The Curious Case of the Empty Adidas Godowns

Image: Indiatodayimgas.com

The so-called Reebok scam gets “curioser and curiouser”. Yesterday, exactly three days after Shahin Padath, the director-finance at Adidas India, filed a first information report (FIR) with the Sector 40 police station in Gurgaon alleging commercial irregularities amounting to Rs 870 crore (initially erroneously reported by other media organisations as Rs 8,700 crore), the police landed up to inspect three of the four Adidas godowns in Vasant Vihar and in Bijwasan. This is where the unsold stock had been allegedly stashed away by former CEO Subhinder Singh Prem and his COO Vishnu Bhagat. And guess what did they find? Absolutely nothing! According to a story published in The Economic Times , Adidas had confiscated goods from three of the four 'secret' warehouses where it alleged that its former top executives had stashed products worth Rs 63 crore, citing unnamed sources with inside knowledge.

This prompted the cops to issue a stern warning to the company not to touch any stock since it would hamper the investigation. What’s more, according to a PTI report , Maheshwar Dayal, the deputy commissioner of police, Gurgaon East, also said “the amount involved in the scandal would be less". When asked what could be the magnitude of the scandal, he did not elaborate, but said the company's claim that it will have to take a total hit of about Rs 870 crore and will have to incur a restructuring cost of Rs 487 crore is "far from reality ".

For now, Prem has not been called in by the cops for questioning. Vijay Sondhi, his lawyer, told Forbes India that as a precautionary measure, Prem could file for anticipatory bail on Friday.

So far, other than the information available in the FIR, Adidas has declined to comment on the allegations. All that the company has said so far is:  "We are given to understand that our criminal complaint has been registered for investigation by the Indian law enforcement authorities. Please understand that we cannot provide any further details since the matter now rests with the Indian law enforcement authorities. We shall continue to cooperate with the authorities in their investigation of the matter."  

Meanwhile, the FIR, a copy of which is with Forbes India, runs into eight pages with lots of micro details. While there are several allegations, the two central ones can be summarised thus:

First, Adidas alleges that Prem and Bhagat operated secret warehouses that maintained stocks that were not reported on Adidas’ books.

In his exclusive interview to Forbes India on May 17, when asked about this allegation, here’s how Prem responded: “That’s all bull crap...If there are receivables on the books that have not been accounted for, I don’t know what that statement means. We have had a clean audit report. KPMG conducted an audit. A statutory auditor has also audited us.”

Second, a franchisee referral programme was started in October 2010, despite instructions not to expand the store base further.

Prem’s response: All store expansion decisions were taken only after the approval of headquarters was obtained. (As he explained to us in our story, the company asked him to cut back on the number of stores and that was something he had started doing.)

Over the next few days, the police say they will ask Adidas more documentary evidence to substantiate their allegations. The two executives will be called for questioning only after the documents are submitted and vetted.