always mentioned in the term-sheet that the company will be managed by a professional team until its money was parked with you. It will be nice to get your side of the story.
Singh: Whatever amount has been transferred by the Finquest in the bank account of MBL was done in the new account opened by FFSPL's representatives in the name of MBL. The control of this new bank account lies with FFSPL's representatives. FFSPL was allowed operational access to business of MBL and not financial access, as per the term sheet dated July 3, 2019. The directors nominated by FFSPL gave complete and sole access of all bank accounts to their appointed representatives, Vishal Zariwala, Pawan Rathi and Parashiva Murthy BS. ?
As per the term sheet dated July 3, 2019, FFSPL had right to nominate two directors on the Board of Directors of MBL, which shall constitute minimum one-third strength of the Board. Pursuant to this clause, FFSPL appointed three directors instead of two. The total strength of the board became six directors, one-third of this comes to two. Thus, one more director being a nominee of FFSPL was appointed. ?
The three nominee directors wrongfully acted as independent directors on various committees such as Audit Committee, Nomination and Remuneration Committee, etc. They got access to sensitive unpublished price sensitive information that has been subsequently shared with FFSPL. ?
Representatives from FFSPL have siphoned off money from the accounts of MBL
A blog by 2Point2 Capital says that the market share of Mango Sip claimed by you is not true. What's your take?
Singh: Nielsen and Euromonitor have recently conducted a study of market share of MBL and its products. They are far more equipped and positioned to comment on the market share. They have placed MBL strongly among the big players. These studies are more scientific than the splash blog of 2Point2 Capital.
The last one year has seen the exit of three audit partners from your company and all of them have said that the reason they exited from your company was due to lack of information furnished by you. How would you react to this?
Singh: Deloitte resigned due to lack of information furnished by MBL during the available time. They have clearly stated that they "would be unable to complete the statutory audit of the financial statements of the Company for the year ended March 31, 2018 by May 30, 2018".
Mehra Goel resigned by citing the then ongoing GST investigation and resignation of certain directors of MBL. Batliboi resigned by citing the ongoing litigation among the Board of Directors and subsequent resignation of Directors and CS, and access not being given to audit team members.
These resignations were not the result of any disagreement between the company and auditors.
The turn of events over the last few months has not only eroded stock prices, it has also hurt the brand value and trust. How do you plan to restore it?
Singh: It is true that the recent turn of events has led to a steep fall in the stock price (from an all-time high of Rs 468 in January 2018 to Rs 7 now). But, there hasn't been such erosion of brand value and trust. Majority of our stakeholders are still standing with us and have supported us during turbulent times. The bad phase is almost over. It is just a matter of time and our products will reach retail outlets and households again. The trust in our brand is still there and whatever small trust has been lost will be regained very soon by reaching out to all stakeholders (existing and potential both). The festive season is coming up; soon the full season will follow. There is no better time to reach out to these stakeholders. It's all about picking up from where we had left and pushing it beyond that. With respect to stock price, we believe, it will reflect the performance of the company on the field.
What has been your learning from this episode?
Singh: This was a bitter learning for every person related to MBL. Growing a business is tough. It has helped in strengthening our resolve to deploy better internal controls and to hire a professional team to manage the operations in a systematic way. An African proverb says: If you want to go quickly, go alone and if you want to go far, go together. It's about time that we find like-minded partners and leverage their energy to push off with more force. MBL will be back where it belongs very soon.