Asian Paints Limited APL has issued a lengthy clarification regarding InGovern's allegations of related-party transactions and the demand for the removal of promoters Ashwin Dani and Malav Dani from the APL board. InGovern, a corporate governance research and advisory firm, had alleged that there was a conflict of interest in Dani-controlled entities that also supplied raw material to APL. A whistleblower alerted market regulators SEBI about certain irregularities.
Asian Paints stated in its reply that InGovern based its report on false facts and premise based on hearsay rather than any serious investigation, refute all the allegations made by InGovern in this Report relating to the Company and its practices with all the emphasis on our command.
Asian Paints stated that related party transactions are undertaken for various reasons, including certainty of supplies, better understanding of cost, prevention of cartelisation, benefits of innovation and experimentation. It is legal and valid under Indian laws and is a common practice among companies. It said the company has been entering into such related-party transactions with entities controlled by promoters for three decades now.
The value of transactions with all the related parties put together has been around 4.5 per cent to 6 per cent of the purchases made by the Company in the last ten years, according to Asian Paints.
The company said InGovern erred by considering only raw materials, while related-party transactions involve both raw and packing material purchases. The total related party purchases by the Company would be 5.5 per cent of the total purchases, compared to the 6.6 per cent reported for the FY in the same year for the other financial years the company stated in the report.
Asian Paints said the contracts' documents are submitted to the audit committee that comprises majorly independent directors. It is noteworthy that the Promoter Director who was a member of the Audit Committee did not participate in the discussions regarding transactions with any related party as mandated by law. The question of directors having a conflict of interest does not arise, it added.
Asian Paints stated that 7 per cent of the value of goods purchased from promoter-controlled entities is incorrect, as per the statement by InGovern Paladin. It said that of the total purchases from related parties for FY 2019, only Rs 1.3 crore amounted to only Rs 553.88 crore, which is 0.2 per cent and not 7 per cent, as mentioned by InGovern.
The company said it has voluntarily disclosed all transactions of similar nature to Indian Accounting Standards 24 on Related Party Disclosures Ind AS 24 as well as the Annual Report for FY 2019 -- 20 and Standalone Financials Statements.
It said that 85 per cent of transactions with related-parties have been disclosed. The rest that has not been disclosed are infinitesimal in nature, including Paladin.
InGovern made remarks in the report asking the promoter directors to immediately resign, the Audit Committee to enhance disclosure practices, allegations on inadequate disclosures and inaction by the Board, etc. Asian Paints stated that Asian Paints were uncalled for and based on incorrect assumptions. It urged InGovern to issue an addendum, including the reply, and correct the facts.
InGovern had stated in its report that 5.8 per cent of the goods purchased by Asian Paints are related to related parties, but it has not been disclosed. The report stated that APL entered into a technical consulting agreement with one Jayram Nadkarni ex-employee of the company and Paladin Paints and Chemicals in 2005 -- 06, for which these entities were paid upfront and monthly consulting amounts. It was later found out that Paladin was owned and controlled by the Dani family that first acquired 49 per cent of the company, which was later picked up by Ria Enterprises through its partners Rituh Enterprises, Ashwin Dani, Ina Dani, Ramesh Shah, Ajit Shah and Deepak Shah. The firm had reported that the 93.08 per cent of the Paladin was held by Ria Enterprises, controlled by the Dani family.