Godfrey Philips Ltd, a noted player in the Indian cigarette market, is witnessing a bitter battle between the members of the late KK Modi family for the succession to the Rs20,000 crore enterprise.
The family owns nearly 47.73% stake in the company and the dispute among the family members in implementing the family trust deed to settle the ownership has been in litigation for some time.
Lalit Modi of Indian Premier League (IPL) fame is among the claimants to the business and the shareholding of the family.
The latest episode reported goes a little too far even by the standards of the bitterness seen sometimes in the feuding Indian business families!
Samir Kumaar Modi, an executive director of the company and a scion of the family, has accused his mother Dr Bina Modi, the chairperson and managing director of the company, of organising an assault on him and filed an FIR (first information report) with the police in Delhi.
The alleged scene of the assault is not a private villa or a slum in Kusumpur Pahari, but in the very presence of the other directors of the company when Mr Modi was attempting to enter the boardroom to attend a meeting!
The version that is available is that of the complainant only, as quoted in the media recently.
There has surprisingly been no official filing by the company on this accusation by Mr Modi.
Since the complainant has referred to the presence of the other directors of the company at the scene of the alleged assault, the company is duty-bound to provide its version, which it has not, so far.
The episode appears to have taken place on 30 May 2024, the day when the results for the fourth quarter and for the financial year ended for March 2024 was announced.
Assuming that the allegation is right, the possibility is that the same must have occurred when the board or the audit committee meeting took place on 30 May 2024 to approve the financials.
While the corporate office of the company is in Mumbai, the meeting appears to have taken place in New Delhi as per the place of signing of the accounts reported in the statements filed to the exchanges.
The version reported in the press, attributed to Mr Modi, refers to Dr Lalit Bhasin as an accomplice of Dr Modi in the alleged assault and refers to the presence of the other board members.
Mr Bhasin is one of the independent directors of the company, as per the information in the latest available annual report.
The photo of Mr Modi from his hospital bed, as seen in an online report, seems to lend credence to the complaint of assault and being treated in the hospital for the injury.
It is almost five days since the meeting where the alleged assault took place and was said to be reported to the police and an FIR was already been registered.
The company has neither clarified the position to the stock exchanges nor does there appear to be any query from the exchanges to the company after seeing the reports in the media.
It appears that Mr Modi has been an executive director at least since the year 1998, the earliest one for which the information is available. He had been appointed a director in 1994. This is mentioned to emphasise the aspect that his involvement in the company is not recent.
Dr Modi was appointed for the first time as an additional director on 7 April 2014, and succeeded her husband, KK Modi’s position as the managing director when the latter passed away on 2 November 2019.
The last appointment of Mr Modi as the executive director was made effective from 1 October 2021 to 30 September 2026. His remuneration for the latest financial year for which the information is available, being 31 March 2023, was Rs36.80 crore, including a commission on profits of Rs29.08 crore.
The size of the remuneration is indicative of his role in the organisation, which perhaps is quite substantial, and requires him to be involved in all aspects of the administration.
One of the whispers was that he was not invited to the audit committee and when he tried to force his way, the security guard, at the instance of Ms Modi, roughed him up. Unless the police enquire this matter expeditiously and expose the exact sequence of events, little will be known outside beyond what is said in the media.
It is noticed that Mr Modi did not sign the audited financial statement dated 27 May 2023, the latest financial year where this can be checked, when all other directors, including all the independent directors, had signed.
It is not clear if he was absent in the meeting that approved last year’s accounts or chose to abstain from signing due to some specific reason. In all the earlier years, he has been signing the financial statements.
It is also not clear if he has been sidelined from an active role in the business, despite drawing a significant amount as remuneration. The company and the independent directors have much to clarify if the family dispute is spilling into the boardroom.
Dr Bhasin, referred to by Mr Modi as an aide to Dr Modi in the assault, is designated as an independent director. He has been a director since 31 March 1986.
His association with the company spans almost four decades and obviously brings into question if such persons can be independent directors!
It has been a singular failure of the Securities and Exchange Board of India (SEBI) to let this event pass, not only in this case but also in many others.
Mr Bhasin is also the chairman of the audit committee, a position that SEBI believes demands total independence! His law firm seems to carry out fee-paying work for the company.
While there are many other companies in which family feuds are playing out, Godfrey Philips may be the only one with a significant foreign holding.
Philips Morris International, the biggest tobacco company in the world by market cap, is a 25.10% equity holder in the company.
It can stall any of the special resolutions if it wishes. It can play an active role in the choice of the right independent directors who can play completely neutral roles in family disputes.
Their interest in keeping the partnership going must be in the hope that the government policy, at some stage, may allow them to increase their shareholding.
They also import a significant quantity of raw tobacco through the company, which has been a contentious issue from a related party transaction angle, and was not approved by the public shareholders in the last instance.
In a lighter vein, will the auditors, assuming they witnessed the assault, consider the breaking of bones an ‘emphasis of matter’ or a ‘key audit matter’?
Possibly the Institute of Chartered Accountant of India (ICAI) never envisaged anything more than a breaking up of numbers!
One doesn’t know if a single bone broken is below the tolerable error rate set by the signing auditors!
(Ranganathan V is a CA and CS. He has over 43 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.)
