Former Executive Director of Securities and Exchange Board of India (SEBI) JN Gupta says that there is something wrong with the company. The period of losses -- when the entire fraud process started -- is not clear. Though, the company says that auditors are looking at accounts, it has not been opening balances prior to April 2015.
Ricoh India, reeling under an accounting fraud, admitted to exchanges yesterday it had posted a loss to the tune of Rs 1,123 crore in FY16 and that it would undertake a capital restructuring plan.
In an interview with CNBC-TV18, former Executive Director of Securities and Exchange Board of India (SEBI) JN Gupta talked about the case, saying that there were several things that don't meet the eye.
"The period of losses -- when the entire fraud process started -- is not clear," he said, adding that though the company says that auditors are looking at accounts, it has not been opening balances prior to April 2015.
Speaking about capital restructuring plans, he mentioned that the loss is one of the two components of fraud. The management is planning to infuse Rs 1,123 crore to recoup the loss.
He further said that role of rating agencies needs to be probed in this case because rating agencies don’t work on instrument to instrument basis.
"Regulator should take some cases to a finishing line and should punish the person so that the signal goes out in the market," he said.
Below is the verbatim transcript of JN Gupta's interview to Latha Venkatesh, Sonia Shenoy and Varinder Bansal on CNBC-TV18.
Varinder: What is your sense now after two announcements coming in yesterday from Ricoh India, one was losses that they announced and second was the capital restructuring?
A: One thing is very clear that there is something wrong with the company but the other thing which is not clear is the period of losses when the entire fraud process started.
If you look at all the announcement from the company, they have been saying that auditors have been looking at accounts from April 1, 2015 onwards. If you see their filing in May 19, mid 2016, they said upto September they have done and they have losses.
On the other hand the auditor and even the management is saying that we are not confident about the opening balances. When you are saying you are not confident about the opening balances as on April 1, 2015 that means you are saying that fraud could have been continuing from prior to that period but nowhere even till yesterday in its filing -- they have not gone back to opening the accounts of prior to April 2015.
What is the reason that they are not going prior to 2015? My issue is that either there is some attempt to shield the management which was there prior to April 2015 or something is wrong.
As far as the capital restructuring is concerned, the fraud has two outcomes -- one is the loss and other is crime that has been committed. So the management at least is trying to recoup the loss that the shareholders had. They are feeling that there is a moral responsibility, the promoters are saying that we are going to recoup the loss.
Latha: Should we give a benefit of doubt that the promoters seems to be coming clean and saying I am giving Rs 1,100 crore, I am willing to cancel my shares, either of the group companies will cancel shares and we will enter at a higher price, Varinder was giving a calculation that if they do bring Rs 1,100 crore after cancelling even one of the promoter group shares either NRG or Ricoh then they will come at probably Rs 400 a share. So should we say that the promoter is willing to compensate for the losses that the Indian unit has done or do you think that there is still more losses than they are admitting so you are not quite happy with the promoter?
A: I would not say that I am not happy with the promoter, I am saying that the fraud has two components. One is the loss component and the management or the promoters says this is the X amount of loss as on date and we feel moral responsibility and we are recouping it first by cancelling it and by subscribing it so that we can put X money back.
The other is the criminal aspect of the loss. Now, the criminal aspect of the loss should not be a bargaining -- I am putting Rs 1,100 crore so all my crimes have to be wiped off. If you see the filing, they have said very clearly that all these things should be done and they have also said one thing that there should not be any coercive action by the regulatory authorities. That is a very significant point which I support because manier times it happens that the law agencies take actions which closes the economic activity which causes further losses. Here the management is saying that let us continue, you continue your criminal aspect, we have already filed the complaint, let us get done with the criminal aspect.
My issue is different, why the limitation is only from April 1 and secondly, I am not comfortable that how such loss could have been caused. If you see the accounts, it is not possible that in a balance sheet which is of Rs 1,200 crore, how can they post Rs 1,100 crore loss unless until the entire universe was colluding with somebody to cause this loss and how the bankers were giving out money.
Varinder: I want to know what is the role of a regulator in all this? We haven’t seen any action coming from anyone be it case of Ricoh India, be it a case of Mandhana Industries, Tree House -- there has been no action, this is criminal in nature that all the people who are behind it, we don't know anything about it, what was the conspiracy or anything or any action by anyone taken since last two-three years since we have seen all these cases coming up?
A: First I am no more a regulator so I cannot answer. I would say that regulator doesn't go to the market and announce what it is doing in any case. If anything SEBI is doing, it will come out with findings, it does not give day-to-day bulletin of where it stands.
I would say that these are the cases, which you have highlighted and Tree House and Zee merger where we were feeling that something was wrong right from beginning and people were aware but nobody has done anything.
As far as Ricoh India -- the biggest point we have missed is the role of rating agencies. If you see the rating agency, upgraded the rating in January 2016 when the audited accounts were not available for September.
Latha: They just gave us a view on phone, not on mail that only that particular instrument they upgraded because it was fully backed by the promoter, it was not a comment on the overall company but only on that instrument?
A: I agree. My point is very simple that rating agency doesn't work on instrument to instrument basis. If rating agency has given a rating and unless until you have seen, anyone of us -- we are not in the rating business but the fact that we know that the accounts have not come, it has been delayed by six months or something then it is a wakeup call.
On the other hand, something is amiss somewhere.
Varinder: If you look at Mandhana, the damage is already done. From Rs 600 to Rs 60 and no one knows what is happening. I understand that regulator cannot come into each and everything but it is just surprising that the way things are happening even Ricoh, who has to question that Mr Manoj was coming again and again on the channel and saying that nothing is wrong with the company and now we have Rs 1,100 crore of losses that the company reported and the man who was the MD and CFO also says nothing is wrong. How can we even believe what they are saying?
A: I agree with you. The problem is that we do not come to the finishing line of a case. For example, Tree House also, I remember very clearly sitting in this room with Mr Bhatia and we had pointed out to the wrong accounting and he confirmed to us in writing that they have clarified and we told them to send an audited clarification, he did not send and the Tree House share came from Rs 400-500 to Rs 20 or something like that.
My point is that the regulator has to take some cases to the finishing line, punish the person so that the signal goes in the market.