Whether a Hero or a Sparrow!
“Stellar jury picks the best of India Inc” screams today's (29th March) headline in one of the top pink broadsheets circulating in the country; and many other business newspapers and various other forums vie with each other to decorate and award businessmen and entrepreneurs of different hues and shades, with tiring frequency!
 
While this is a big business in itself for consultants and other professionals involved in identifying and shortlisting the candidates, the identification of the jury themselves is a big favour doled out to important personalities who may reciprocate the favour correspondingly in an appropriate fashion!
 
When a highly decorated entrepreneur or a company that has been recognised for good corporate practices comes under the scanner for violation of some law of the land or is suspected of an action unbecoming of an exemplar the person is supposed to be, questions arise on the motive and the process followed in selection.
 
The latest in the news, for alleged improper conduct in the eyes of the tax authorities, is perhaps one of the most celebrated members of the bourses, and the key promoter and top honcho of the corporation.
 
The allegation reported in the media admits of no ambiguity in the nature of the offence, being tax evasion of the worst form. The promoter has been accused of paying a significant amount in unaccounted cash in the purchase of a property and the corporation has been accused of overstating expenses and suppressing the correct taxable profits.
 
For the record, it should be noted that the promoter takes home close to Rs800 crore annually as dividend, which must be one of the highest for pay out in dividends. This is highlighted to raise a doubt at the threshold whether even such a wealthy person would deal in large sums of unaccounted money!
 
This is not a case of a legally disputable claim or an allegation of an incentive being unfairly enjoyed. The worst form of tax crime is falsification of books of accounts, as the government takes any audited books at its face value and seldom doubts the integrity of the numbers, though disputes can arise on the correct tax treatment.
 
There have been many instances in the recent past of tax raids and subsequent announcements of tax evasion of a huge order, but seldom do the tax authorities own up to the formal closure of the case and how much tax stood recovered and whether the defaulter was duly punished.
 
This gap in information is rightly viewed by the common man as a publicity stunt of the tax authorities to demonstrate that they are active and unforgiving; or, worse still, that some political score was being settled by organising such operations!
 
This position holds irrespective of the regime at the helm.
 
But the instant case is not an ordinary one. The company in question has a market-capitalisation of about Rs44,000 crore (29th March) and is an undisputed leader in the two-wheeler manufacturing at the global level. The independent directors are the who’s who of the country and all the top accounting firms are listed as auditors or internal auditors!
 
To expect the tax authorities to issue a premature and frivolous public announcement in such a case looks too daring even for an agency which carries no fear of punishments for any of its wrongdoings, as these exercises are supposed to be carried out in good faith, enjoying sovereign immunity!
 
While over-accounting of expenses amounting to Rs1,000 crore, as stated in the press release, is less than 5% of the annual expenses of the company and thereby qualifying for categorisation as ‘insignificant’ for the auditors or the board to have smelt anything fishy, the responsibility is now squarely on them, going forward.
 
The main promoter-cum-managing director is the one under the cloud. He would have influenced significantly the appointment of the independent directors and the auditors.
 
Hence, the board should immediately seek the suspension of the person and strip him of any administrative role in the company. One of the unrelated board members should be designated managing director (MD) or executive director (ED) to fulfil the statutory requirement. The board should appointment an agency unconnected to the company to work with the tax authorities to establish the bona fide or otherwise of the allegations.
 
While the tax proceedings may take its own course, the board should determine if a malpractice has taken place, in the shortest possible time. Defending the tax case is an independent action and that should not influence the conclusion whether the promoter indulged in any malpractice.
 
If the crime is proved to the satisfaction of the board, all the perpetrators—irrespective of level and position—should be dismissed summarily. Other punitive action like claw back of past benefits, especially of the MD, should be explored.
 
This should be taken as a god-sent opportunity for the board to demonstrate that it can act independently of the promoter, who may have appointed them. The independent directors, who draw a not insubstantial sum of little over Rs1 crore as fees and commission, cannot sit on their haunches and be spectators but act decisively.
 
I don’t wish to expatiate on this at this juncture.
 
If the board comes to a reasonable—even if prima facie—view that the allegations are baseless, then it should employ the best legal brains to bring the highest persons in the administration to account. If political motives stand established, in the larger public interest, it should be exposed.
 
In summary, at the end of the next say 12 -16 weeks, the country should have learnt some new lessons in corporate or political governance and a few heads should have rolled as only one of the sides can be right in this case, and the other, who has erred, should pay for the sins in blood, literally!
 
The agencies queuing up to decorate entrepreneurs should devise methodologies that can stand the test of time. It must be most embarrassing if even 5% of the awardees over a few years come under suspicion for violation of law, or become wilful defaulter, etc, as the materiality threshold applicable to auditors may not be appropriate in this matter!
 
To close this at this point, we, for once, should emulate the equanimity like what the great poet Alexander Pope observed in Essay on Man - “Who sees with equal eye, as God of all, A hero perish, or a sparrow fall”.
 
Irrespective of the might of the offender, the punishment should be swift and sharp.
 
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
 
Comments
saharaaj
3 months ago
Amplified leaky reports let authorities state what has been final assessment? lower than 5 % of the boasted amount
sachin_pu
3 months ago
Though what is not yet known is whether the IT department has actually found any such wrong-doing. The only thing we have is a media report that claims through some sources that there are some inflated expenses in the books of the company concerned.

The skew that we have is - that the company is obliged to put its side of the story on the record by providing the clarification to the markets and it can escape by calling it speculative reporting, the news reporter can get away with putting across an item based on what it has got from "sources". The IT department can choose to stay silent - neither confirming nor denying what is floating through unconfirmed sources.

Isn't this a perfect recipe for some insiders privy to the real story to make money from this?
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