A Chairman-Linked EPC Contract and a Year-End Invoice at Vaayu Renewables

Threshold analysis. Under section 188 of the Companies Act 2013 read with Rule 15(3), a contract for services with a related party requires prior approval by ordinary resolution of shareholders where it is not in the ordinary course of business or not at arm's length, and in any case where it exceeds 10% of turnover - here 10% of ₹1,120 crore = ₹112 crore. At ₹210 crore the contract crosses that line. Under SEBI LODR Regulation 23, a related-party transaction is material where it exceeds the lower of ₹1,000 crore or 10% of consolidated turnover - again ₹112 crore - so prior shareholder approval with all related parties abstaining was mandatory, and audit committee approval of every RPT was mandatory regardless.

Failures

1. Board approval was never obtained. Section 188 requires a resolution passed at a board meeting; delegation to a committee of two executives is not a board resolution, and approval by circulation is not available for section 188 matters.
2. The chairman's interest was not disclosed and he was not excluded - section 184 requires disclosure, and an interested director cannot count for quorum or vote.
3. No arm's-length evidence: no comparable quotes, no independent valuation, no benchmarking against the ₹40 crore scale at which Vaayu Infra has actually operated.
4. The audit committee's review was not a review - two members on a fifteen-minute call, no papers, no independent pricing opinion, no risk assessment of a thinly capitalised contractor.
5. No credit protection: an ₹18 crore net worth counterparty on a ₹210 crore contract requires performance bank guarantees, milestone-linked payments, retention and no mobilisation advance.
6. Missing disclosures: Form AOC-2, the register of contracts under section 189, and half-yearly RPT disclosure under Regulation 23(9).

Consequence. The contract is not automatically void, but it is voidable at the option of the board and the directors concerned face section 188(5) penalties. The AGM re-appointment should not proceed without full disclosure of the investigation.

Recognition test under Ind AS 115. Revenue is recognised when control of the promised goods transfers to the customer. Two features of the arrangement defeat that here:

• A side letter permitting return if financing is not tied up by 30 April means the customer is not obliged to pay and control has not passed; the arrangement is in substance a financing or consignment arrangement, not a sale.
• Even under bill-and-hold, Ind AS 115 requires a substantive business reason, goods separately identified as belonging to the customer, readiness for delivery, and an expectation of delivery - none of which is evidenced by a 28 March dispatch followed by a return right.

The ₹34 crore should not be recognised; at most it is inventory with a disclosure of the side letter. Recognising it overstates revenue by 3% of turnover, and overstates profit far more sharply given module margins, and it does so deliberately at the reporting date.

Professional obligations. As a member of the Institute of Cost Accountants of India, the controller is bound by its code of ethics - integrity, objectivity, professional competence and confidentiality - and by the obligation not to be associated with misleading information. A cost accountant who records a transaction known to be ineligible, and signs the related workings, is not a bystander.

Practical steps. (1) Put the objection in writing to the CFO with the Ind AS 115 analysis; (2) decline to post the entry without written instruction and record that instruction; (3) escalate to the audit committee chair immediately, given the whistleblower mail; (4) ensure the statutory auditor is told, noting the auditor's own fraud-reporting duty under section 143(12); (5) document everything contemporaneously; (6) if the invoice is issued notwithstanding, consider whether continued association makes the controller complicit, and take advice on resignation and reporting to the regulator.

Immediate response plan

1. Acknowledge and protect. Log the complaint under the vigil mechanism required by section 177(9) and LODR Regulation 22, preserve confidentiality, and confirm to the complainant through the channel that it is being investigated. Do not attempt to identify the sender.
2. Escalate properly. Convene the audit committee with independent directors only, excluding the chairman and any director connected to Vaayu Infra; minute the decision to investigate.
3. Investigate independently. Appoint external forensic and legal advisers reporting to the audit committee, not to management. Scope: the award process and pricing of the EPC contract, the ₹34 crore invoice and side letter, the completeness of the related-party register, and any other transactions with chairman-linked entities in the last three years.
4. Preserve evidence. Issue a litigation hold on emails, tender files, minutes and the treasury and sales systems.
5. Consider interim measures. Suspend the executives who cleared the contract from related-party decisions, and defer the chairman's re-appointment resolution until the findings are known.
6. Disclose. Assess materiality under LODR Regulation 30 and disclose the investigation and its outcome; brief the statutory auditor at the next committee meeting; correct any misstated amounts, including the March revenue.

Three reforms

• A related-party policy with hard rules: no RPT above ₹5 crore with a promoter-linked entity without three independent quotations and an external fairness opinion; a standing RPT dashboard to every board meeting.
• Board composition and process: an independent chair, a fully independent audit committee, a delegation matrix that prohibits committees from approving section 188 contracts, and a minimum papering standard with a 48-hour circulation rule.
• A tested whistleblower culture: a directly accessible independent hotline, quarterly reporting of complaint volumes and outcomes to the audit committee, a non-retaliation policy with named accountability, and annual training for all finance staff.