The Serious Fraud Investigation Office (SFIO) has removed the names of Claus Heckerott,Adidas India, Managing Director from March 2012 to January 2013 and Shahin Padath, the then Director of finance from the list of accused in a complaint filed against Reebok India arm for alleged Rs 1,477-crores fraud. As per SFIO, it was done following a directive from Ministry of Corporate Affairs, SFIO’s parent ministry. In the complaint, SFIO has said that both Heckerott and Padath were aware that the accounts were falsified. In May 2011, Padath had signed the company’s financial statements for FY10, despite being aware it contained intentional fraud transactions. This, the complaint said, made him liable for prosecution for violating various sections of Companies Act, punishable with imprisonment and fine, if found guilty.
However, since in May 2012, Padath filed a First Information Report (FIR) on behalf of the company against the fraud committed by then Reebok India Managing Director Subhinder Singh Prem and Chief Operating Officer Vishnu Bhagat, his name was dropped from the list of accused. It may be recalled that the parent company Adidas had filed a complaint in the Gurgaon court against Prem, Bhagat and some other employees. However, the lawyer representing Prem has accused Adidas of letting of foreign directors and nominees of Adidas group from the case. Owing to lapses by internal and external auditors N N & Company and BSR & Co, SFIO has also sought a criminal case against the partners of the audit firms.
SFIO investigations have pointed out that the fraud involved filing fictitious invoices to show inflated sales, recording fictitious sales by raising prices of goods sold, premature recognition of revenue and bills raised but goods not dispatched, among many other such fraudulent practices. The company ran a ‘franchisee referral programme’, through which it collected Rs 88.11 crores from around 60 high networth individuals, including former attorney general Soli J Sorabjee, promising an interest of 16-20 percent. The SFIO investigators say these funds were recycled by Reebok India employees as a part of their effort to boost cash flow.
The agency has also said that there was a lack of corporate governance practices at Reebok India by the Adidas group, with instances of Section 58A of the Companies Act being violated, forensic reports ignored, internal control failure and no heed to Foreign Investment Promotion Board norms.