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An anonymous shareholder had proposed appointment of ratings firm ICRA's statutory auditor BSR & Co last year. ICRA had initially proposed reappointment of its old auditor in the last annual general meeting (AGM), but changed its decision after this shareholder moved the proposal.
One year later, a proxy firm has dug out the circumstances of the appointment and has raised concerns when the company is seeking reappointment of the audit firm. Shareholders will vote on the proposal at the ICRA AGM on Thursday.
In May 2014, the original resolution of ICRA sought reappointment of Vipin Aggarwal & Associates. In June that year, New York-based ratings giant Moody’s Corporation raised its stake above 50 per cent. Subsequently, a few days before the AGM, a special notice was given for a resolution by “a member” proposing to appoint BSR & Co in stead of Vipin Aggarwal & Co.
Under normal circumstances, proposals made by individual shareholders do not get passed. These get passed only when supported by the controlling shareholders. Proxy firm Stakeholders’ Empowerment Services (SES) sees some connection between the Moody’s takeover and the shareholder-sponsored resolution.
In a note, SES said, “In the present case, if a shareholder had moved a resolution it would have been defeated even if all other shareholders, other than promoters, would have voted for the resolution as Moody’s have 50 per cent+. Obviously, Moody’s also wanted new auditors. Therefore, the retiring auditor knowing which way the wind is blowing exited gracefully.”
The proxy firm said it found that route adopted by the promoters to appoint a new auditor in place of retiring Auditors “lacked transparency and was a very poor governance practice.”
Calling the act “firing from the shoulder of faceless shareholder”, SES said it was not a good governance example, especially for promoters like Moody’s.
SES argued that the company owed it to its shareholders to disclose facts and that Vipin Aggarwal & Associates also had to explain to shareholders “what changed so as to write to the company that they do not wish to seek re-appointment”.
SES is also objecting to the reappointment of BSR & Co in the current AGM on technical grounds under Section 139(1).
In response to an email query by Business Standard, an ICRA spokesperson said, “ICRA and its Board are committed to the best corporate governance practices and the highest ethical standards."
The company agreed that the appointment of the statutory auditors was made on the recommendation of Moody’s and explained the sound rationale behind it. “We have complied with relevant provisions of the applicable laws and regulations. BSR & Co. is one of the largest accounting firms in India with a greater international reach and was appointed on the basis of a recommendation made by Moody’s, which owns the majority stake in ICRA,” the spokesperson said.
“The BSR & Co. was appointed for one year in the last AGM and we are now proposing their re- appointment for a period of four years in the forthcoming AGM in compliance with relevant laws and regulations, bearing in mind that we have three years until April 1, 2017 to comply with the laws and regulations,” the spokesperson added.
