Proxy advisory firm Ingovern has sought the removal of Asian Paints (APL) promoters Ashwin Dani and his son Malav Dani from the board amid allegations of related-party transactions (RPTs).
In a report titled ‘Saving the Company from Promoter Shareholders’, which analysed the company’s RPTs, Ingovern highlighted the likely conflict of interest involving entities controlled by the Danis, which also supply raw material to APL. On October 23, Business Line had reported a whistleblower letter to market regulator SEBI which alleged that the Danis had enriched themselves at the cost of APL shareholders.
According to sources, SEBI is already investigating transactions involving a company called Paladin Paints and Chemicals (PPCL), which is controlled by Malav Dani and is among the key raw material suppliers to APL. The whistleblower alleged that PPCL was promoted by APL’s senior employee while still with the company. But, subsequently, PPCL’s shareholding came to be dominated by Ashwin and Malav Dani.
Lack of disclosure
The Ingovern report says, “On October 24, APL put out an innocuous clarification to a news report. We dug deep. APL’s FY15-16 annual report lists PPCL as a related party from April 22, 2015. But APL, unlike most other companies, ‘does not list out’ the value of RPTs. Only an aggregate value is given. APL needs to present RPT details with each of the promoter-controlled entities, including PPCL, in terms of transaction value, nature of trade... why the transactions are necessary and whether the goods procured from promoter-controlled companies are proprietary in nature or commodity even if the pricing was at arm’s length.” According to Ingovern, the APL board failed to act decisively to mitigate conflicts of interest and its audit committee, which is responsible for keeping RPTs under check, also consisted of a promoter director.
“Promoter directors who ‘control’ entities supplying goods to APL should immediately resign,” Ingovern said.
Ingovern’s investigations show that during FY 2019-20, APL procured over 5.8 per cent of its raw materials from companies controlled by the promoters. PPCL formed 7 per cent of the value of goods purchased from promoter-controlled entities. Ingovern has listed more than 36 companies controlled directly or indirectly by Ashwin and Malav Dani as having RPTs with APL.
“Inadequate disclosure of value of RPTs and logic thereof with PPCL and other promoter-controlled entities is leaving the issue a bit cloudy and throwing up questions on conflicts of interest. The actions to be taken by the board raises questions of intent of promoter directors. SEBI needs to investigate and insist on detailed disclosures by such a large listed company,” Ingovern said.
APL said it will suitably respond to Ingovern after studying their report.
“APL’s audit committee comprises the majority of Independent Directors. Promoter directors do not participate in RPTs related discussions. It is factually incorrect to say that PPCL formed 7 per cent of the value of goods purchased from promoter-controlled entities. Out of ₹553.88 crore of total purchases from related parties during the FY 2019-20, total purchase from PPCPL is ₹1.3 crore, lower than 0.2 per cent of total purchases from RPs. Accounting Standard 24 states that items of a similar nature need to be disclosed at aggregate value. APL has been disclosing RPTs where value is more than 10 per cent of the total transactions of the same type,” APL said.