Mumbai: The markets regulator has started a probe against Sun Pharmaceuticals Industries Ltd for allegedly failing to make proper disclosures, financial irregularities and governance lapses, based on complaints received from a whistleblower, two people with direct knowledge of the matter said.
Under pressure from investors, Sun Pharma on Tuesday discontinued a business arrangement with Aditya Medisales Ltd, an entity owned by Sun Pharma promoters that distributed the drug maker’s formulations in India. The business would now be handled by a wholly-owned subsidiary of Sun Pharma, the company said in a stock exchange filing. Dilip Shanghviowns 59.67% of Aditya in his personal capacity.
Sebi probing Sun Pharma over whistleblower charges
Sun Pharma had come under a cloud over allegations of related-party transactions with Aditya Medisales.
To be sure, Sun did not categorize Aditya as a related party till 2017-18, as it was legally required to declare it only in 2018, when provisions of the new companies law came into effect.
Sun Pharma’s stock surged 4.95% to ₹418.05 on BSE after the announcement.
“Sebi (Securities and Exchange Board of India) in its probe is trying to verify the allegations levelled against the company. It is early to say but, as per initial examination, Sebi suspects that there could be some disclosure lapses or governance lapses. The alleged financial irregularities can only be talked about only after some more examination,” the first of the two people cited earlier said on condition of anonymity.
Replying to Mint’s emailed queries, a Sun Pharma spokesman said: “We received two queries from Sebi which the company has responded to. We are not in a position to comment as to whether the queries are related to the whistleblower complaint.”
Sun Pharma has been in the eye of a controversy after the whistleblower accused the company’s top executives, including managing director Shanghvi, of indulging in business dealings with stock market scam accused and absconder Dharmesh Doshi. In a second complaint made public on 16 January, the whistleblower alleged that these transactions ran up to ₹5,800 crore.
Shanghvi denied the links with Doshi in an investor call on 3 December and termed the allegations as old and irrelevant. However, copies of certain emails (dated 1 and 2 December) have now emerged, which suggest a different story. The whistleblower has shared copies of these emails with Mint and Sebi. Mint could not independently verify the authenticity of these mails. The emails, now under Sebi scrutiny and purportedly exchanged between Shanghvi and his brother-in-law Sudhir Valia, executive director of Sun Pharma, refer to communications with Doshi. One of the suggestions in these emails was to shut down or restructure Aditya Medisales, which was announced on Tuesday.
Valia, a chartered accountant and often described as Sun Pharma’s “numbers man”, has driven the company’s various acquisitions.
Doshi is one of the key accused in the 2001 stock market scam and is barred from the Indian markets for life. Doshi has evaded arrest and is still absconding. Interpol issued a Red Corner Notice against him in 2002 at the request of the Central Bureau of Investigation. There is a non-bailable warrant pending against him and his passport has been revoked.
The whistleblower has alleged that Shanghvi and Valia have close links with Doshi.
In an emailed response, the Sun Pharma spokesperson said: “We unequivocally state that there is no iota of truth in the said assertions. No such emails were ever exchanged nor such conversations transpired between Mr. Dilip Shanghvi, our managing director and any individual(s)”.
Sun Pharma also denied giving any loans or advances to third parties.
Shriram Subramanian, founder and managing director of InGovern Research Services, said that good governance is not just about following the rule of law. “Good governance requires that there is no speck of doubt. There should be clean structures and complete transparency for investors,” said Subramanian.
According to him, the existence of the relationship with Aditya Medisales defies logic. “When the pharma company has a huge distribution and sales network, what is the need to have a privately-held third party as a distributor,” he asked.