National Company Law Tribunal Refuses Interim Relief to Ricoh

Ricoh had sought the tribunal’s permission to cancel and recapitalise shares that they held in their subsidiary Ricoh India.

The Ricoh Co. logo is displayed at the CP+ Camera and Photo Imaging Show (Photographer: Kiyoshi Ota/Bloomberg)
The Ricoh Co. logo is displayed at the CP+ Camera and Photo Imaging Show (Photographer: Kiyoshi Ota/Bloomberg)

The Mumbai bench of the National Company Law Tribunal denied Ricoh Company Ltd. interim relief on Wednesday. The company had sought the tribunal’s permission to cancel its 73.6 percent shareholding in Indian subsidiary Ricoh India Ltd. and recapitalise the company to the extent of losses detected owing to fraudulent accounting by the subsidiary.

Ricoh Company has been asked to file audit reports, and a forensic audit report (conducted by PWC) to ascertain whether its attempt at fund infusion was bonafide, and not merely an attempt to “gloss over” the purported fraud.

The order also directed Ricoh Company to file correspondences with regulatory authorities and the Ministry of Corporate Affairs.

The tribunal said they could not grant interim relief under Section 241 of the Companies Act, 2013 as the petitioners had placed neither an unaudited balance sheet, nor any other previous balance sheet,or financial statement making the nature of defalcation of accounts clear.

Section 241, under the prevention of oppression and mismanagement provision, grants the tribunal wide powers to pass preventive remedies to ensure a company can continue to function effectively.

The order comes despite the fact that the Bombay Stock Exchange and market regulator Securities and Exchange Board of India had raised no objections to the cancellation of shares and recapitalisation of Ricoh India by the parent company. Ricoh Company must now file the required documents by August 22.

Commenting on the tribunal decision Ricoh India shareholder Manthan Sanghavi told BloombergQuint in a phone interview, “It is very disappointing. It is surprising on NCLTs part ,because Ricoh Company was ready to bring in the money. NCLT should have kept the money in the escrow account and then continued its enquiry. This is very detrimental to minority shareholders.”

Another shareholder, R K Agarwal, said in a phone interview, “NCLT is not interested in what amount parent company brings in. It wants to make sure that the parent company is not involved in this fraud.”

260 public shareholders of Ricoh recently attempted to unseat four directors on the company’s board and appoint an independent director, but they failed to garner the requisite votes to do so.

Ricoh India is under scrutiny for irregular financial transactions after its statutory auditor BSR & Co., raised an alarm in November 2015. Thereafter Ricoh failed to file quarterly earnings for three quarters, its stock was suspended from trading by the Bombay Stock Exchange and the company filed a complaint with the Delhi police alleging fraud and an estimated loss of Rs 1123 crore.

These events prompted it’s Japanese parent Ricoh Company to file a petition in the NCLT, under company law provisions that govern oppression of shareholders and mismanagement of the company. The petition was filed in July 2016 and its outcome is awaited.