KOCHI: The controversy-hit Cochin Minerals and Rutile Ltd (CMRL) reported a cumulative profit after tax (PAT) of about Rs63.78 crore over the eight financial years from FY2015-16 to FY2022-23.
Over the same period, its managing director S N Sasidharan Kartha and his son, Saran S Kartha, received Rs30.63 crore in remuneration, according to the Serious Fraud Investigation Office (SFIO).
In other words, the remuneration paid to the two top executives was equivalent to about 48 per cent of the company's cumulative reported profit during the period.
The comparison becomes more striking when the returns to shareholders are considered. CMRL had 78.30 lakh equity shares, held by thousands of shareholders. During these eight years, the company declared dividends of Rs2 a share for FY2019-20, Rs1.50 for FY2021-22 and Rs8 for FY2022-23. At 78.30 lakh shares, the total dividend declared for these three years works out to about Rs9 crore.
The SFIO's remuneration figure covers the same eight-year period. It has alleged that Kartha and his son received the Rs30.63 crore as cumulative remuneration between FY2015-16 and FY2022-23. The agency's figure has been reported in connection with its investigation into CMRL.
The remuneration was not simply a matter of applying a percentage to the company's reported profit in every year. CMRL's annual reports refer to Schedule V of the Companies Act in determining managerial remuneration in years when the company had no or inadequate profits.
In simple terms, Schedule V provides a statutory framework under which a company with no or inadequate profits can still pay remuneration to its managerial personnel, subject to prescribed conditions, limits and approvals. It is not, by itself, an allegation of wrongdoing or a finding that the remuneration was illegal.
What makes its use relevant in CMRL's case is the contrast between the company's earnings and the remuneration received by its two top executives.
CMRL made losses of Rs14.04 crore in FY2015-16 and Rs5.73 crore in FY2016-17. It reported a profit of only Rs1.34 crore in FY2017-18 and Rs5.47 crore in FY2018-19. Profit rose to Rs5.99 crore in FY2019-20 and Rs8.11 crore in FY2020-21, before reaching Rs6.21 crore in FY2021-22 and Rs56.43 crore in FY2022-23.
Taken together, those figures produce cumulative reported PAT of onlyRs63.78 crore.
Karthas took 48% of CMRL earnings as pay
The Rs30.63 crore remuneration figure cited by the SFIO therefore amounts to 48.03 per cent of that cumulative PAT.
The shareholder comparison is different. CMRL did not pay dividends in the early loss-making years of the period.
It subsequently paid Rs2 a share for FY2019-20, Rs1.50 a share for FY2021-22 and Rs8 a share for FY2022-23. With 78.30 lakh shares outstanding, those three distributions amount to approximately Rs9.00 crore in total for all the shareholders of the company.
The result is a company that reported Rs63.78 crore in cumulative profit over eight years, paid about Rs9 crore in dividends during the period and, according to the SFIO, paid Rs30.63 crore in remuneration to its managing director and joint managing director.
The remuneration issue assumes a wider significance because it sits alongside the much larger financial allegations against CMRL.
The SFIO investigation is based in part on findings of the Income Tax (IT) Department concerning allegedly inflated or fictitious expenses.
Investigators have alleged that CMRL recorded fictitious cash expenses running into about Rs182 crore over a much longer period of around 15 years, and that the expenses were used to generate cash for payments to various persons. These are allegations under investigation and should not be treated as established facts.
The remuneration and the alleged payments are therefore two separate issues. The Rs30.63 crore is a remuneration figure attributed by the SFIO to the Karthas; the Rs182 crore relates to alleged fictitious expenses over a substantially longer period.
The significance of the remuneration comparison does not depend on proving that Schedule V was improperly used.
The question is more basic: how much of the company's cumulative earnings went to its two top executives, how much reached shareholders as dividends, and how the remuneration was structured in years when the company had inadequate profits.
That contrast is visible in CMRL's own financial disclosures and in the remuneration figure cited by the SFIO.
