The Stench of Another Financial Fraud?
Another day, another scam. Well, this one felt like straight from an Ekta Kapoor serial! Read on
Something smells fishy in the pond of UPL (formerly known as United Phosphorus Limited).
There’s a lot of dirt on the company that swam to the surface and the big fishes of the media are speculating if it is true or false. But before we dive into the chains of events that stamped the company as fraudulent, here’s a tidbit about UPL.
UPL is an India-born global agrochemical and crop solutions company.
It has existed for more than 50 years now and is the 5th largest agrochemical company in the world, operating in more than 130 countries.
A cursory glance will tell you that UPL is a family-owned company of the Shroffs, like we have Reliance Industries Ltd. led by the Ambani family.
But maybe not exactly like Ambanis - Ambanis don’t get caught, after all.
So, how did the Shroffs land up in trouble?
Whistle-blown
A whistleblower has alleged that the promoters (majority owners) of UPL have siphoned off crores of rupees. For the uninitiated, a whistleblower is someone who whistles out the secrets and the shenanigans occurring inside the company. Their identity remains anonymous (mostly).
In the case of UPL, the whistleblower was a board member who exposed the malpractices of UPL’s promoters (the Shroff family) via ET Prime. When this news came out, UPL’s share prices dropped by around 15%!
According to the allegations, there are 8 shell companies owned by employees of UPL or people associated with the Shroffs.
What are shell companies? Shell companies are hollow businesses that exist only in name and are involved in no(body’s) business.
And why do they exist? To carry out illegal transactions and to evade tax. Yep, people do create fake companies to avoid paying the government.
The fact that some of these alleged shell companies have the exact same address and that a few of them also match with the address of UPL’s head office leaves very little room for doubt.
Now, these shell companies were used to siphon off UPL funds through systematically planned transactions. In one instance that came to light: the Salisbury House in the Pali Hills of Mumbai, which was earlier owned by the Shroff family, was purchased by one of their shell companies on loan. UPL then entered into a rent agreement with this shell company and discreetly transferred UPL’s funds to the promoters. Genius.
But this was not it. There are many other reasons for which UPL came under the fraudulent spotlight.
Excessive Remuneration
There has been a significant increase in the remuneration paid to 4 members of the promoters family: Rajnikant Shroff, Sandra Shroff, Jaidev Shroff & Vikram Shroff.
Okay, we’ll let the data speak.
In the last three financial years, from F.Y. 2017-2018 to F.Y. 2019-2020, while there’s been a decline of 12.17% in UPL’s profits, the remuneration paid to the Shroff family by the company has increased significantly by 171% - from Rs. 39 crores in F.Y. 2018 to Rs. 106 crores in FY 2020.
Profits falling, remuneration increasing. Weird.
Not only this, to bypass all the disclosure and approval requirements, the remuneration to these promoters, except to Rajnikant Shroff, has been paid indirectly through subsidiaries (and the evidence of such higher payments was concealed). This unfair increase coupled with a lack of transparency indicates deceitful corporate governance practices.
Sudden Resignation by Sandra Shroff
Further, Sandra Shroff was to be re-appointed as a director. Experts advised against re-appointing her on account of excessive remuneration. She resigned even before the meeting where she was to be re-appointed took place. We can imagine the embarrassment.
Sudden Resignation by the Auditor
In October 2020, KPMG resigned as the auditor of one of the biggest subsidiaries of UPL - UPL Corporation - without citing any reason. To justify this resignation, UPL stated that it was re-organizing the audit process. It is required for the auditor to give reasons to SEBI upon resignation as per regulations, and yet, KPMG didn’t adhere to it. UPL Corporation is an important subsidiary of UPL and many major acquisitions by UPL including a recent one worth $4.2 billion, were done through this very subsidiary.
Don’t you think all of this looks very, very fishy?
What does UPL have to say for itself?
Well, the company claims that this is the work of someone with a malicious intent to degrade their image (heh!).
The company said that the matter dates back to 2017 for which they had already undertaken an in-depth review with the help of an independent law firm. They concluded that those transactions were in compliance with the applicable laws and that the complainant was duly informed about the findings of the Audit Committee. The matter was already closed. UPL confirms that all transactions in question were on an arms-length basis and that there has been no siphoning of funds, as alleged in the news article. They also state that there has been no new complaint against UPL.
Do you know who made the allegations back in 2017? The spouse of Mr. Jaidev Shroff, Global CEO of UPL, Mrs. Poonam Shroff. However, there was a bitter matrimonial dispute going on between the two before those allegations and to date, they are fighting out the case in court.
It may be possible that these allegations were falsely made by Mrs. Poonam to degrade the image of her husband.
Or…(yes we know what you are thinking)
It may be possible that she revealed the behind-the-scenes and legitimate facts about her family.
But what is certain is that the company has not been transparent with handling its corporate governance.
History has witnessed many such frauds that have derailed companies with a similar chain of events. So, it was obvious that even in this case, a few eyebrows would raise. Can we give UPL and its promoters a benefit of doubt or do we shove them too to drown in doubt? We’re sniffing a financial fraud from far away. Can you too?
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The writer for this piece, Aastha, is a hard-core Potterhead and an existentialist. When not creating awesome ad campaigns for an MNC, she loves weaving magic with her words. Working with her on this piece was our super passionate deep diver, Mohit!
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