Price Waterhouse & Co Chartered Accountants LLP (PwC), one of the big four audit firms, has resigned as statutory auditor of Reliance Capital Ltd and Reliance Home Finance.
In a similarly worded regulatory filings, both Reliance Capital and Reliance Home Finance said, "The Company does not agree with the reasons given by PWC for the resignation. The Company expected PWC to have participated in the meeting of the Audit Committee and not resigned on the eve thereof. The Company has also duly furnished all requisite and satisfactory details as required by PWC, especially including certification and confirmations of the transactions in question on multiple occasions by PWC themselves."
Reliance Capital, the Anil Dhirubhai Ambani (ADA) group company, says, Pathak HD & Associates will continue as is sole statutory auditor until the conclusion of its annual general meeting (AGM) for FY20-21. The audit committee and board of Reliance Home Finance are meeting on 13 June 2019 to decide upon the new statutory auditor for the company.
Earlier, in a letter, PwC had alleged that Reliance Capital disputed observations highlighted by the audit firm and did not convene an audit committee meeting within the expected time. "PWC has stated that as part of the ongoing audit for FY2018-19, it noted certain observations or transactions which in its assessment, if not resolved satisfactorily, might be significant or material to the financial statements, and that it did not receive satisfactory response to its queries."
"PWC has further stated that though it sent a letter dated 24 April 2019 under relevant provisions of the Companies Act, Reliance Capital disputed the same to be in accordance with the provisions of law, notwithstanding a subsequent letter issued by PWC on 14 May 2019 to reiterate the intent of letter issued on 24 April 2019, and the Company did not convene an audit committee meeting within the expected time. Reliance Capital also stated that it might initiate appropriate legal proceedings against the firm. According to PWC, these actions by the Company have prevented it from performing its duties as statutory auditors and exercising independent judgment in making a report to the members of the Company, and impaired its independence, and hence, it is no longer in a position to complete the audit and instead feels compelled to withdraw from the audit engagement and resign," PwC had said in a statement shared by Reliance Capital in its regulatory filing.
Reliance Capital, however, has rejected the contention of PwC. It says, "The Company has duly responded to the various queries and letters of PWC and has also duly and validly convened a meeting of the Audit Committee on 12 June 2019 to further respond to the letter dated 14 May 2019 from PWC."
Domestic passenger cars' sales continued to decline in May, the segment's off-take fell 26.03 per cent.
According to industry observers, high base effect, along with low demand and high interest cost continued to dent purchases.
According to the Society of Indian Automobile Manufacturers (SIAM), passenger cars sales in the domestic market dropped to 147,546 units from 199,479 units sold during May 2018.
Among the other sub-segments of passenger vehicles, the number of utility vehicles sold in India went down by 5.64 per cent to 77,453 units in May 2019, while 14,348 vans were sold last month, down 27.07 per cent from 2018.
Overall, passenger vehicle sales declined 20.55 per cent in May to 239,347 units from 301,238 units.
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.
On 22 May 2019, Moneylife wrote about the propensity of the National Dairy Development Board (NDDB) to set up numerous subsidiaries and quickly cause them to vanish through a closure or amalgamation or often without an explanation.
At the time of publishing the article -- Mother of Dairy Sham. Where Have NDDB's 16 Subsidiaries Vanished?” we had sought NDDB’s response. We received it nearly a week after the article was published and after it has generated a huge buzz on social media and especially among NDDB’s own staffers and employees, who have provided many more facts and details though emails and whistle-blower letters.
NDDB’s lengthy response, received only on 1st June, raises new questions and merits a fresh article, especially since NDDB alleges that our article was misleading and made factually incorrect allegations. Moneylife had essentially said that NDDB has incorrectly and in a legally questionable manner used Section 43(1) of the NDDB Act to set up more than a dozen subsidiary companies, mostly step 2 and step 3 subsidiaries, transfer hundreds of crores of capital, assets and assistance from NDDB to such subsidiaries and then quietly amalgamate all the step 2 and step 3 subsidiaries with NDDB’s step 1 subsidiary companies, without any disclosures in the relevant annual reports of NDDB, hoping that nobody will ever notice.
We also said that this has been going on for a decade and has not been highlighted by NDDB’s statutory auditors. We also pointed out that NDDB fights hard to remain out of the purview of the Right to Information (RTI) Act as well scrutiny by the Central Vigilance Commission or CAG (Comptroller & Auditor General).
The famous statutory body, once led by the legendary Dr Verghese Kurien, better known as India’s milkman or father of the white revolution, clearly deserves greater public scrutiny.
NDDB has gone into elaborate details to explain why its large number of subsidiaries were set up, amalgamated, or merged. In this there is no divergence from what Moneylife has written, except to provide reasons for setting them up.
The point is that there is a cost attached and these large number of entities have, indeed, been closed down with regularity or amalgamated, while the ones that survive have been mentioned by our article as well.
In its response, the Board says, “All the decisions with regard to formation or amalgamation are taken by the competent authority. From time to time NDDB is called upon to carry out activities which call for formation of subsidiaries and then based on the progress or changed circumstances decisions are taken to continue, sell stake or amalgamate with another subsidiary.”
NDDB skirts the issue of requiring government permission to set up and close down these subsidiaries. The response asserts that these decisions were taken by 'the competent authority' or the 'board of directors'. This merely side-steps the fact that NDDB clearly needed Central government permission, as was obtained in 2014 (see images below).
NDDB has claimed that it does not require permission to set up a stepdown subsidiary. “For an NDDB subsidiary to form another subsidiary, no prior Central government approval was taken as according to legal opinion this was not required,” it says, adding, "The department of animal husbandry, dairy and fisheries (DAFD) sought the views of the department of legal affairs, who were of the opinion that prior sanction of the government is required for subsidiaries to form other subsidiaries. It also stated that the views of the department of company affairs be taken. The department of company affairs were of the opinion that that the provisions of the Companies Act will apply. Since the memorandum and articles of association does not prohibit it, there is no legal bar on the floating of further subsidiaries."
"NDDB took legal opinion from KK Venugopal, senior advocate (now the Attorney General) who supported the same. He further advised, if the Central government persists on taking actions based on the opinion of the department of legal affairs, NDDB should approach the appropriate High Court. In the meantime subsequent to the exchange of letters, the DADF wrote to NDDB that the matter was discussed with the agriculture minister, who had desired that NDDB should take up the matter again in their board meeting and seek ex-post facto ratification from DADF, which was done," NDDB added.
However, the letters published below clearly show that NDDB does require the pre-approval from the government for setting up a subsidiary or a step-down subsidiary.
When one examines the opinions from the department of company affairs and Mr Venugopal, both are not contradictory as made out to be by NDDB. This is because when a step 1 subsidiary resolves to form another subsidiary it has to be as per the requirements of the Companies Act and the relevant articles and memorandum of association. In fact, the requirements of the Companies Act have to apply even when NDDB forms a step 1 subsidiary company as per the opinion of Mr Venugopal.
A query filed under the RTI Act has revealed that based on the comments received from the department of legal affairs, the (then) solicitor general of India has classified Mother Dairy as a semi-government organisation. Mother Dairy too had accepted this classification and demonstrably endorsed this view by using its classification as a semi-government organisation to participate in the tender put out by the Union government for the long-term lease of the Delhi Milk Scheme.
Interestingly, not all chairpersons of NDDB have bothered with this requirement, and the government has remained silent too. It is also important to know that NDDB has its own statute and the giant organisation has often argued that the Companies Act is not applicable to it. This again establishes our point that NDDB chooses a regulation that is convenient to itself.
Government Approval: Needed or Not Needed
A well settled principle of law is that if the NDDB Act explicitly states that prior approval of the Central government is required for NDDB to form a subsidiary company, then the converse or any other actions related to such previous approval also hold equally true. In short, the un-forming of the subsidiary company through sale of equity, winding up, liquidation or otherwise, too must require previous sanction from the government.
NDDB has provided us with a long explanation for the setting up of each subsidiary and the reasons for their closure. It has claimed that “there has been no financial loss in the process of amalgamation or disinvestment, and all decision are taken by the competent authority. From time to time NDDB is called upon to carry out activities which call for formation of subsidiaries and then based on the progress or changed circumstances decisions are taken to continue, sell stake or amalgamate with another subsidiary. NDDB’s annual report makes the related party disclosures as per accounting standard-18. If a subsidiary has ceased to exist, it would not appear in related party disclosures in the NDDB annual report. Therefore to state that the subsidiaries vanished is baseless and misleading.”
However, the fact is that no detailed disclosures have been made, in response to our articles, in the annual reports when the subsidiaries were merged, amalgamated or disappeared from the reports. NDDB claims that all the amalgamations were mentioned in the respective director’s reports filed with the registrar of companies (RoC) without sharing the details.
NDDB aggressively responds that it needs permission NOT from the government but only from a competent authority, without describing who or what exactly this competent authority is.
NDDB points out that following six subsidiaries were formed during the tenure of Dr Kurien as chairman NDDB: Hindustan Packaging Co Ltd (NDDB’s shareholding was sold to a partner at a profit); Bhavnagar Vegetable Products Ltd (NDDB’s shareholding was sold at par to an NDDB subsidiary Dhara Vegetable Oil and Food Company Ltd), IDMC Ltd (continues as a subsidiary); Bharat Aseptic Packaging Industries Ltd (amalgamated with IDMC Ltd); Indian Dairy Board Overseas Pte Ltd (wound up); Kriya Milk Industries of Lanka Ltd (NDDB’s shareholding sold to partner at par).
Interestingly, the above-mentioned nowhere competing with the NDDB either in dairy cooperatives or the marketplace or even in procurement of milk from farmers, say insiders.
The following subsidiaries were formed during Dr Amrita Patel’s tenure as chairman of NDDB.
Indian Immunologicals Ltd-IIL (continues as a subsidiary); Mother Dairy Fruit & Vegetables Pvt Ltd (Mother Dairy, continues as a subsidiary); Dhara Vegetable Oil and Foods Co (amalgamated with Mother Dairy Fruit & Vegetable Pvt Ltd); NDDB Dairy Services (ccontinues as a subsidiary).
India Gen Ltd was incorporated by subsidiary company IIL. Its shareholding was acquired by NDDB for technical reasons in 2008 and transferred back to Indian Immunologicals in 2008 and the step-down subsidiary was later amalgamated with IIL. NDDB did not share the technical reasons for this.
After Dr Patel’s tenure got over, T Nanda Kumar became the chairman of NDDB. He followed the procedure as stipulated in Section 43 and sought prior approval from the government while forming the step 2 subsidiary of Indian Immunologicals.
As shown in the letter above, the government, indeed, permitted the company to set up its subsidiary named Pristine Biologicals (NZ) Ltd. If there was no permission needed, as claimed by NDDB, the government would have informed the board. But, instead, the government gave its approval for setting up a subsidiary.
In fact, when it comes to Mother Dairy and its eight subsidiaries, NDDB’s explanation only seems to confirm that the decision, which had been opposed by Dr Kurien in 2002-03, were amalgamated in Mother Dairy when the decision to form them was eventually reversed. “…these subsidiaries were created for a specific purpose and when that decision was reversed they were amalgamated in Mother Dairy after three-four years,” the statement from the board says.
Even when Mother Dairy decided to set up its own subsidiaries from 2000 onwards, Dr Kurien was not at the helm, having retired in 1998. Mother Dairy set up two subsidiaries, Mother Dairy Food Processing Ltd (MDFPL) to take care of the entire processing operations and Mother Dairy Foods Ltd (MDFL) to take care of the entire marketing operations. Mother Dairy Foods formed four joint ventures (JVs) with state dairy federations such as, Aanchal Milk Foods Limited (Uttaranchal), Parag Milk Foods (Uttar Pradesh), Milma Milk Foods Ltd. (Kerala) and Maathasri Milk Products Ltd (Andhra Pradesh) for marketing under four different brand names.
Mother Dairy Foods also set up two subsidiaries, Mother Dairy Delhi Ltd (MDDL) for the existing operations in Delhi and Mother Dairy India Ltd (MDIL) for marketing operations elsewhere under Mother Dairy brand name.
NDDB claims the decision to amalgamate all eight subsidiaries with Mother Dairy was taken despite opposition from Dr Kurien.
NDDB further claims, “no funds from NDDB were utilized for this purpose”, but admits that the board did pay for the “brand building exercise for this initiative."
It has similar explanations for setting up the Safal National Exchange where again the decision and the eventual outcome only proves that NDDB rushed to set up businesses, which failed and had to be amalgamated.
“Though considerable effort and time was spent on the project, participation by buyers and sellers did not increase substantially. Thereafter the shares of the other partners were bought by Mother Dairy at a consideration of Re1 and the Safal National Exchange was amalgamated with Mother Dairy,” NDDB says.
Tomorrow: Financial Numbers and NDDB’s Grants to its Subsidiaries