Proxy firm raises conflict of interest issues at Piramal

Questioned the appointment of two independent directors due to their association with the auditors.

Piramal Enterprises Ltd. (PEL) has come under scanner for alleged conflict of interest issues involving its directors and auditors. Proxy advisory firm Stakeholders Empowerment Services (SES) has questioned the appointment of two of PEL’s independent directors (ID) due to their association with the auditors. Piramal Enterprises did not respond to the charges levelled by SES. “Piramal would not like to be commenting on speculations,” an external communication person said in response to a detailed e-mail questionnaire from The Hindu . According to SES, director Gautam Banerjee cannot be classified as ID and the appointment of Keki B. Dadiseth is a clear ‘conflict of interest’.

“Mr. Banerjee was Executive Chairman of PricewaterhouseCoopers (PwC) Singapore for nine years until his retirement on December 31, 2012. He joined PEL on April 1, 2013. Pricewaterhouse has been statutory auditors of PEL for 17 years. As per the definition in the Companies Act, 2013, Mr. Banerjee cannot be classified as an independent director,” J. N. Gupta, Founder and Managing Director, SES, said.

On Mr. Dadiseth, SES said he was a member of India advisory boards of PricewaterhouseCoopers, auditors of PEL. “He is an Audit Committee member as well and has to review and engage with the same audit firm of which he is an advisor. One of the criteria that impacts independence and makes a person ineligible for appointment as an ID is association with audit firm as an employee or partner,” Mr. Gupta said.

SES said PEL which got Rs.15,000 crore in cash on sale of a business to Abbott Laboratories has witnessed reduction in its consolidated net worth from Rs.11,856 crore in 2009-10 to Rs.9,321 crore in 2013-14. Investment in tax-free bonds could have yielded tax-free income of Rs.5,000 crore in four years.

“With elaborate board and highly qualified management team, the performance of the company has resulted in net worth erosion, annual cash losses and even market cap is not reflective of the cash it got from sale. What value has been brought for shareholders by the board and the management?” SES asked.

SES said the company’s debts had increased, its interest costs had gone up, PEL had been reporting losses for the last three years. “Even if one accounts for gain of Rs.3,036 crore pre-tax from the Vodafone deal, the performance of the company is nothing to write home about,” it said.

SES has also raised accounting issues concerning the acquisition of DRG in 2012 for Rs.3,400 crore.

Finally, SES has questioned the remuneration of PEL’s executive directors. “The company has made losses in 2013-14 (Rs.370 crore) and the remuneration paid to the EDs (Rs.1.48 crore each) was in excess of the limits prescribed... There are three family members on the board and despite losses their remuneration has increased,” SES said.