All the franchisees were set up in 2015. The initial sale to all the franchisees in aggregate amounted to 180 crores in 2015. The franchisees paid initial amount of 40 crores to the company by the year end 2015 to prevent any doubt on transaction in that year.
The balance amount was not paid by the franchisees giving the reason that they are unable to sell the goods of the balance value and hence by the end of 2016 one of the franchisees was converted to own store by entering into contract with them.
Similar circumstances were found with other 2 franchisees also, out of which one was converted in 2017 and the other in 2018 into own store. The draft contract was approved by Directors. The draft contract’s a clause with respect to consideration stated that the goods shall be purchased back at the price at which it was initially sold, but this clause was changed, and the consideration was made at MRP less 30% discount by CFO with the help of CEO.
Also, the amount over and above the Cost at which the garments were sold to franchisee was termed as commission to franchisee. Finally, CFO accepted that he made changes to the contract which was not communicated to Directors and rooted funds fraudulently to Franchisee. Further the extra money routed to franchisee was then distributed between CFO, CEO & Franchise.
The Table shows the comparison of Sales and Purchase back figures of each of the 3 franchisees
For M/s PQW & Associates
CA Rajat Agrawal