Reebok India on Tuesday has lodged a first information report (FIR) with Gurgaon Police alleging that its former managing director Subhinder Singh Prem and COO Vishnu Bhagat had “stolen” products by setting up “secret warehouses”, fudged accounts and indulged in fictitious sales to cause a Rs 8,700 crores dent to the company.
In a regulatory filings on May 1, Adidas, which owns the Reebok brand, had said that commercial irregularities in India had forced it to take a Rs 870 crores hit in addition to restructuring spend of Rs 470 crores planned in 2012. Reebok India’s turnover is estimated at around Rs 600 crores.
“In respect of the account receivable balances, which were at such regional outstanding reports, showed the official balance reported to the group and various adjustments to be made (for) arriving at a ‘net recoverable amount’,” the FIR said. In case of one customer, the company alleged that the amount outstanding as per its records was Rs 34.36 crores, compared to Rs 13.32 crores in the ROR. On December 31, 2011, the official accounts receivable of all customers was estimated at Rs 1,007 crores, compared to around Rs 476 crores in the ROR.
“In order to hide the fraud, the accused malafidely (sic) passed on extra margin to the customers on the invoice which were treated as credit note reduction as issuing a credit note would have made it obvious that the balance reported in the books (were) not correct,” it added.
The company has also accused the two former executives of raising invoices of Rs 86 crore on customers for products already invoiced and delivered in 2010-11, which is against the norm. Reebok said that this was done to claim bonus and incentives. Reebok has suggested that the police conduct a “thorough investigation and custodial investigation” of the two former executives. Maheswar Dyal, DCP (East) Gurgaon, said that the police would call Reebok executives on this week to get more details on the FIR.
Earlier, Prem sued his former employer for Rs 15 crore in damages. The lawyers have also demanded from Adidas, contractual dues of Rs 12.7 crore, which includes Prem’s performance bonus for 2011 and his severance package.
If the allegations are found correct, this would be the second biggest corporate scandal in India after Satyam, where Ramalinga Raju was accused of orchestrating a Rs 14,000 crores fraud. And this would also be on the lines with the on-going battle between kidswear major Lilliput and its PE investors TPG and Bain Capital, where the investors have accused Lilliput Founder and MD, Sanjeev Narula of fudging with company accounts. As rising cases of corruption, scandals and delayed policy decisions coupled with staggering growth and high inflation is affecting the investor confidence, rise in number of incidents such as Lilliput and Reebok would further create an uncertainty over the entry of foreign giants in India and it also puts a question mark on prospects and performance of the organised retailing in the country.