AGS Transact Technologies Ltd (AGS) describes itself as a company standing at the forefront of the growing payment landscape of the country.
Among other things, it provides the technology solution for banks to automatically dispense cash and other solutions for electronic payments.
It is suddenly staring at a peculiar crisis, similar to a bank’s ATM gone dry on the first afternoon of a three-day holiday!
All its four independent directors (ID) have quit the board in a matter of about five days. The board has no ID as of date!
On 4 February 2025, India Ratings had downgraded the term loans of the company from its previous rating issued on 8 July 2024 of IND A/STABLE, to D, signifying a default in debt repayments. Similarly, the working capital facility was downgraded from IND A1/STABLE, to D.
The company advised the stock exchanges on 10 February 2025 that, together with its subsidiary, the company was in default of repaying overdue principal and interest of about Rs72 crore. It also disclosed salary arrears of Rs67 crore.
AGS’s financial record in the four years since its listing is not anything to rave about.
The top band shows that it made a loss of Rs122 crore in FY23-24. There was another bout of loss of Rs81 crore in FY21-22.
In the 9MFY24-25, it has chalked a loss of Rs165 crore. This is after making a significant provision towards doubtful receivables.
The auditors, BSR & Co LLP have, for the first time, raised a question on the management’s use of going concern basis for the preparation of the accounts and opined that this was not adequately supported!
There has been a virtual procession of all its IDs, almost similar to what happens in a cricket match!
Jhuma Guha was the one to trigger the exodus.
Followed by Danushkodi Sivanandhan; both happened on 14th February, the same day the unaudited results were announced by the company to the stock exchanges.
Following this, the two remaining IDs, one on 18th February and the other, a day later, shipped out!
Ms Guha gives the reason of pre-occupation elsewhere. Subrata Kumar Mitra’s alibi is advanced age, health and other priorities.
Preeti Malhotra’s personal reasons and commitments is like a long essay compared to Mr Sivanandhan’s terse, personal reason!
Three out of the four that left are independent directors in other listed companies.
Mr Mitra, who has toted out health and old age as a trigger to leave, actually serves quite a few boards.
There is also an unexplained link with another listed entity, Inditrade Capital Ltd, with two of the directors being on that board. Another non-independent and non-executive director of AGS Transact, Sudip Bandyopadhyay, is the promoter of Inditrade Capital.
That company is in greater financial distress in the current environment where the smaller non-banking financial companies (NBFCs) are facing an existential crisis!
All the four exiting directors are persons of good professional standing and cannot be viewed as individuals lacking proper understanding of the requirements of the post of an ID, the obligations it carries not only towards the company from which they draw remuneration but principally to the non-promoter shareholders who appoint them in the faith that they would duly watch over the activities of the company to serve their interest.
Ms Malhotra was the last one to come on board on 28 June 2023, and as a former president of the ICSI, she cannot be mistaken for a novice in board matters!
Both, Mr Sivanandhan, a former officer from the Indian Police Service (IPS) and director general of police (DGP) in Maharashtra, and Mr Mitra, a seasoned banker, who held high positions in many international banks, must have done their diligence while taking up the assignment.
The adage that ‘rats flee a sinking ship’ may need to be modified to elevate IDs to the status of rodents!
It is also noticed that the company has been remunerating the IDs quite handsomely with sitting fees and commissions. The commission is being drawn by the IDs even when the company did not make profits.
For a company of AGS’s size, the commission and sitting fee, approximating to over Rs50 lakh, is more than commensurate with the role and responsibility.
The figures for the three earlier years are also shown below.
Mr Mitra was appointed on 20 July 2021 and, given the period served by him and the remuneration enjoyed each year, his resignation citing age and health at the wink of an eye, in the middle of a financial year, raises questions about the real unstated reasons.
The company’s stock has crashed even before these developments and the resignations may not be an issue from that context. However, experienced persons who come on board and enjoy a remunerative stint when the going is good, jumping the ship at the first sound of a crisis, raises concerns.
Is the mass exodus triggered only by the default in repayment of the loans and the credit rating taking a beating?
If so, how truthful are the reasons given for the resignation?
Isn’t there a moral duty to watch over the company’s operations when the going is rough, given the remuneration they enjoyed over their tenure?
Is the ID position a sinecure and the payment for lending the name?
ID resignations are not anything new. In most cases, except an odd one, the reasons stated are unverifiable personal issues. Such people continue to serve on other boards, despite pleading health and preoccupations in one case.
If there are more concrete governance reasons and the resigning IDs don’t flag them, then the regulator and the public are not correctly guided on the true state of affairs.
The other aspect is that the company may go into default of complying with the regulations on the number of IDs by the sudden resignations. Getting substitutes when the reputation of the company may have taken a hit by the current developments will not be easy.
There must be some minimum notice period that an ID should serve before the resignation takes effect.
Another aspect for the readers to mull over is whether a rule that the whole or a part of the commission drawn in the immediately preceding year should be refunded for such abrupt resignations.
As far as BSR &CoLLP, the statutory auditor, is concerned, leaving a Rs2 crore account won’t be an easy decision, unless the cash-flow situation of the company puts their fee in peril!
For the time being, they have upgraded the issue of preparation of the financials on a going concern basis from a key audit matter to a qualification! They may wish to play safe, given the negative observations on their audit quality in some of the previous inspections by the national financial reporting authority (NFRA).
The rat-like act of the directors running away in a tearing hurry may necessitate the regulator to put on its feline clothing!
(Ranganathan V is a CA and CS. He has over 44 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
What to do now any suggestions