Proxy advisory firm InGovern raises related-party issues at Asian Paints

Company says the audit committee has a majority of independent directors, and the promoter director does not participate in the meeting during discussions on related-party transactions

The Dani family, one of the promoters of India’s largest paint firm — Asian Paints — has come under fire from proxy advisory firm InGovern after the latter pointed out several related party transactions between Asian Paints and Paladin Paints & Chemicals, a private company owned by the Danis.

“A lack of detailed disclosure and intent of procuring such a high percentage from companies, including Paladin — that are owned by promoters of Asian Paints — is strange. For example, in 2019-20, Asian Paints procured over 5.8 per cent of its raw material from companies controlled by promoters. Paladin itself formed only 7 per cent of the value of goods purchased from promoter-controlled entities,” said InGovern in a report to clients. 

Shares of Asian Paints closed at Rs 3,158 a share on the BSE, with a total market valuation of Rs 3 trillion.

Saying there is conflict of interest by the promoter/directors who own Paladin Paints & Chemicals, InGovern said the promoter directors, who control entities supplying goods to Asian Paints, should immediately resign from the board of Asian Paints.

“The Securities and Exchange Board of India needs to investigate and insist on detailed disclosures of related party transactions by such a large listed company,” it said.

InGovern said the audit committee of Asian Paints, chaired by M K Sharma, former chairman of ICICI Bank, should ensure the disclosures are more granular, so that investors are not left wondering why the company is not transparent.

“The audit committee did not consist only of independent directors, but included a promoter director. Asian Paints should ensure the audit committee comprises only independent directors,” said the report.

InGovern also noticed that Asian Paints procured goods from other entities/companies that are controlled by promoters and it is not clear as to which are these entities and the value of goods procured from these entities.

“It is not clear whether these entities are controlled by other promoter families, apart from the Dani family. Inadequate disclosure of value of related party transactions and logic thereof with Paladin and other promoter-controlled entities thus, leaving the issue a bit cloudy and throwing up questions on conflict of interest,” it said.

The firm said the board must present details of the related party transactions with each of the promoter-controlled companies/entities, including Paladin. The audit committee did not consist of only independent directors, but included a promoter director as well. Hence, Asian Paints should ensure the audit committee comprises only independent directors, it said.

An Asian Paints official said the audit committee of the company was comprised of a majority of independent directors, and the promoter director, a member of the committee, did not participate in the meeting during discussions on related-party transactions as mandated by law.

On related-party deals with PPCL, the official said PPCL formed seven 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 FY 2019-20, total purchase from PPCPL is Rs.1.3 crore (which is lower than 0.2 per cent)," the official said.