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22nd July 2016
 |
Ricoh
(The Total Investment & Insurance
Solutions)
|
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 Total Investment & Insurance Solutions
"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).The
Total Investment & Insurance Solutions
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. The Total Investment & Insurance Solutions
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.The Total Investment & Insurance Solutions
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