ROC summons MG Motors over irregularities

It looks like even the bellwethers of the EV revolution are not being spared by the law enforcing authorities. In the latest development, the Registrar of Companies (ROC) has commenced an inquiry into the financial affairs of MG Motor India. While not much is known about the finer details of this investigation, the top management and the auditors of MG Motor India have been already been summoned by the ROC. The ROC has apparently discovered some irregularities in the accounts submitted by MG Motors India to the ROC and wants the top management and the auditors to provide a detailed explanation.

This inquiry instituted by the ROC is under the special provisions of the Companies Act 2013, which authorizes the ROC to take up an inquiry directly with the companies in question where it has reasons to believe that there is an accounting or financial reporting inadequacy. Such an inquiry is more serious than a mere seeking of information but is not as grave as a full-fledged investigation into the affairs of the company. The inquiry is apparently with reference to some of the alleged financial irregularities that ROC has found, but as of now there has not been any official word, either from the company or the ROC.

On its part, MG Motor India has admitted to receiving such a communication from the Registrar of Companies (ROC) had has also agreed to fully cooperate with the ROC in its fact finding mission. MG Motor India has assured the ROC that it would provide all support to the investigation process in line with its global compliance standards, its governance benchmarks and its intent to maintain transparency at the highest level. One of the allegations pertain to operating losses shown by the company, but as per MG Motor India, this is a business where a lot of costs are front-loaded so gestation is par for the course.

Apparently, the notice sent to the company by ROC has sought clarifications on why the company had reported operational losses in the annual report for the first year of operation corresponding to financial year 2019-2020. As of now, MG Motor India is not only furnishing all the requisite records and explanations to help the ROC inquiry, but also making its senior management and its auditors available to the ROC, as an when required. There is not time frame, but a first cut view from the ROC is expected shortly. MG Motor India has been one of the early birds in the electrical vehicles space in India and products were well received.

The gist of the reaction of MG Motor India at this juncture is that it is practically impossible for any automobile company to be able to show profits from operations in its very first year of operation. This is more so considering the fact that automobile business is a long gestation business where there is a lot of front loading over capital expenditure, marketing expenditure, establishing dealer networks etc. These expenses are in the form of long term business investments, which yield results only over a period of time.