Is Manpasand Beverages among the biggest corporate frauds in India?
Ajita Shashidhar October 9, 2019
When Dhirendra Singh, Chairman, Manpasand Beverages (MBL) approached Mumbai-based financial services company Finquest Financial Solutions for a Rs-100 crore funding in May this year, he was in dire straits. His company was accused of GST (goods and services tax) fraud and his son Abhishek Singh (the company's Managing Director) and CFO, Paresh Thakkar were put behind bars. The company had also not been paying its staff for many months despite reporting a revenue turnover of Rs 1,078 crore and a profit of Rs 69 crore in 2018/19. Singh urgently needed to pay Rs 18-odd crore to the GST Council to free his son and CFO.
However, after signing on a term-sheet with Finquest, Singh filed a criminal complaint against Bharat Patel, Chief Mentor, Finquest Financial Solutions and his partners, accusing them of a hostile takeover bid. Singh is also known to have alleged that Finquest didn't release the money that was promised to him in four instalments of Rs 25 crore each. In an interview with Business Today, Patel said that his term sheet always said that they would first do the due diligence and then give the money. "That was part of my loan agreement. We also said that a professional management will run the show till our money is lying there."
Patel claims that he had released Rs 12-odd crore as employees' salaries were to be paid.
"When we went to the company we found out to our utter shock (EY had done the due diligence) that the turnover of the company was Rs 144 crore and not Rs 1,078 crore. From various sources we came to know that there were three sets of books in the system. All employees depended on just one person (CEO Dhirendra Singh) and were involved in managing or fudging the books. This was a red alarm for us."
As per the EY Report, there is a significant difference between the sales figures as per the tally software and MBL software, which is a customised ERP system being used by the company for recording the production, purchase and sales/dispatches. While the tally data showed the sales to be around Rs 1,078 crore in FY19, the sales of the company as per MBL software amounted to a measly Rs 144.39 crore. "They were fudging their accounts," says Patel. "We were worried of the state of affairs of the company, we were worried about the profitability it could earn because the 20 per cent margins that was shown to us was nowhere in sight. It was nothing more than 8-10 per cent," he further adds.
Patel says that his audit firm advised him to do a forensic audit and claims that Singh refused to join the meeting when the report came. Singh, however, has filed a criminal complaint accusing Finquest of a hostile takeover. "The meeting was done on a conference call and he just switched off the phone. The conduct of the meeting was not conveyed to the exchange, which we did," claims Patel, who refers to this incident as one of the biggest scandals post Satyam where promoters happened to manipulate the market.
Though the Manpasand scam came to light only this year, Mumbai-based 2Point2 Capital had raised a red flag about the company way back in 2016. The investment company in a blog had said that it had done a telephonic survey of over 100 retailers across the states of Gujarat, Punjab, UP, Uttarakhand and Bihar, which revealed that less than 10 per cent of the retailers carried Manpasand's products. The blog had also raised questions about the company's claims of generating a substantial part of its sales from the Indian Railways (IRCTC) vendors. Its flagship beverage, Mango Sip, in 2016, was classified as a Category A supplier by IRCTC, while Maaza, Slice and Frooti were classified as category A special suppliers, which meant that Manpasand was not allowed to sell its products on premium trains. The blog had said that its research did not match with the market share numbers that the company had projected.
The blog had also raised questions about the market share of Fruits-Up, which the company had claimed had a higher market share than Parle Agro's Appy Fizz, when the former was only present in Gujarat and Maharashtra.
"The company had not disclosed information as part of their IPO and QIP filings, which even the bankers had ignored. The promoter had not disclosed that his brother was running a competing business, which is supposed to be the part of the QIP filing, points out Amit Mantri, Co-Founder, 2Point2 Capital Advisors. The investment firm in 2016 was considering investing in Manpasand. "On paper it looked attractive. A beverage company which had marquee shareholders and Deloitte as its auditor, but when we did a forensic analysis on it, we realised it is a scam," says Mantri.
Manpasand, over the last couple of years, has seen the exit of three audit companies - Deloitte, Mehra Goel & Co and Batliboi & Purohit. Deloitte had exited as audit partner because they did not receive requisite information they needed to perform the audit.