Audit of Videocon hints at questionable accounting entries by promoters

An audit review of highly indebted Videocon Industries indicated that there might have been “questionable accounting entries and/or accounting transactions” in the company prior to initiation of insolvency proceedings when the company was being managed by promoter Dhoot.

Resolution Professional at Videocon Industries has already filed a request with the NCLT to have these transactions declared “void and cancelled,” according to a memo the company filed with the exchanges as it updated its four-quarter financial results.

This followed an independent transaction review audit by the company’s resolution specialist as required under the insolvency and bankruptcy law to identify preferential, undervalued, racketeering and fraudulent transactions.

“Observations resulting from the audit indicated that there may have been certain accounting entries and/or questionable transactions entered into prior to the commencement of the CIRP,” the note stated.

In its pleading, Videocon Industries RP also asked the National Company Law Tribunal (NCLT) that “amendments, if any, may be made for such transaction(s)”.

“There are ongoing investigations against Videocon Group entities by various government agencies, including the SFIO and the Directorate of Enforcement,” the memo said, adding that “RP has been fully supportive and cooperating in the investigation being conducted by the statutory investigative agencies, including the SFIO and ED.”

The decision specialist presented results for four quarters ending in June 2021, September 2021, December 2021 and March 2022 after data compilation.

For the financial year ended 31st March 2022, the company reported total standalone operating income of Rs. 755.72 crores and a net loss of Rs. 6,111.4 crores.

Its revenue from consumer electronics and home appliances, mainly rental income from assets was Rs. 51.51 crore and Rs. 741.34 crore from oil and natural gas.

Resolution specialist assumed control of Videocon Industries as of September 27, 2019.

Besides, it also said that it is unable to present the consolidated financial results because “financial statements/information relating to subsidiaries/associates/joint ventures for the corresponding period were not provided to the decision specialist/company by the promoters and earlier management”.

RP has filed an application with the National Company Law Tribunal (NCLT) seeking cooperation from the promoters and former management of the company, to provide various data, including those required for the preparation of financial statements and data required by various investigative agencies.

The auditor’s memorandum stated, “The required data is still not available to the decision specialist. Hence, in the absence of the relevant data required, the financial statements have been prepared on the basis of the available data on a best efforts basis.”

Earlier, Anil Aggarwal-led Twin Star Technologies with a bid of Rs 2,962 crore appeared as a successful bid for Videocon Industries and was also approved by the NCLT. However, this was challenged by three dissenting financial creditors before the NCLAT Court of Appeal.

On January 5, 2022, the National Corporation Law Appeals Tribunal (NCLAT) overturned the NCLT’s order to approve Twin Star Technologies’ bid and returned the matter to the COC.

It also directed RP to continue managing the 13 Videocon Group entities.

Later, the CoC decided to invite new bids on January 12, 2022, but Twin Star Technologies moved to the Supreme Court against NCLAT’s order.

The Supreme Court had on 14th February 2022 given a Note Oral to the RP and COC not to proceed with the CIRP for corporate debtors until any further orders in subsequent hearings.

“According to these Supreme Court oral notes, the status quo in the present CIRP of Consolidated Corporate Debtors is maintained until further orders/directions from the Honorable Supreme Court. Therefore, the Resolution Specialist continues to manage the Videocon Group entities (including the Company) in accordance with the provisions of the law.”