Markets regulator Sebi on October 20 directed Prabhat Dairy to cooperate with the forensic auditor and deposit over Rs 1,292 crore in a nationalised bank within seven days till the conclusion of the audit. Sebi had appointed Grant Thornton Bharat LLP as the forensic auditor in July to ascertain facts and circumstances in relation to financials of the firm with respect to its financial statements for the financial years ending March 31, 2019, and March 31, 2020.
The auditor was appointed to ascertain manipulation of books of accounts of the firm, misrepresentation of financials or business operations by the company, wrongful diversion of funds by promoters, directors or key managerial persons and business transfer and share purchase agreements. In its interim order, the regulator noted that the firm and its managing director have repeatedly failed to cooperate with the forensic auditor despite their multiple efforts to obtain the information needed for ensuring the commencement of audit.
"Unless the forensic audit is conducted, Sebi will not be in a position to determine whether or not the company has indulged in mis-statement of accounts, diversion of funds to its subsidiaries/associates, etc. which money belongs to its shareholders," Sebi said. It added that while some information has emerged on the basis of a preliminary examination, only a detailed forensic audit could bring out the complete picture and the extent of the misstatement/misappropriation, if any.
It further added that the company appears to wilfully deny substantial information/documents to the forensic auditor appointed by Sebi. Besides, Sebi has received certain complaints against Prabhat Dairy which point that the promoters/directors are trying to defraud the investors of their promised dues related to the transaction.
The conduct of the company and its promoters/directors "does not inspire confidence in investors and exhibits blatant unwillingness to be transparent about the financial dealings", Sebi noted. It further found that the stark opaqueness on the side of the company and its promoters/directors as regards the availability of the transaction proceeds for distribution to the shareholders has aroused suspicion and anxiety in the minds of investors and other stakeholders.
Therefore, Sebi passed an interim order and directed the firm to deposit Rs 1,292.46 crore to an interest-bearing special escrow account in a nationalised bank. The audit committee of the firm has to furnish a compliance report to Sebi in this regard by October 30, 2020. The operations, subsequent to crediting the amount in the account, would be monitored by JM Financial and it shall allow debits only for administrative expenses.
Among other directions, the firm and officials — Sarangdhar Ramchandra Nirmal and Vivek Sarangdhar Nirmal — have been directed to cooperate with the forensic auditor and furnish all information to the auditor/Sebi within seven working days. The audit committee of Prabhat Dairy has been asked to ensure that all data and information may be provided.
In January 2019, Prabhat Dairy informed bourses that its board has approved the sale of the firm's shareholding in its wholly-owned step-down subsidiary Sunfresh Agro Industries Pvt Ltd to Tirumala Milk Products Pvt Ltd for a total consideration of nearly Rs 1,227 crore. It also approved sale and transfer of its dairy product business for about Rs 473 crore.
Subsequently, the firm made several regulatory filings and informed that the company intends to distribute the net proceeds of the transaction to the members of the firm and that about Rs 1,0001,200 crore might be available for distribution to the shareholders. The firm had also set up a transaction committee in this regard.
The transactions, as per the firm's regulatory filings, were completed in April 2019. In September 2019, the firm said certain promoters intended to acquire 49.9 per cent stake that were currently being held by the public shareholders, and consequently voluntarily delist the equity shares of the company from the exchanges.
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