MCA orders probe against Hero MotoCorp

The probe initiated under ‘public interest’ will investigate “the true ownership of certain linked companies that may have promoter interests, and likely breaches of corporate governance norms at the behest of promoters,” said an official source. Other than Hero MotoCorp, the MCA will investigate the affairs of Salt Experiences and Management (SEMPL), a closely held company it suspects to be a ‘linked entity’ of Hero MotoCorp promoters, sources added.

“There have been allegations of Hero MotoCorp allegedly floating shell companies. An enquiry by the Registrar of Companies has also concluded a need for a thorough investigation into the affairs of the company and linked entities,” said one of the persons cited above.

The government ordered an investigation under sections 210 (1) (c), along with section 216, of the Companies Act, added the person. Section 210 (1) (c) allows investigation into the affairs of a company in ‘public interest.’ Section 216 allows investigation of ownership of a company.

“We have not received any communication with this regard and, hence, cannot comment on the contents of your queries,” a Hero MotoCorp spokesperson said, in response to mailed queries from ET. “We will provide all information, if and when it is sought from us, by any regulatory authority.”The spokesperson added that Hero MotoCorp is known for following “global best governance practices.” Hero MotoCorp was the biggest loser on the Nifty on Thursday, with the stock declining more than 3%. The broader index lost 0.5%.IT, Customs Incidents
Official sources added the MCA probe will investigate the findings of both the income tax and the customs departments against the two firms while dealing with corporate governance issues. In March 2022, Hero MotoCorp was raided by the income tax department over alleged tax evasion. The Central Board of Direct Taxes (CBDT), the department’s parent, had not named the company but said in a statement that it found alleged illegal business expenses in excess of ₹800 crore. It had also alleged that it had found 10 acres of farmland in Delhi were purchased through a few companies without known ownership structures.

“Expenditure aggregating to more than ₹800 crore has been booked in the guise of purchase of services from a specific event management entity,” the tax department statement had further said. Five years ago, a person identified as Amit Bali was found to be carrying alleged foreign currency equivalent of ₹81 lakh in his cabin luggage, which was found during the security check by CISF officials. Bali had subsequently told the customs department official that he was carrying the forex on behalf of SEMPL.

Two-Pronged Probe
The MCA probe will focus on both the ownership issue of SEMPL and likely Hero Moto promoter involvement in that company, and whether corporate governance norms were disregarded while creating supposed vendor relationships that ultimately might have a promoter entity as a beneficiary.

The customs department had subsequently sent a show-cause notice to the Hero Moto promoter group. It had alleged that Bali was the ‘lynchpin’ of the case who ostensibly carried forex in excess of the prescribed amount on several past occasions, and had failed to declare them to customs authorities.

The probe had revealed that SEMPL had a yearly turnover of ₹200 crore, and between 2014 and 2018, it had business of ₹785.96 crore from Hero Moto- without any written contract. However, Hero Moto had contended that it was a client of SEMPL and was merely a recipient of services provided by SEMPL.

In March last year, the customs, excise & service tax appellate tribunal (CESTAT) had ruled in favour of Pawan Munjal, CEO and MD, Hero MotoCorp. Munjal, from the promoter family at the country’s leading two-wheeler manufacturer, had filed a plea before the tribunal against the department’s order.

“Hero MotoCorp had arranged SEMPL as the service provider for event management outside India and it was the responsibility of SEMPL to acquire foreign exchange which was acquired by SEMPL and handed over to Amit Bali for discharge of the contractual obligation of organising and arranging meetings,” said the tribunal ruling. “The commissioner (appeals) has merely on conjectures and surmises assumed the liability of the appellant in relation to the export of foreign currency.”

Munjal had filed the appeal at CESTAT early 2022.