Title Lorem

Ipsum
REEBOK INDIA SCAM
SIT DOLOR AMET

PREETHA.M
LL.M.(COM)
 About The Company
 Reebok International Ltd is an American fitness,
footwear, and clothing brand and is a part of
Authentic Brands Groups.
 Reebok India Company incorporated on 1st March
1995 it is a private unlisted company.
 It was an initial stage where foreign companies like
Reebok, Adidas, and Nike entered the market at the
same time.
A
 It was later owned by Adidas from 2005-2021 the net
worth was $ 2.5 Million dollars.

2
Experiencing shoe bite
Over a period of 6 years, Adidas acquired Rebook, the two businesses in India was operating as
separate entity.
Adidas being a German-based company and Reebok being an American Company there were
different operating styles and management. Adidas was more operated in a more disciplined manner.
The Managing Director guaranteed dealer margins to push sales.

It is a clause in a contract between manufacturer and retailer that a certain profit margin for the
retailer irrespective of the retail price he or she is changing.
This practice was not favored by Adidas.
SCAM

The scam came to light in the year 2012 which was a subsidiary company of Adidas

Adidas is a German Company.

 It was a scam of Rs. 870 crore.

It was committed by the Managing Director Subhindra Sign Prem and Former Operating Officer
Vishu Bhagat and 10 employees.
Brand Trust Report, India Survey, 2011 which is conducted by the

Trust Research Advisory ranked Reebok as the 14th most trusted

Brand in India.
INTERNAL INVESTIGATION
Adidas felt suspicious about the working of Rebook even though the face of it didn’t find any
shortcomings. The Financial Director Shahim Padath initiated an internal investigation.
 KPMG International Limited is a multi-national professional services network, one of the biggest 4
accounting organizations is E & Y, Deloitte, and PWC.
Audit and tax advisory, they also provide fraud risk management services.

 They had to look into the books of accounts, transactions, and everything relating to the business to
find if there was an unethical Act.
REPORT – In June 2011
REASONS FOR INDEMNIFICATION
Over-invoicing to the tune of Rs.170 crore.

Running false franchisee referral programs, receipts from which were about 114 crore.

Maintaining 4 secret warehousing where company goods were diverted, all of which have been sealed
and goods confiscated.
Raising Fake invoices of about Rs 98 crore to show higher sales and to show higher sales and claims
promotions, bonuses, and incentives.
KPMG REPORT
 Singh’s expenses were more than his income.

Bhagat showed irrelevant franchises that didn’t exist and rented 4 warehouses without informing their
senior and used then to store goods and claimed they were supplied to genuine dealer.
 Bills were inflated and not recorded properly.

This clearly didn’t indicate that there was a corporate scam, in the apparel manufacturing firm but it
was non-adherence to the rules and guidelines of the business procedure of the firm.
KPMG scanned over 50,000 emails from 1992 under the secret investigation name “Project
Dimond”.
F.I.R
A formal complaint was lodged at Gurgaon Police Station against both on 21 ST May.

Managing Director Subhindra Sign Prem and Former Operating Officer Vishu Bhagat and 10
employees’ names were listed in the Complaint.

Reasons
 Fudging company accounts.

Operating secrets warehouse which incurred a loss of Rs. 870 crore.

They accounted goods as damaged and transported same to the secret warehouse to sell them.

Parallely Singh files a defamation case, against the company claiming Rs. !5 crore as damages. An out-
of-court settlement was insisted upon.
 ACTIONS TAKEN
ROC Called for information and explanation under the ambit of Sec. 234 of the Companies Act,1956.

 SECTION 234 – Power of Registrar to call for information or explanation.

INTERPRETATION OF SEC. 234

Non-compliance or neglect then punishable with a fine which may extend to Rs. 500 in case of
continuing offence Rs. 50 for every day.

According to Companies Act, 2013.

Sec 206 deals with the power of the Registrar to call for information, explanation/ documents for the
purpose of scrutiny.
Punishment which may extend to Rs.1 Lakh in case of continuing failure, which may include Rs. 500
each day.
The Central Govt will send a warrant direct for the inspection of books or papers by inspector
appointed for this purpose.
Agencies involved
 The I.T. Department under Finance Ministry

 The Serious Fraud Investigation Office (SFIO) under Corporate Affairs Ministry

 The Economic Offence wing of Gurgaon Police.

Guidelines under the Companies Act were violated which led to the further suspicion of other
contraventions like tax evasion.

I.T. Department indicated an alleged Rs. 140 crore tax evasion, it will ensure doesn’t claim any “ bad debt”

Agencies probing the corporate fraud in the operations of Reebok India have detected a systemic “
Mismanagement’ in the business planning and running of the company, allegedly done by some of
it’s officials and employees.
Post unfold
They were terminated on 17th May 2012.
• FORMER COO, MD, and 10 employees were arrested and their properties were ceased to pay back
The company. On March 2013 they were granted bail.

•Reebok sales decline by 26%

•Their quarter 2011-12 was 336 million euros as against 427 million euros in the year 2010-11.

•Adidas decided to close one-third warehouses for reconstruction purposes. Many jobs were lost. But
this was claimed in the long run it helps in the effective management of the company.
Post unfold
SIFO stated that KPMG was involved in consolidations of accounts. Delhi-based N. Narasimhan and
Co. was the auditor of the Reebok. When Adidas hired the Forensic team it gave clean chit in its
findings.

The Auditing Regulator Institute of Chartered Accounts of India (ICAI) looking into the scam
because they deal with the conduct of the statutory auditors.
 CONCLUSION
Recently Reebok is owned by Aditya Birla Group- It acquired the South Asian Distribution and
manufacturing rights for the Reebok sports brand.

During the cross-border merger there is a tendency for compromise in Corporate Governance. Through
Standard Good Governance it can be combated.