InGovern, a proxy advisory firm, has alleged Asian Paints Ltd (APL) of related-party transactions with Paladin Paints & Chemicals, a private company owned by Danis. It has also requested the removal of promoters Ashwin Dani and his son Malav Dani from the board of APL. Dani-controlled entities that sell raw material to APL have a conflict of interest, stated the proxy advisory firm. The suspected discrepancies were brought to SEBI's attention by a whistleblower.

SEBI and NSE wrote to the company to provide clarifications on the reports, to which Asian Paints responded that all the necessary details regarding the transactions had been furnished by them. “We would like to reiterate that all the transactions involving related parties are undertaken in strict compliance with the provisions of law, and necessary disclosures have been made in accordance with the applicable disclosure norms,” stated the report. 

Besides, the company has sent a letter to InGovern, responding to its allegations.

InGovern took to Twitter, disclosing part of its 8-page report. It read, “Surprising to see that over 5.8 per cent of goods procured by Asian Paints is from related parties. The company does not disclose details of the value and logic of procuring from related parties. For a company of Asian Paints' standing, this is completely surprising.” 

It said details of Rs 511 crore of related-party transactions are yet to be provided.

The proxy advisory firm said it first took cognizance of the possible irregularities after when Asian Paints issued a statement mentioning that it has entered into a technical consultancy agreement with Jayram Nadkarni (ex-employee of the company), and Paladin Paints and Chemicals in 2005-06. A one-time consulting fee along with monthly consulting fees was duly paid. The firm was notified of the interest acquisition in 2015-16, it said.

InGovern said that on investigating further, they realised that Paladin was owned and controlled by one of the promoter families. The Dani family owns 49 percent of the equity shareholding of Paladin. This shareholding was obtained by Ria Enterprises through its partners Rituh Enterprises, Ashwin Dani, Ina Dani, Ramesh Shah, Ajit Shah and Deepak Shah.

 “As of 30th July, Ria Enterprises, controlled by the Dani family, held 93.08 percent of Paladin,” the firm reported.

In FY 2019-20, APL bought approximately 5.8 percent of raw materials from promoter-controlled firms, InGovern said. Paladin bought around 7% of the items purchased from such businesses. Around 36 entities were revealed by the firm as having related party dealings with APL and being controlled directly or indirectly by Danis.

The firm also alleged that the board of APL could not mitigate the conflict of interest. 

“The inaction by the board raises questions of intent,” it said, adding, the lack of proper disclosure about the transactions is looking like a grey area. InGovern wants the details of transactions with Paladin, including values, nature and logic. “Promoter directors who ‘control’ entities supplying goods to APL should immediately resign,” InGovern said.

Asian Paints Response:

Asian Paints answered the allegations, saying that they have received the report only on November 24, and InGovern will get the response along with clarification on some “factually incorrect” information in a reasonable time.

It said, “‘Paladin formed 7 per cent of the value of goods purchased from promoter-controlled entities’ is factually incorrect. Out of Rs 553.88 crore of total purchases from related parties during the FY2019-20, total purchase from Paladin was Rs 1.3 crore (which is lower than 0.2 per cent) of total purchases from related parties.”

“Additionally, the Company has been disclosing transactions with each of the related parties where the transaction value is more than 10 per cent of the total transactions of the same type with related parties during the year,” it said.

Asian Paints remarked that transactions with related parties duly received approval from the Audit Committee. It said, any Promoter Director on the audit committee generally does not participate in concerning meetings.