Auditor Says McLeod Russel Violated Inter-Corporate Deposit Norms
Auditor concerns could exacerbate a falling share price at McLeod Russel.
McLeod Russel India Ltd. reported a loss for the quarter ended June. Yet, the auditor said the tea grower and processor understated the figure.
The company extended inter-corporate deposits worth Rs 2,923 crore, including interest of Rs 77 crore accrued till March 31, to certain companies as of June, according to the company’s auditor review report accompanying the exchange filing.
“The above amount outstanding as on this date is doubtful of recovery,” the auditor said. The company made no provision for these loans and hence, understated the loss for the period, it said. Also, the inter-corporate deposits extended are in excess of the limit prescribed under Section 186 of the Companies Act, 2013, and subject to necessary compliance, it said.
This comes at a time the Williamson Magor Group flagship is struggling to repay debt. The tea company’s current liabilities exceed its current assets, the auditor said. Besides, funds borrowed by McLeod Russel were used for financing other group companies who haven’t repaid their dues. “These conditions indicate the existence of a material uncertainty about the company’s ability to continue as a going concern.”
McLeod Russel, however, said the inter-corporate deposits given to promoter group and certain other companies shall be recovered/adjusted in due course of time and no further provision is required at this stage. Steps are being taken to restructure the financial obligations of the parent as well as of various group companies and ensure repayment/reduction of outstanding amounts, it said in the filing.
About breaching the legal exposure limit prescribed under Companies Act, it said these matters are procedural in nature and/or are subject to review by the authorities and do not have any impact as such on the profit or loss for the period. Also, steps are being taken to regularise these matters and explanations and information required by the Registrar of Companies are being provided, it said.
On July 19, McLeod Russel informed the bourses that Deloitte Haskins and Sells LLP had resigned as its statutory auditor, and the company appointed M/s Lodha & Co in the casual vacancy.
Deloitte in its qualification to the financial statement earlier last month, too, had said the tea company didn’t make provisions for advances to promoters and it understated its loss.
Shares of McLeod Russel and its group companies have plunged around 90 percent in the past one year. That’s because lenders have been invoking shares of promoters and selling them in the open market, according to exchange disclosures. The promoter holding fell to 31.03 percent as of June from 42.71 percent in March, the BSE data showed.