Shareholders Reject Dish TV's Audited Accounts. What Happens Next?
A vote on accounts or a legal play—Dish TV's shareholders reject the audited financial statements. What's the next move?
After resisting in various forums for over two months, this week Dish TV India Ltd. finally disclosed the results of its Dec. 30 annual general meeting. This was, of course, prompted by the Securities and Exchange Board of India’s stern order on Monday, which gave the company 24 hours to disclose the results.
Three resolutions were put to vote in this AGM. All three were defeated. 79% shareholders voted down the reappointment of Ashok Kurien, a director liable to retire by rotation. 54% voted against ratification of remuneration of cost auditors.
But one that's likely to result in most uncertainty is shareholder opposition to the audited financial statements for FY2021-22, with 78% shareholders voting against this resolution.
It’s a rare outcome for a listed company, experts BloombergQuint spoke with said.
"I don’t remember a case where the shareholders have not adopted the audited accounts," former ICAI President Amarjit Chopra said.
According to Rajat Sethi, corporate partner at S&R Associates, this is an "unprecedented situation". "Possibly, for companies on the verge of bankruptcy, there have been (such) instances. Jet Airways is one such example," said Sethi.
What makes matters even more complex is the fact that this is an outcome of remote e-voting, where there’s no option of a qualitative response from shareholders on why they’ve rejected the audited accounts.
In Dish TV’s case, however, it could be less about the financial statements but more about the larger acrimonious relationship between the company and its institutional shareholders, said Sethi.
Possibly, these votes are not on the accounts. There’s a larger fight that’s been playing out between the promoters, the board versus Yes Bank. Perhaps this outcome is consistent with the broader tussle rather than the specific issue with the company’s accounts.Rajat Sethi, Partner, S&R Associates
Yes Bank Ltd. is seeking to reconstitute the company's board on governance concerns and has also filed a mismanagement suit. Dish TV has fought back by repeatedly seeking to freeze Yes Bank's voting rights and dispute its ownership.
Accounts Rejected: What Next?
Vote on audited accounts or a legal play, Dish TV’s financial statement for FY2021-22 stand rejected. What happens once shareholders reject audited accounts and the consequences of it? The Companies Act, 2013, doesn’t specify that.
The next step has to come from the Registrar of Companies or the Ministry of Corporate Affairs, Chopra said.
Sethi agreed, pointing out that there’s no provision in the law that allows a dialogue between the company and the shareholders once the audited accounts are rejected.
Accounts can be re-opened or recast basis a court or tribunal’s order. The starting point for this is an application by the central government, SEBI, or any other statutory authority.
And it’s permitted only if:
The relevant earlier accounts were prepared in a fraudulent manner.
The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.
There’s a provision for voluntary revision of financial statements as well. The directors can make an application to the relevant tribunal if the financial statements are not in compliance with the company law provisions. Here too, the central government and statutory authorities have to be involved.
As the next step, Dish TV will have to file the accounts with the Registrar of Companies specifying that the shareholders have rejected their adoption. Once the accounts are filed with this disclaimer, the RoC and MCA come into the picture, and determine whether an investigation is required.Rajat Sethi, Partner, S&R Associates
In Dish TV’s case, experts anticipate that shareholders at odds with the existing board may approach the RoC or MCA requesting an investigation in the company’s accounts.
BloombergQuint has earlier reported that Yes Bank has already made representations to the MCA in November last year, requesting the ministry to direct the RoC to call for information, documents, inspect the books of accounts of Dish TV, its subsidiary companies, and related entities.
Is There A Problem With The Accounts?
The shareholder rejection vote might be a reflection of lack of confidence in the board. But that doesn’t take away from the qualifications by the statutory auditor.
To be clear, the qualification is by the statutory auditor of Dish Infra Services Pvt. Dish TV has made investments and loans of around Rs 6,000 crore in this wholly-owned subsidiary.
Dish Infra’s auditor has a qualified opinion on the adjustments required against the Rs 1,200-crore investment in new technologies. The subsidiary’s auditor has stated that a detailed impairment testing for intangible assets should’ve been carried out as per the accounting standards, which the management didn’t conduct.
"The management has not carried out a detailed impairment testing for intangible assets under development and related advances, inter alia, involving independent valuation experts… In the absence of such aforementioned impairment assessment, we are unable to comment upon adjustments…” – Dish Infra’s Auditor
"If the auditors have given such a stringent qualification, what prevented Dish Infra’s board from getting a study conducted on impairment of the investments? And clearly, the holding company didn’t care either," Chopra said.
Probably, they thought the auditor may qualify but they’ll get away with it. The management concluded no material adjustment is required—what does it mean? You engage people who are experts in carrying out an impairment study. The auditor has done its job by issuing a qualification on this.Amarjit Chopra, Former President, ICAI
Of late, where qualifications are issued by the auditors, SEBI refers it to the Financial Reporting Review Board of the ICAI to ascertain if it’s justified or not, Chopra explained. "That’s a possibility. Both SEBI and the MCA have a role to play here."
The resolution of this matter is linked to the outcome of the larger legal tussle between Yes Bank and the existing board. If the board finally gets reconstituted, it can take a view if the accounts need to be reinstated, Sethi said.