An independent director of a Delhi-based maker of optic fibres has written to the board and the finance ministry accusing its promoters of siphoning off at least Rs 600 crore through multiple related party transactions, faking investments in a byzantine collection of shell companies, over-invoicing overseas purchases and fudging company accounts over several years.
The actions of Kailash S Choudhari and co-promoter Popatlal Fulchand Sundesha, the promoters of Aksh Optifibre Ltd, caused losses to shareholders and bankers, according to a series of letters written by independent director Arvind Gupta.
Moneycontrol reviewed a copy of the letters sent by Gupta, on June 26, 2020 in which he has called for a forensic audit of the company.
The revelations by Gupta, who is credited with exposing several corporate scams, notably the alleged ICICI-Videocon quid-pro-quo loan deal involving banker Chanda Kochhar, is arguably the first instance in which an independent director has attempted to blow the lid off a financial scam in a listed Indian company.
Moneycontrol sent a detailed questionnaire and reminders to Choudhari, Sundesha, the auditors and company secretary of Aksh Optifibre but did not receive comment.
“Related party private companies have been indiscriminately used for over invoicing, plant and machinery, procurement of cheap raw material, over billing other inputs and services to Aksh Optifibre in collusion with the chief financial partner, managing director and other directors on the board,” Gupta told Moneycontrol.
Aksh Optifibre manufactures optic fibre/optic fibre cables (OF/OFC) and optics lenses. The promoters own 27.95 percent of the company as on March, 2020 while the public holds 72.05 percent.
Many firms, same owner
According to Gupta, Choudhari and Popatlal created a layer of at least 13 undisclosed related party entities (see chart). The final ownership in these entities based in Tortola (largest of the British Virgin Islands), Seychelles, Mauritius, China and United Arab Emirates lies with Choudhari himself, Gupta alleged.
Gupta, who was named independent director of Aksh Optifibre on February 13, 2020, said he has presented to authorities minutes of meetings, internal documents and letters as evidence of Choudhari’s ownership links in these companies. One such example is a letter sent by Trident Trusts, a proxy ownership service provider based in British Virgin Islands, to Choudhari on November 12, 2015 that confirms his ownership of Stockard Overseas Ltd and Hazeleigh Management Ltd through Shawnee Ltd.
Share certificates of a company named Africa One Telecom dated October 3, 2010 confirms Choudhari as the owner through Stockard and Hazeleigh. Minutes of the directors meeting of Stockard Overseas Ltd on September 20, 2011 reveal Choudhari agreeing to purchase global depository receipts (GDRs) issued by Aksh Optifibre. The GDRs were subscribed by Hazeleigh Management Ltd.
A certificate of incorporation of Electrum Mauritius Ltd on November 17, 2011 in Mauritius shows Choudhari as owner.
Declaration of related party transactions is an obligation under section 184 and 188 of the companies Act, 2013.If a listed company is found flouting rules pertaining to related party transactions disclosures, directors can get up to one-year prison term or a fine of up to Rs 5 lakh or both.
Three-decade-old Aksh Optifbre went public in 2000 and is listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The company posted a loss of Rs 237.82 crore in the January-March quarter compared with a profit of Rs 10.62 crore a year ago. Net sales at Rs 55.48 crore in March 2020 were down 27.13 percent.
Aksh Optifibre submitted a clarification to BSE on July 4. Contents reproduced:
- A) This is in furtherance to the letter dated 17th September 2019, submitted by the Company to Stock Exchanges, wherein the Company had informed the stock exchange that Company has received certain letters from one of the shareholder representing Indian Investor Protection Council, alleging certain non-disclosures and irregularities on commercial/financial transactions by the promoters with the alleged purported related parties.
It was also informed that in line with prudent Corporate Governance practices, all complaint letters received from shareholder were placed before the Stakeholders Relationship Committee of the company. Committee had taken cognizance of the allegations made by the shareholder and had initiated the process to check the authenticity of the allegations being made.
Further the complaint letters were also placed before the Audit Committee and Board of Directors, wherein the Stakeholders Relationship was delegated the power to investigate.
In this regard, we further wish to inform that pursuant to the directions of Stakeholders Relationship Committee, an Independent External Auditor was appointed to check the records and provide its report on the allegations of related party.
Pursuant to the extensive audit conducted by Independent External Auditors, they submitted their report before Stakeholders Committee Meeting on 3rd July 2020.
Stakeholders Relationship Committee consisting of four Independent Directors on the Board of the Company adopted the report of Independent External Auditor and concluded that none of the alleged purported related Company (total 13) is related to Company and/or its Directors. Company and its earlier/current Directors/KMPs are in compliance of law and allegations of related party are baseless.
- B) During the meeting, Committee members raised certain queries about Mr. Arvind Gupta. Committee asked about the shareholding details of Mr. Gupta in the Company and any transaction/agreement entered with Mr. Gupta.
Committee was apprised that on 13th May 2019, a consultancy agreement was entered with the proprietorship Company of Mr. Gupta, Company had supplied material to BSNL and its payments for approx. Rs. 73 crores were pending for many months. Mr. Gupta assured that he has connections and shall arrange the payment within 10 days. As per the agreement, if the payment would be received by 23rd May 2019 (within 10 days) then Company would pay him commission @one percent (Rs. 73 lacs) and if payment would be received by 31st May 2019, then Company would pay him commission @one-half percent (Rs.36.50 lacs). However, since no payment was received hence no commission was paid and agreement expired on 31st May 2019.
Committee members noticed that the first complaint letter from Mr. Gupta about alleged related parties was received on 4th June 2019.
Committee members also noticed that Mr. Gupta had purchased 10,000 shares of the Company during third week of June 2019.
Committee was also apprised that on 24th January, 2020, a proposal was moved in the Nomination & Remuneration Committee of the Company to appoint Mr. Arvind Gupta as Director and professional consultant at a fee of Rs. 10 (ten) Lac per month. The proposed resolution was not passed by the Committee.
Committee further noted that Mr. Arvind Gupta was appointed as Independent Director of the Company on 13th February, 2020. It was also noted that as on date of appointment as Independent Director, Mr. Gupta was holding 80,000 equity shares of the Company, he had purchased 110,000 equity shares of the Company in March 2020 and as on 31st March 2020, he was holding 190,000 equity shares of the Company.
Members discussed about insider trading regulations & provisions and expressed concerns on purchase of shares after becoming Independent Director.
- C) Company has noticed that post the meeting of Stakeholders Relationship Committee happened on 3rd July 2020, for adoption of External Auditor Report and expressing concern about other Independent Director (Mr. Arvind Gupta), instantly on 4th July, 2020, the alleged complaints of Mr. Arvind Gupta has been released by media, for the reasons best known to Mr. Arvind Gupta and media.
This letter may also be construed in reference to such media publications.