An accounting firm run by an independent director of Adani Power Ltd is the auditor for Adicorp Enterprises, the entity behind a complex transaction that involved lending ₹608.5 crore to the power producer, prompting concerns about potential conflicts of interest and the adequacy of disclosure practices.
Mukesh M. Shah, 71, an independent director and chairman of the audit committee at Adani Power, is also the founder and managing partner of Mukesh M Shah and Co., which serves as the auditor of Adicorp Enterprises, a privately held firm based out of Ahmedabad.
Transactions involving Adicorp Enterprises, Adani Power and a clutch of Adani group firms were flagged in the late-January report on the conglomerate published by the New York-based short seller and research firm Hindenburg. The transactions are as follows. Adicorp borrowed ₹622 crore in the year ended March 2020 from four Adani group firms. Of them, two privately held companies—Adani Logistics and Adani Estates—gave ₹543.1 crore and ₹10.1 crore, respectively, while two public firms—Adani Enterprises Ltd and Adani Ports and Special Economic Zone Ltd—lent ₹11.8 crore and ₹57.2 crore, respectively, according to filings with the Registrar of Companies. Subsequently, AdiCorp lent ₹608.5 crore to Adani Power during the same financial year, leading to the question, as indeed Hindenburg asked, whether the loans were effectively being routed through Adicorp to circumvent related party disclosures.
In its 27 January response to Hindenburg’s wide-ranging allegations, Adani group said this about the Adicorp transactions: “AdiCorp is not a related party, and transactions with AdiCorp are not ‘related party transactions’ under laws of Indian or accounting standards, and these have been undertaken in compliance with applicable law.”
But the transaction invokes questions of propriety as one person wielded influence over two parties who could have demanded or advocated additional disclosures—the auditor of Adicorp, the lender, and the audit committee of Adani Power, the borrower.
It’s also unclear if the board of Adani Power was made aware of this relationship with the potential for conflict of interest by Shah.
Shah did not respond to a questionnaire sent by Mint last week. AdiCorp also did not offer a comment. Adani Group did not respond to an email seeking comments on the rationale for the transactions as well as whether the eight-member board of Adani Power was told about work done by Shah’s firm for AdiCorp.
Adicorp’s ₹608.5 crore loan to Adani Power was preceded by a ₹553.28 crore loan to the power producer in the year ended March 2019. Mint could not independently ascertain the source of Adicorp’s funds for that transaction. The company borrowed ₹52.18 crore from Adani Ports and Special Economic Zone in 2019.
AdiCorp Enterprises hired Mukesh M Shah & Co. as its statutory auditor for five years in 2020.
While neither Adani Power nor Mukesh Shah is legally required to make any disclosures, multiple experts in accounting law and corporate governance said they believe a voluntary disclosure would have helped avoid questions of conflict of interest.
Adicorp was founded in 1995 and said it’s in the business of “dealing in shares and immovable properties”. The company was founded by Utkarsh Shah, an Ahmedabad-based businessman with interests in coal trading and real estate. After the demise of Shah last year, his son Aadarsh joined the company.
Adicorp’s financials are at a relatively smaller size compared with the loan extended to it by Adani Group companies. Adicorp posted a profit of ₹68.6 lakh on revenue of ₹64.3 crore in the year ended March 2020, the year it got an over ₹620 crore loan from the four Adani companies. Since then, the company’s financials have deteriorated. Its revenue declined to ₹33.2 crore and swung to a loss of ₹76 lakh in the following year. In the year ended 31 March 2022, the company’s revenue slipped further to ₹18.5 crore, but it posted a ₹14.29 lakh profit.
“Ideally, the auditor of AdiCorp should have questioned the rationale of how the company managed to borrow money from the four Adani companies, how it plans to pay back, and why were they further lending this money to Adani Power,” the founder of a proxy advisory firm said on the condition of anonymity.
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