MCA orders probe into Hero MotoCorp in fund diversion case

The probe initiated under ‘public interest’ will investigate the true ownership of certain linked companies. Other than Hero MotoCorp, the MCA will also investigate the affairs of Salt Experiences and Management Private Limited (SEMPL) which it suspects to be a ‘linked entity’ of Hero MotoCorp, 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. The same was examined by the government which has ordered an investigation into the affairs of Hero MotoCorp and SEMPL, in public interest 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’ ; whereas section 216 allows investigation of ownership of a company.

An email sent to Hero MotoCorp on Wednesday didn’t elicit a response until press time.

Sources added the probe will look into the findings of both the income tax and the Customs department against the two firms while dealing with corporate governance issues. MCA has the power to strike off a company if found to be a shell or a dormant entity.In March, 2022, Hero MotoCorp was raided by the income tax department over alleged tax evasion. The IT had even covered the residence of Pawan Munjal, Chairman, Chief Executive Officer and Managing Director of Hero MotoCorp Limited while conducting the searches. The CBDT, the department’s parent in a statement without naming the company, had said that it found alleged illegal business expenses of over Rs 800 crore. It had also alleged that it had found 10 acres of farmland in Delhi was purchased through a few companies. “…In such transactions, “unaccounted” cash component of over Rs 60 crore was purportedly involved,” the statement had said. “Expenditure aggregating to more than INR 800 crore has been booked in the guise of purchase of services from a specific event management entity,” the statement further added.

In August 2018, Pawan Munjal, Chairman, Chief Executive Officer and Managing Director of Hero MotoCorp Limited was deplaned at the Indira Gandhi International Airport, New Delhi after a person identified as Amit Bali was found to be carrying alleged foreign currency equivalent to Rs 81 lakhs in his personal carry- in luggage which was found during the security check in by CISF officials. Bali had subsequently told the Customs department official that he was carrying the forex on behalf of SEMPL and that it belonged to Munjal.

The Customs department subsequently showcaused Munjal alleging him, “… to be beneficial owner of goods-foreign exchange, in this case-which was sought to be taken out of the country by Amit Bali on the day of the interception and on several past occasions”.

The Customs department 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 failed to declare it to customs on all occasions”.

The probe had revealed that SEMPL had a yearly turnover of Rs. 200 crores and between 2014 and 2018 it had business of Rs. 785.96 crores from HMC and that too without any written contract. However HMC had contended that it was a client of M/s SEMPL and was a mere a recipient of services provided by SEMPL “…HMC settles all the invoices raised by M/s SEMPL in INR in India. There is no evidence that HMC exercise any financial/ shareholding interest in M/s SEMPL or exercises effective control. Noticee No. 5 (Munjal) being the CEO and Chairman of HMC, to whom the service have been provided by M/s SEMPL, cannot be said to become the “beneficial owner” of M/s SEMPL in any which way.”

However in March 2022, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) ruled in the favour of Munjal observing that “…HMC had arranged SEMPL as the service provider for the 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. The Commissioner (Appeals) has merely on conjectures and surmises assumed the liability of the appellant in relation to the export of foreign currency”.

An email reply the spokesperson said, “We have not received any communication with this regard and hence cannot comment on the contents of your queries. We will provide all information, if and when it is sought from us by any regulatory authority,” their statement read.”

Hero MotoCorp, the world’s largest manufacturer of motorcycles and scooters, is a responsible, law abiding and much-admired Indian multinational, and known for following global best governance practices,” it added.