Deloitte Haskins & Sells India's resignation as Manpasand Beverages auditor was avoidable, said Vishal Sood, managing director of venture capital fund SAIF Partners.
Speaking exclusively to CNBC-TV18, Sood said he was shocked by the sequence of events happened in Manpasand Beverages.
Sood said Manpasand Beverages management was very keen to publish the results by May 30, because last year it was delayed due to some reasons.
Your thoughts on the reason, the timing and the implication of the auditor resigning and would you continue to hold on to your 17.5% stake?
Let me start with the first question about the sequence of events. As I understand and what I am able to confirm from both the sides, that the auditor had been asking for certain information, which is not unusual. It is a normal information that auditor would ask companies and the company had been providing the information from time to time. However, because they don’t have enterprise resource planning (ERP), they took longer than, maybe another company took time to come back with information, and then there was follow-up information required, which also they took time to come back and this happened back and forth a few times.
Subsequently, what happened was that by May 30 deadline was approaching. The company called for a board meeting and the auditor said that we don't have all the information that we needed to sign off. But the company said that last year also the results had got delayed and we have provided all the information. We acknowledge that there is some information pending, but we believe that we have given you enough information to approve the accounts because again this year we don't want to delay it. My understanding is from both side, the management took a stand that they don't want to delay it so much and the auditor took a stand, which must be as per their internal processes that we need this information before we sign off and that caused them to resign. That’s my understanding, what I can confirm from both sides.
You have spoken to the management, the promoters and you have spoken with Deloitte as well?
Yes. Beyond this Deloitte policy, they have a compliance policy that prevents them from talking anything beyond this. But this much I was able to confirm.
As you understand it – this is whose version. Primarily Deloitte’s version or the promoters’ version?
This much what I told you - both have agreed.
It is essentially a disagreement between when the results should have been announced. So what set-off Deloitte on the path of resigning is the fact that the company announced results without waiting for the auditor to sign on the accounts? Is that what you are saying?
No. The company had called for a board meeting and it was on May 30. It was supposed to be today and when the auditor said that we don't think we will be ready to sign off because this information won’t be there . So the management acknowledged that there was some information pending. Since we don't have ERP, the management said it will take some time. So the management said that they will provide the information, but in the meantime, we feel that there is enough information already provided to form an informed opinion. But my understanding is that Deloitte said this information is required and probably the management pushed them and they said no.
You have worked with many companies over many years. Is this a reason enough for auditor, which has been auditing the books of a company for a number of years to resign, just this?
This is what I am able to confirm. I am not a chartered accountant, so is this reason enough or there is more reason, because this is all the information that both sides can confirm to me. The problem for me is that I am speaking here in my personal capacity, not for the company or my firm but as a director, since 2011. When we first invested, the same auditor has been auditing the books but I have never noticed any sign of discord between the two sides. They were always doing it in a very cordial manner and never did the auditor brought to the board, that there is any problem that management is not co-operating or management is not providing us any information until this Sunday morning, when I got the call that auditor has resigned, I was not aware that there is any problem at all.
Never before in six to seven years has there been any qualification on the balance sheet or the annual report nor auditor has ever told us that there is any problem that management doesn’t co-operate with us. So at the board level, nothing has happened. So I am quite shocked by the sequence of events.
Everyone is shocked as well, even the shareholders will be shocked and you being one of the largest shareholder you will definitely be shocked. They wanted more time and they wanted more data. Half the market capitalisation has been eroded. Your investment as well has halved in the last few days. What is your take on that? Couldn’t this be avoided?
It's very painful to watch the stock price on your channel. But if this is true, that it was because the management pushed the auditor to sign, when they were not ready to sign, then I think they pushed too hard. Because, I believe that a firm like Deloitte will have their own processes and I don’t think they would sign off, when they were not ready to sign off. From what I understand, if this is the situation, then it was avoidable.
Do you think it was necessary for the company to take such a hard stance of wanting to report the numbers on time and foregoing the relationship with the auditor because as things stand today, the results are not going to be announced on time, we have been talking about the decline in the market capitalisation. So all this seems for nothing. As a director of the company, as a non-independent director of the company and non-executive director could you not have wait, could the board not have wait on the company’s decision to continue to say that we want to report the numbers on time even if the auditor wants to resign?
I would have preferred that if there was a problem, then I understand that the normal process is for the auditor to call for a board meeting and say that this is the problem we are having. Like I said, I am not a chartered accountant, but my understanding is that the auditor has right to call for the board meeting and tell the board that, we are having this problem but that didn’t happen. So, this inkling that this kind of problem is happening then, I am sure there were independent directors also, very experienced one. I am sure that something we would have all discussed. The first time that board came to know that the auditor has resigned was on Saturday evening. Until then, there was no inclination. Otherwise, surely the directors would have tried to get into it and see what is the problem but we didn’t know.
Before Deloitte stepped down, there was no conversation at all. There was official communication saying we are stepping down and that’s it?
That is correct. That’s the first I heard of problem.
What was the nature of the information withheld? The company says it was fairly routine. You have spoken to Deloitte as well and from their end what are they saying. What was the nature of the information which the company couldn’t provide on time?
I did not have a chance to get specifically the list of information. But both sides have confirmed to me that there was nothing out of the ordinary that an auditor would not ask a company of this size and scope to provide. It was nothing out of the ordinary, but there was a problem with the time that the company was taking to come back and then this May 30 deadline had approached. So both sides are saying that there is nothing out of the ordinary that was being asked.
This is not the first time that the books have been questioned. In the past as well, there were various reports. Have you ever approached the management, you all have discussed this, there were various articles that were written in the past?
You are referring to that one blog post?
Yes, there was a blog post, there was a lot of discussion at that point, you all got through that phase but at that point, did you all have any kind of dialogue, did you question the management?
That blog was quite speculative in nature but we did discuss the blog.
You were satisfied with the response you had got at that point of time?
That blog came in 2016. I am sure Deloitte also read the blog and after that, 2017 audit has happened and again, it was an unqualified audit. So, whatever concern anybody might have, presumably when an auditor of Deloitte stature gives an unqualified balance sheet, by 2017, everybody would be satisfied. As a non-executive, that is the insight I have.
You have been invested in this company. Just a short while back the market capitalisation was double than what it was, at these prices, will you look at buying some shares, have you sold any shares in the last few days, I don’t think so, right?
So if you are getting it at half the price, will you look to deploy more money if nothing is wrong at all?
I don’t know how much you know about the way private equity funds are structured, but this is from a very old fund. It was 2011 fund. So, we cannot invest anymore from the fund. So, we cannot buy. The best I can do, I cannot speak for the firm, what I can do is that the new auditor has been appointed and when the new auditor completes the audit and then there is a board meeting, then we will get more information. But as of now, Deloitte cannot talk to me because of their policy. So I have no choice but to wait for the audit to be completed.
I was told that before you invested in the company, there was a forensic audit which was done by KPMG, can you confirm that for us and whether that came out clean?
I am not aware of that because we invested in 2011 and also in 2014. And of course, both times we conducted a diligence and there was no red flag alarming that we found. Obviously, otherwise we would not have invested but before even we invested, there has been a forensic that I am not aware of.
If one were to take the point of view and as you said, it seems that it was Manpasand going ahead with the results date, not waiting for the auditors signing off the books and that is about it.
No, they were not saying that we will not wait for the auditor to sign off, they were saying that between now and May 30, we think you should sign off, that is what my understanding is.
They were not going to declare the results without signing off, but they thought it will be signed off before 30th but the auditors felt they cannot.
So in a way you are saying, there was pressure being put on the auditors, less time given that sort of thing is that what you are saying?
I don’t know about less time or more time, but management was very keen that by May 30, we should declare the results. Because last year also, we got delayed maybe it was because of blog or they wanted more procedural. But this time, they were very keen not to do it and perhaps they might have put pressure on the auditor. and this is what I can confirm. Both sides have told me that the company wanted it done and auditor Deloitte team did not want to sign off and that is why this happened. But beyond that, I don’t know if there is anything.
Our colleague in Delhi also reported that Deloitte has approached the Ministry of Corporate Affairs (MCA) and they have communicated their decision, reasons for doing that and what sources in the ministry have told our colleague is that Deloitte has told them there was some ‘misreporting’ as well. I am using the exact phrase which was told to my colleague, how would you respond to that?
I am not familiar with this. I don’t know. They have not told the board that there is misreporting, that is all I can say.
Would you or the other institutional shareholders look to write to the MCA to probe the matter?
I don’t know. I am talking to you in my personal capacity. If the shareholder, the firm I represent, they decide I don’t know. In my personal capacity, I am on the board, so I will wait for the auditor. I don’t know what to write to MCA, it is better to wait for the audit I suppose.
You said you cannot buy more but would you look to pare down your holdings given everything that is happening?
No, not right now. I think the most sensible thing – in my opinion again – that we should wait for the new auditor to give their report.
Have they indicated how long it will take for them to come out with the report and the company to declare their numbers?
I haven’t had a chance to talk to them. My guess is that since they are coming only on Sundays and they want go through the books and will tell their information requirements, and then only the company will tell how long it will take to provide whatever information they want. I don’t think anybody will have the exact date today. I am sure both sides needed to discuss and see.
The reason I have been painstakingly pointing out that I am talking in my individual capacity, because I am not a lawyer or a chartered accountant, I don’t know legally what I am permitted to speak. That is why I am at pains to point out that this is in my individual capacity that I am talking.
First Published: IST