December 10, 2020 must be a day hard to forget for promoter Jaidev Shroff as well as the investors of UPL. That day, a media report citing a whistleblower complaint about the promoters knocked off 12% of the company’s market cap. On Twitter, #UPL was getting a lot of hits and Shroff would have wished that they carried updates from Uganda Premier League than that of his own company. The stock saw trading volume of 91.5 million shares of which 16.9 million were marked for delivery. Effectively, 12% of the equity was traded and 2.2% of the company changed hands at an average traded price of Rs.432. That price now effectively is a marker for existing investors in terms of whether the worst is behind for UPL.

This was the second governance issue that had cropped up in just over a month. In October, the company had informed the exchange about the abrupt resignation of KPMG Mauritius as UPL Corp’s auditor. That, too, had knocked off 10% of market cap. Earlier still, in August, just before the annual meeting, vice chairman Sandra Shroff resigned from the board as there was a hue and cry raised by governance advisory firm SES over excess remuneration paid to non-executive directors via subsidiaries. In contrast, prominent investor Vinod Sethi ceasing to be an independent director from September 2019, after being 13 years on the board, did not get talked about as much.

The excess remuneration issue died a natural death but the sudden resignation of the auditor at UPL Corp set tongues wagging. For one, UPL Corp has been the primary acquisition vehicle for the UPL promoters and hence an important subsidiary. Second, because KPMG replaced the existing auditor Crowe ATA less than a year ago and the talk then was about appointing a global firm, bringing in transparency, etc.

Even as the company in its last concall maintained that they fired the auditor because they were not finishing the work on time, Nitin Mangal, an independent research analyst feels the management’s explanation lacks credibility as KPMG Mauritius themselves have not given a proper explanation regarding their sudden resignation. “Tax havens are a big revenue driver for the Big Four. Mauritius may be a small country, but it is a prominent tax haven and it is unlikely that KPMG Mauritius does not have the required bandwidth there.” After KPMG Mauritius’ exit at UPL Corp, Crowe ATA is now back as auditor.

Before the UPL Corp auditor controversy could settle down, the whistleblower allegation about promoters siphoning off funds through shell companies popped up. Once again, the management clarified about it being an old issue for which the audit committee had given the management a clean chit after getting it vetted independently. During the clarification concall, the management said it was evaluating all options, including writing to Sebi to investigate the matter and termed the whistleblower article ‘malafide’. When Outlook Business reached out to the company to check whether the company had filed a formal complaint with Sebi and against the article, the UPL spokesperson replied, “The company is taking appropriate steps to counter the malicious reporting.”

In light of the recent development, Outlook Business also sought clarification on advances of Rs.1.09 billion and Rs.340 million to Tatva Global Environment and Urbania Realty LLP, respectively, which was disclosed in UPL’s latest related party filing (Tatva Global Environment was one of the entities mentioned by the whistleblower). According to RoC filings, Urbania is a real-estate company which has chairman Rajnikant Shroff on its board while Tatva Global Environment has Nitin Kolhatkar and Atulkumar Agarwal as directors. While Nitin Kolhatkar is vice president-finance, UPL, and has been a director since April 2014 and is also on the board of related-UPL entities, Atulkumar Agarwal was inducted as additional director in January 2020. In addition, Agarwal is also a director of RoC-Ahmedabad registered Shree Silicaam Minerals LLP, and RoC-Kanpur registered Vanshuli Properties & Constructions and VSGR Properties.

When asked about Atulkumar Agarwal’s skillsets, and the relationship between Tatva Global Environment and UPL, the company responded with, “Atul Kumar Agarwal is a Mechanical Engineer and Post Graduate Diploma in Environmental Engineering and has understanding of the environmental engineering solutions in which business Tatva is engaged. Tatva Global is a waste management company and undertakes that task for UPL. The company had undertaken similar transactions in the previous years. We expect these advances to be cleared over the next couple of months. As for advances to Urbania Realty LLP., the same is towards purchase of two apartments for senior management and the same are standing as advances as we await “Registration” of these apartments. This has also been disclosed in the recent annual report."

The company also cited, “purely commercial decision considering business feasibility”, when asked why similarly named subsidiaries, Tatva Global Renewable Energy Company and Tatva Clean Tech, were being dispensed with. The first is in the process of being struck off from the RoC and the second had already been struck off. It is not just about similar sounding subsidiaries but the sheer multitude that one finds overwhelming. And, that has only compounded since the company acquired Arysta Life Sciences in July 2018.

Many acquisitions, not much free cash flow