Marc Desaedeleer, an independent director of Suzlon Energy Ltd, resigned from the board of the company on 8 June 2024, citing governance concerns and pinpointing a lack of transparency in the communication to the board members.
Such factual reasons being given for a resignation is quite rare, as independent directors who wish to quit, often, give vague personal reasons to not jolt the boat.
In the case of Suzlon, this development did not attract much attention as the company’s governance practices often raised questions on them, though no specific blowout took place.
The reason to abruptly mention something which did not make news even when it happened is to provide a backdrop to discuss some aspects of an adjudication order of the Securities and Exchange Board of India (SEBI) dated 27 June 2025.
SEBI, in May 2022, had initiated proceedings to investigate some allegedly questionable accounting and related transactions that the company had engaged in during the period 2014-15 till 2020-21. While the SEBI investigation covered more than one transaction, this article looks at one particular transaction that came across as too spicy to miss!
For readers who may not have followed this company, an extract from the letter to the shareholders of the company in May 2013, by the then-chairman of the company, Tulsi Tanti, will be relevant.
“I write to you today in the midst of what continues to be a challenging period for both the wind sector generally and our Group specifically. As the world deals with the cascading impacts of the financial crisis, which continue to this day, the global economy has had to find a course through uncharted waters. The wind industry has been no exception to this, indeed, over the past three years, the entire sector has been challenged to adapt to this ‘new normal’. Dealing with a radically altered business landscape, and dramatically increased risk, the Management Team faced a difficult choice in changing course. As we focused on liability management, our business performance was severely impacted – effectively a shortage of liquidity leading to an underutilization of capacity and thereby significantly lower volumes. While this led to a very disappointing business performance for the fiscal, we did achieve significant progress in addressing our liabilities. We know the road ahead will not be easy. However, with the progress we have made – and the work that remains underway – we remain confident of achieving long-term sustainability.”
In FY12-13, the company’s financial situation deteriorated significantly; a debt crisis was imminent. The following year (FY13-14) saw the company default on its foreign currency convertible bond (FCCB) commitments.
Suzlon’s corporate structure was like an octopus, with numerous subsidiaries and satellite entities in which the parent had invested both equity and debt. With the downturn in the business, the value of the abovesaid investments eroded and came the compulsion to account for the impairment and write-offs.
As it happens in certain cases, some of these investments may have been unviable from the start as the money may not have gone for the intended purpose, but the auditors wake up to the impairment only when the tide ebbs out and the bottom becomes visible!
In FY13-14, the first big hit of impairment loomed and the picture would have turned a lot worse with the impairment write-off adding to the operational losses, taking the net worth nearly into the red.
In such situations, financial and accounting engineering takes precedence over a candid acceptance of the operational problems and setting them right.
Suzlon was no exception and resorted to a transaction that boosted its profits on the books. Bang on the close of the accounting year, on 29 March 2014, Suzlon carved out its operations and maintenance service business, that had a revenue stream from operations and maintenance (O&M) contracts for the wind turbines sold and valued it at a little over Rs2,000 crore. No small change, the number was!
Given that the O&M activity was asset-light, and was not even identified as a separate segment in the books, its net assets amounted to just Rs77 crore.
Imagine, a business that has a cost in the books of a piddling Rs77 crore, commanding a value of Rs2,000 crore! Selling this to any interested buyer implies a nearly Rs2,000 crore of profits to bolster the fast-depleting net worth.
The Suzlon board, too, thought exactly in this direction. Except that there was no one from the outside to buy it, but one of their own subsidiary companies!
Suzlon Global Services Ltd (SGS), the ‘global’ imparting due gravitas to its presence, did not have a dime in the bank to pay for the purchase. The slump sale was executed with the entire consideration recorded as an outstanding payable!
In the absence of the terms of the resolution approved by the shareholders for the slump sale, it is difficult to ascertain if it was even remotely contemplated that the transaction would take place with actually no cash being paid and merely book entries being made at both ends.
How this deal helped the promoters, the board, the auditors and maybe even the lenders, can be understood from the table below-
The Rs1,922 crore of profits booked on the sale of the O&M business was responsible for converting the exceptional losses of about Rs1,300 crore to an exceptional profit of Rs638 crore. The notional (the valuers may object) profit helped to arrest a deeper red splashing on the P&L!
Though SGS did not have a penny on its books to pay, at least, if the O&M business generated a net surplus that would have helped to clear the payables in the course of time.
But the four years’ results following the sale showed only a net negative cash position as extracted below-
The idea of showing the numbers of the O&M business, which the SEBI order did not capture, is not to cast any doubt on the valuation made by Grant Thornton LLP which formed the basis for the sale and the profit booked.
The discipline of business valuation is more an art, where the number follows a story that is spun. Spinning a convincing story around a business needs a level of imagination next only to writing children’s fiction!
The next scene is the following financial year, FY15-16. What Suzlon did was truly mind-boggling, like the six-run cricket win recently!
How they did not qualify for some award or the other instituted by one of the large accounting firms or by any of the financial newspapers in the country is definitely a mystery!
It sold the investment in SGS to another subsidiary, Suzlon Structures Ltd (SSL). The balance sheet of SGS is partially extracted below for the reader to know the position when this transaction happened-
The investment in SGL was sold at a profit of Rs829.78 crore.
Between the two accounting years, FY14-15 and FY15-16, the stand-alone accounts recorded Rs2,752 crore of paper profits out of the O&M business.
The above multiple profit booking from the same business is similar to a saying in the southern part of the country that, when the image of lord Ganesh is made of jaggery for worship, a small piece of jaggery is removed from the image itself to make an offering to the God!
Discovering this hidden value, like multiple archaeological finds in the same site, is also credited to Grant Thornton LLP.
In the interest of space, and not taxing the reader’s patience, certain intriguing details—of how the same amount of cash circulated multiple times to settle the inter-company loan on this transaction—are not detailed out. To put it on record, SEBI had engaged a forensic auditor to cull out all the details, and duly recorded the same.
But for the fact that all that is said in this article is supported by extracts from the annual reports of the company itself, this may sound quite far-fetched and fictional to happen in a listed entity with so much scrutiny of the auditors and of the independent directors.
The next piece of information may sound like a story from a movie—on 2 May 2024, the Suzlon board decided to merge SGL into Suzlon itself, so that the O&M business that went out of the main company will come back into the mother’s fold!
The amalgamation of SGS has since been approved by the NCLT on 8 May 2025. The separate existence of the O&M business was somewhat short-lived, like Solomon Grundy!
Unconnected to the previous story, Suzlon has also initiated an exercise to spruce up its balance sheet. This scheme of arrangement under section 230 of the Companies Act-
As per the last annual report that carried the full details, the company had a negative accumulated profits, but with positive balances under other heads. The purpose of the scheme proposed by the board on 28 October 2024, is to set this right so that the red ink is erased and the reserves start with a positive figure.
While this is entirely cosmetic, many companies have done this in the past as a part of the rehabilitation process and there is nothing adverse about this.
The above discussion is more to place on record the secret admiration for the accounting acrobatics achieved with aplomb that actually helped the company turn the corner after more than a decade of struggle. Suzlon managed a dreamlike debt restructuring in 2020/21 that has put it back on stream, operationally. Its current market cap of nearly Rs90,000 crore is many times what it was when the bottom was hit.
Its two joint auditors, one of whom, SR Batliboi and Company, coincidentally became the auditor just around the time the Suzlon honcho was conferred the Ernst & Young entrepreneur of the year award in 2006, stood by the company through its worst, and never felt troubled by the elastic principles of bookkeeping of the company.
If readers have lost track of the narration, the author is alone to be faulted! If you are left wondering what happened to SEBI’s investigation which the agency carried out scrupulously for nearly three years-
Just the concluding part of the order alone is captured due to lack of space-
Under such turbulent circumstances, it is best left to the management, which has been entrusted by the stakeholders with the task of steering the ship. I note that the decisions taken by the management of a company should not be questioned as they are the better judges of the challenges being faced by them. The key issue is whether the decisions are in compliance with the applicable provisions, taken with due approvals and whether the same have been disclosed adequately to the stakeholders, which in this case I find has been done. The same exhibits clear intention of the company that nothing is being hidden by them and dissemination to the public at large has been made. After a disclosure is there in the public domain, it is then up to the investors whether they want to continue or not.
As already established above, Noticee 1 had taken board and shareholders’ approval as and when required and had also made requisite disclosure to the stock exchanges. Hence, I do not find any merit in the allegations against the Noticees.
(Para 27&28 of SEBI’s order)
Hope the same approach as taken in Suzlon will prevail with SEBI in future cases!
(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 a 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.)
Thanks for the insights.