Regulations
Ricoh India case: Why Indian corporates should listen
Minority shareholders of Ricoh India Ltd (Ricoh India), the subsidiary of Ricoh Japan (Ricoh Japan or parent) have requisitioned an extraordinary general meeting (EGM) on 5 August 2016, under section 100(2) of Companies Act 2013. The agenda is primarily to remove UP Mathur, RK Pandey, Ashish Garg and Hiroyasu Kitada, all four members of the audit committee from the board, for failing to conduct a fair and accurate review of the company’s financial statements. The EGM is also to appoint a new independent director. 
 
Separately, Ricoh Japan has agreed to infuse Rs1,123 crore to cover the loss suffered by Ricoh India for FY2016.
 
"The developments at Ricoh India hold out two lessons for corporate India. One the parent has, in all but name has owned up to sleeping at the wheel and is making minority investors whole again. Two, the minority shareholders are asking the audit committee to be sacked, sending a strong signal that corporate India’s governance failures will increasingly be met with a muscular response," says Institutional Investor Advisory Services India Ltd (IiAS) in a note.
 
Ricoh India missed filing both the September 2015 and December 2015 quarterly results. The company initially tried to brush aside the delay stating that the new auditors, BSR & Co LLP (BSR) appointed in the September 2015 AGM, “were taking longer than usual” to complete the audit (18 February 2016). 
 
As the gravity of the problems became apparent, the company started to disclose more. Its 20 April 2016 letter clarified that BSR had requested further review of certain transactions for the quarter ended 30 September 2015. The audit committee appointed SS Kothari Mehta & Co to conduct a review of the financials for the period April 2015 to September 2015. However, BSR & Co LLP did not agree with the findings of SS Kothari Mehta & Co. The audit committee then appointed law firm Shardul Amarchand Mangaldas & Co which, in turn, appointed Price Waterhouse Coopers Pvt Ltd (PwC) to conduct a forensic review of the company.
 
By the time the 20 April 2016 release hit the exchanges, events and other related announcements by the company suggested that the issues at hand were more serious than first let on. The company had by then already been moved to Z category on the BSE, so trading was affected. 
 
On 1 April 2016, Ricoh India announced that the board was undertaking an internal review and pending its completion, had requested Manoj Kumar its managing director and chief executive (CEO) to go on paid leave. The chief financial officer (CFO) Arvind Singhal and the senior vice president and chief operating officer (COO) Anil Saini, were also asked to go on paid leave. Manoj Kumar immediately resigned from the board, with effect from 2 April 2016 and a new managing director and CEO was appointed.
 
When the September 2015 results were finally announced on 18 May 2016 (in a board meeting that spilled over from 17 May 2016), it concluded what the markets had already guessed by then: the audited accounts did not reflect a true and fair picture. The review questioned the opening cash balance, highlighted the out of books adjustment to net sales, expenses, assets and liabilities, over inflating revenues on the basis of orders on hand, substantial back-to-back purchases and sales, customers with non-traceable addresses, unsupported backdated transactions. In other words, complete disregard for all known accounting rules.
 
Ricoh India also requested market regulator Securities & Exchange Board of India (SEBI) to conduct an investigation to ascertain if the incorrect financial statements had any impact on the securities market and investors under SEBI Prohibition of Insider trading Regulations, 2015 and SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market Regulations, 2003.
 
Further to various investigations undertaken by Ricoh India and various independent parties including PwC, the company estimates a loss at Rs1,123 crore for the year ended 31 March 2016. The promoters Ricoh Japan will infuse funds in Ricoh India to cover this loss. 
 
However, in order not to affect the shareholding pattern, the existing shares of the promoters in Ricoh India would be cancelled without reduction in capital and simultaneously the company capitalized to the extent of its cancelled capital and premium to the extent of the losses suffered.
"An elegant solution. Not since Tata Sons bailed out Tata Finance," IiAS said.
 
Talking about the EGM called by minority shareholders, the proxy advisory service, says, "This is not the first meeting to be requisitioned by shareholders, but it certainly marks a new milestone."
 
"Before this, shareholders in Sanghi Industries called for one in 2012. This was then postponed indefinitely. And last year shareholders of S Kumars Nationwide enacted what can best be described as a circus. There may have been a few others, but most of these were without merit. But this time a substantive, well documented agenda is being put to vote where the parent itself has been forced to pay the price," it added.
 
While Ricoh Japan, having made the minority investors whole again, continues to have full faith in the members of the audit committee, the shareholders who have requisitioned the meeting feel strongly that the committee has let them down. And while it will always be difficult to spot pre-mediated, planned fraud, the shareholders have signalled their higher expectations from audit committees.
 
"Earlier shareholders grouped together to battle managements – and even today, they are trying to do so in Maharashtra Scooters and Bharat Forge. But, regulations have empowered shareholders, and much more importantly explained to them their rights. Armed with a supportive regulatory environment, managements who let down their shareholders, need to recognise that increasingly it will be these very shareholders who will determine what’s put on the agenda," IiAS concluded.
 

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COMMENTS

Sat Anand

2 months ago

I am impressed with the products and services otherwise of Ricoh as an organization, infact, my experience says they are far superior than competitors. Wrong acts of few cannot blemish an organization of repute like Ricoh! I tend to update myself with regularly by reading their monthly newsletter on their website.

B. Yerram Raju

7 months ago

Can the CEO, Manoj Kumar's resignation be accepted under the circumstances, without the disclosures in the audit and further recovery/punitive action on him? Minority share holders are now heard. This is a good sign for investor strength.

bijay

7 months ago

Alarm clock for KHODAY INDIA, as this company has published its last qtly result of Dec 15 and shareholding pattern of Sep 2014. Interestingly public shareholding 10.46 percent and loss of rs 1.92 cr in Dec 2015 but eps showing as ----- Why ?????????????????????? No response from BSE. Why CNBC investigative journos are silent and kept eyes closed.

bijay

7 months ago

This is a tight slap on the face of truly Indian babu management company by Ricoh. Well done Ricoh and Indian babu management must learn sometihnig.

Amit Anam

7 months ago

Atlas Cycle haryana seems another Ricoh in the making, company not able to release the accounts for Mar 2016 till date.

Nifty, Sensex in a bullish mode still – Weekly closing report
We had mentioned in last week’s closing report that whether the bulls can take Nifty, Sensex higher is questionable. The major indices of the Indian stock markets gave no clear trend. While the bulls were trying to move the indices higher, there were market corrections too. The indices have ended flat. The trends of the major indices in the course of the week’s trading are given in the table below:
 
 
The benchmark indices opened higher on Monday following firm global markets and expectations of the Goods and Services Tax (GST) bill passing in the monsoon session of parliament and expectations of better quarterly results which are to be announced later during Monday. Selling pressure was witnessed in telecom, oil and gas and metal stocks. Some movement was noticed in the state-owned banks, especially State Bank of India's subsidiary banks. Expectations of the government's announcement of the next round of capital infusion in state-run banks, for which Rs25,000 crore has been earmarked for the current fiscal boosted investors' sentiments. On the NSE, there were 603 advances, 1007 declines and 55 unchanged.
 
Glenmark Pharmaceuticals Ltd is planning to raise $200 million by issuing USD denominated non-convertible unsecured bonds to repay existing debt, the company said on Monday. "..subsequent to the rating received by the leading credit agencies in the world that is Standard & Poor's and Fitch, the company has decided to tap into the international bond market and is planning to raise around $200 million by issuing USD denominated non-convertible unsecured bonds," the company said in a filing to Bombay Stock Exchange. "The net proceeds will be used for repaying the existing debt," it said. Glenmark shares closed at Rs833.80, down 2.12%, on the BSE.
 
Profit booking, coupled with disappointing quarterly results and negative global cues, depressed the Indian equity markets on Tuesday. Consequently, the key indices traded on a flat-to-negative note during the mid-afternoon session, as heavy selling pressure was witnessed in fast moving consumer goods (FMCG), banking and consumer durables stocks. On the NSE, there were 582 advances, 788 declines and 53 unchanged at the close of trading on Tuesday.
 
On Tuesday, the benchmark indices opened on a flat note, in sync with their Asian peers. The equity markets soon rose on the back of the government's decision to infuse capital into public sector banks. In a statement, the Ministry of Finance announced a capital infusion of Rs22,915 crore towards the recapitalisation of 13 public sector banks during 2016-17. However, the key indices ceded their gains, as profit booking, disappointing quarterly results and weak global crude oil prices hampered the upward trajectory. Besides, reduced chances of further monetary policy easing by the European Central Bank (ECB) in its upcoming monetary policy review dampened investors' sentiments. Nevertheless, value buying, healthy progress of monsoon season and expectations of GST (Goods and Services Tax) getting passed supported prices at the lower levels. Most of the banking and auto sector stocks faced resistance at higher levels due to profit booking, while IT sector stocks traded with mixed sentiments.
 
FMCG major Hindustan Unilever on Monday said its net profit rose 10% to Rs1,174 crore in the quarter ended June, as compared to Rs1,069 crore in the corresponding period last year. "Net profit at Rs1,174 crore, was up 10%, aided by a one-time write back of provision for pension benefits arising from plan amendments," the company said in a statement. The company has proposed to make an investment of about Rs1,000 crore towards the setting up of a new manufacturing unit in the vicinity of its existing factory premises at Doom Dooma in Assam, it said. Net sales from operations stood at Rs7,988 crore in the quarter under review as compared to Rs7,713 crore in the same quarter last year. The new unit is expected to be commissioned in early 2017 and will augment production capacity of personal care products. HUL shares closed at Rs894.00, down 2.87% on the BSE, on Tuesday.
 
Positive European indices and US premarket futures buoyed the Indian equity markets on Wednesday, as healthy buying was witnessed in healthcare, oil and gas, and capital goods stocks. On the NSE, there were 965 advances, 448 declines and 61 unchanged at the close of Wednesday’s trading.
 
The European Union (EU) downgraded its economic outlook for Britain and the rest of the bloc on Tuesday, saying the Brexit vote ushered in uncertainty and would weigh on growth. The gross domestic product (GDP) growth in the 19-country eurozone is expected to slow to between 1.3% and 1.5% in 2016 from the previously estimated 1.7% in May. The same growth figures are expected for next year. This implies a loss of GDP of 0.25% to 0.5% by 2017, which is less than in Britain (1.0% to 2.75%), said a report published by the European Commission, the bloc's executive arm.  "The UK's 'leave' vote is expected to slow private consumption and investment and impact on foreign trade," it noted. The report warned that Britain's referendum had created an "extraordinarily uncertain situation," which is likely to prevail for some time, and would affect not only Britain but also the rest of the EU economy through several transmission channels, mainly uncertainty, investment, trade, and migration. These issues are likely to have a bearing on the investments by foreign institutional investors in emerging markets like India.
 
On Thursday, the benchmark indices opened on a positive note, in sync with their Asian peers, especially the Japanese markets. Besides, the equity markets were pushed up by higher global crude oil prices, firm rupee, healthy progress of monsoon season and recovery in the European indices. However, the equity markets soon ceded their gains on the back of sector-specific profit booking. In addition, reduced chances of further monetary policy easing by the European Central Bank (ECB) in its upcoming monetary policy review dampened investors' sentiments. Further, the ongoing logjam in parliament hampered the upward trajectory in the stock markets. Selling pressure was witnessed in banking, healthcare and capital goods stocks. On the NSE, at the close of trading, there were 489 advances, 936 declines and 49 unchanged. The BSE market breadth was also tilted in favour of the bears -- with 1,596 declines and 1,088 advances and 184 unchanged.
 
Positive domestic cues such as value buying, short covering and a firm rupee lifted the Indian equity markets on Friday. Consequently, the key indices traded in the green during the late-afternoon session, as healthy buying was witnessed in capital goods, metals and automobile stocks. Initially on Friday, the benchmark indices opened on a flat-to-negative note, in sync with their Asian peers, especially the Japanese markets. Besides, the equity markets were pulled down by lower global crude oil prices, a logjam in parliament and negative European indices. Furthermore, sector-specific profit booking on the back of quarterly results hampered the upward trajectory. In addition, the European Central Bank (ECB) decision to halt the easing of its monetary policy dampened investors' sentiments. Overall, on Friday, the major indices closed with gains of upto 0.37% over Thursday’s close. 

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Fiscal frauds are sore point for foreign investors: Study
 A rise in financial frauds has become one of the sore points for foreign investors and needs to checked by a global standard regulatory framework coupled with the companies' in-house mechanisms, a study has said.
 
"With the increased prevalence of fraud and the negative consequences associated with it, there is a strong argument that companies should invest resources and time to tackle it," a paper authored jointly by Associated Chambers of Commerce and Industry of India (Assocham) and global consultancy firm Grant Thornton said.
 
"Cases of financial fraud have risen in India over the last few years and have become one of the main factors deterring foreign companies from investing in India," it said.
 
As the Indian economy is growing, increasing corporate frauds will prove to be disastrous for India, the paper said. 
 
Noting companies' inability to perform an effective fraud risk assessment, the paper said, "As technology is advancing, fraudsters are able to find ways to use it and perpetrate a fraud. Tech-savvy fraudsters are using technology in a variety of ways to commit fraud."
 
"Devious ingenuity of the human brain is now leveraging technology to indulge in more sophisticated methods of crimes which are very much capable of creating systemic instability," Assocham President Sunil Kanoria was quoted as saying.
 
"Putting restrictions on what your employees have access to will limit the potential of misappropriation of assets but if an employee has access to all aspects of an organisation, the potential for fraud is significantly increased," the paper said.
 
Vidya Rajarao, Partner, Grant Thornton India, said the initiative to stop frauds must come from the senior management. 
 
"The responsibility of preventing, detecting and investigating corporate and financial frauds rests squarely on board of directors. The top management should define their anti-fraud strategy, establish appropriate fraud mitigation steps and train their employees to combat financial and corporate frauds," Rajarao said.
 
It is not to suggest as if there are no financial frauds taking place in rest of the world, said the paper that enumerated several big-time scandals that have hit the international headlines. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  

 

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