Homeshop18's vendors allege fraud in buyout, enforcement agencies unwilling to investigate

Representatives of the Homeshop18 Vendors' Association allege that the company has been bought over in a fraudulent transaction that was deliberately tailored to leave them in the lurch. Rishi Kochhar For The Caravan
28 September, 2019

On 27 September, a group of 20 vendors of Homeshop18, the eponymous 24-hour teleshopping channel and e-commerce portal, held a press conference to accuse the company of fraud. Representatives of the association claimed that over two hundred vendors were owed dues ranging from “Rs 150 crore to Rs 200 crore.” The vendors first began agitating in late June, a few weeks after Homeshop18’s ownership changed hands from Network18 Media & Investments Limited, a firm owned by Mukesh Ambani’s Reliance Group, to an entity named Skyblue Buildwell Private Limited. The association said that Homeshop18, which they claimed was valued at Rs 305 crore in the financial year 2018, had been taken over by a “shell” company in a fraudulent move. The Caravan accessed the annual returns that Skyblue Buildwell filed with the ministry of corporate affairs, for the same financial year. In these, the company had listed its net worth as Rs 7.57 lakh. The Caravan had earlier reported that Skyblue Buildwell is connected to Mahendra Nahata, a close business associate of Ambani.

The vendors’ predicament began on 6 June when they were first apprised of the takeover. Rajesh Sachdeva, the chief executive officer of Cosmetics World, a small enterprise manufacturing beauty products, told me that he received a press release on WhatsApp from his liaison at HomeShop18. It was a copy of an exchange filing that TV18 Home Shopping Network Limited—a subsidiary of Network18 and the company that owns the brand name HomeShop18—sent to the National Stock Exchange and the Bombay Stock Exchange, after market hours. It read:

TV18 Home Shopping Network Ltd (‘HomeShop18’) has raised a fresh round of funding from ‘Skyblue Buildwell Private Limited’ (‘Skyblue’), a new investor. The existing shareholders (namely: Network18 Media & Investments, SAIF Partners, GS Home Shopping South Korea, OCP Asia, CJO Shopping Co. Ltd and Providence Equity Partners) have not participated in this round. After the investment, Skyblue holds 82.64% of HomeShop18, becoming the holding company and promoter of HomeShop18. With this investment, HomeShop18 has ceased to be a subsidiary of NW18 HSN Holdings Plc and an associate of Network18 Media & Investments Limited. Accordingly, the Company is in the process of changing its corporate as well as brand name.

Himanshu Khattar, the owner of another cosmetics company called S.S. Cosmetics, received the same press release while in his factory in Bawana, an industrial area in Delhi’s northern outskirts. The first reaction of both the men, who are brothers-in-law, was relief. Sachdeva told me they thought, “Finally, we will start receiving our pending dues. How were we to know that it was a continuation of the ordeal we had been suffering for the past three to four months?”

Khattar said that Homeshop18 first started defaulting on its payments to vendors around February or March, though an investigation published by ET Prime in late June quotes vendors who had dues pending from December 2018. Khattar claims that he is owed dues from April to September amounting to around Rs 1.5 crore, while Sachdeva said he is owed Rs 50 lakh. Girish Gupta, a vendor from Panipat who supplied home furnishings, said he is yet to get Rs 2.8 crore from the company. In April, when the vendors inquired individually about pending dues, the firm’s management told them that there were temporary cash flow problems and the matter would be sorted out soon. Girish said, “We thought that since it is Mukesh Ambani’s company we will get our payments. The Ambani name has a lot of goodwill.” The vendors even appealed to Ambani and the prime minister Narendra Modi at the press conference, which was dotted with posters exhorting the two to intervene and help them get their dues.

Homeshop18 was first launched in 2008 as a teleshopping venture by TV18 Home Shopping Network Limited, which was in turn owned by a Cyprus-based holding company called NW18 HSN Holdings PLC. In 2011, it ventured into e-commerce and its portal became the fifth most-popular in India within two years. Its business model consisted of signing vendors, whose products it would advertise and sell via its media properties. The model relied heavily on cash-on-delivery payments, and the firm charged a commission of thirty to forty percent on each sale. By the time of the takeover by Skyblue Buildwell, Homeshop18 had signed up more than two hundred vendors to supply jewellry, clothing, home furnishings, footwear and electronic appliances. Khattar signed up to become a vendor in September 2018, at Sachdeva’s urging. “It was a platform that increased our reach and visibility,” Khattar said.

In 2014, Ambani’s Reliance Industries took over the Network18 group, including Homeshop18. Soon after, Homeshop18’s problems began. The ET Prime article says that while the firm’s top line grew at a compounded annual rate of 52.6 percent between the financial years 2010 and 2015, the trend reversed thereafter, with revenue falling from Rs 449 crore in the financial year 2015 to Rs 166 crore in 2018, a 28-percent decline. In 2015, the company shut its Bangalore e-commerce division. Competition from big e-commerce platforms like Amazon and Flipkart was also taking business away from its business model. It was also hit by demonetisation, due to a decline in cash-on-delivery payments, leading to another round of lay-offs in 2017.

Despite the obvious turn in the company’s bottom line, it is still unclear why it started defaulting on vendor payments. Meenakshi Bahl, Homeshop18’s company secretary as per MCA records, refused to answer any queries on when and why the firm started delaying payments. When I pressed her further, she cut the call.

Soon after Skyblue Buildwell acquired Homeshop18, some vendors went to meet the new management but were given contradictory statements about their dues. According to Khattar, Sunil Batra, who was a director of Skyblue Buildwell till 27 May, told him that “it’s too early to comment about the payments because government approvals have to be procured, whereas Manish Kalra, the then CEO of Homeshop18 said he was travelling to Mumbai to get funds.” Kalra resigned soon after that. On 17 June, some vendors from Panipat tried to meet the chief financial officer, Gurvinder Singh, at the firm’s Noida office but were unsuccessful.

Three days later, the vendors began raising slogans outside the office. Around the same time, thirty-odd vendors from Delhi, Surat, Panipat, Indore and Chennai organised themselves into the Homeshop18 Vendors’ Association and sent a letter to the Prime Minister’s Office, on 23 June. Khattar has been coordinating the association’s activities. While the scale of dues owed by Homeshop18 is unclear, the letter to the PMO said it was Rs 200 crore. When I asked Khattar how he reached this figure, he cited “insiders” at the company. When repeated attempts to extract assurances on payments due were stonewalled, the vendors panicked, and began taking a deeper look at the new owners.

The association used the MCA’s database of companies and discovered that Skyblue Buildwell had a net worth of Rs 7.57 lakh. “How can Skyblue acquire a company that is around 40 times bigger?” Sachdeva said. The company’s filings show that while it is listed as a real-estate firm, its turnover declined from Rs 1,00,000 in the financial year 2015–2016 to zero in 2018–2019. It even registered zero “employee expenses” for the financial year 2018–2019. The ET Prime report noted that “the reason behind its interest in HS18 is not immediately apparent,” and that the acquisition maybe “part of a larger business strategy.”

On 8 July, armed with the MCA data, the association held a protest outside the Homeshop18 and Network18 offices in Noida. Ten days later, it held a protest at Jantar Mantar, in central Delhi. On 29 July, the association shot off another letter, this time to the MCA. The letter said that Homeshop18’s acquisition by Skyblue Buildwell was “seemingly fraudulent” and that “the entire purpose of the acquisition was only to defraud the Vendors/Sellers and to usurp several crores of amounts collected by HS18 from customers on behalf of the vendors.”

A different set of vendors had sent complaints to the senior superintendent of police, Noida, on 10 July. Towards the end of the month, the vendors’ association approached the Economic Offences Wing. Khattar, told me, “Neither the police in Noida nor the economic offences wing was ready to register an FIR.” The association had tried to submit a complaint with Virendra Kumar, an assistant commissioner of police with the EOW. When I contacted Kumar, he refused to comment.

Ritu Singh Mann, a partner at the law firm Tamohara Partners, who is providing legal advice to the vendors’ association, told me “At the stage of filing a complaint, the police cannot decide that there is no case, they have to investigate. The problem is that the authorities are refusing to investigate, and unless there is an investigation how can one conclusively say who is behind Skyblue?” When I asked Mann if the vendors’ conclusion that Skyblue Buildwell is a shell company is correct, she replied, “They have done their own little investigation and this is the conclusion they have reached, but for any official statement to be made an investigation should be carried out by the agency which has the power and authority.”

Vikram Gupta, a Delhi-based vendor who supplied bed sheets, showed me the contract he had signed with Homeshop18. The two parties in the agreement were Shubh Shop, Gupta’s partnership firm, and TV18 Home Shopping Network. Mann explained that TV18 Home Shopping Network was the entity with whom the vendors had a contract and upon whom the invoices were raised and payments collected. The change in corporate ownership meant that this entity ceased to exist. “The original promoters have disinvested and gone off. The new promoters are Skyblue Buildwell, and the current status is that they don’t have anything,” she said. “If one legal entity takes over another legal entity, the new entity becomes liable for all the liabilities of the old entity,” she added. However, the new entity must have whatever it takes to pay back the liabilities and “Skyblue does not have anything,” Mann said.

According to Mann, given Skyblue Buildwell’s financials, “If these people are nobodies, why is nobody initiating any action? If they are not people of consequence, where is the problem in registering an FIR?” She said that no authority was “willing to touch this matter” and “nobody is willing to put their fingers into this issue, whether it is the suspected involvement of the Reliance group or whatever it is.” Surendra Lunia served as the director of Skyblue Buildwell from 25 April 2012 to 19 July 2019. According to his LinkedIn profile, Lunia was the CEO of Himachal Futuristic Communications Limited, a company promoted by Ambani’s associate Mahendra Nahata. Lunia is also the managing director of the Infotel group, which played a controversial role in the bidding and wins of the 3G spectrum auction where Reliance Jio was the eventual beneficiary.

Mann added that there were two aspects to this case. The first is criminal misappropriation. “The vendors had authorised Homeshop18 to collect the money on their behalf and demit it to them. It is a clear case of misappropriate under section 409 of the IPC. The police can register an FIR,” she said. The second aspect is the takeover. “How can a company with no assets takeover a company with a net worth of crores? It would have required permissions from the registrar of companies, whether those were taken and the operational creditors were informed, we don’t know because we have no access to any record whatsoever. It will come out only if there is an investigation by the Serious Fraud Investigation Office,” Mann said.

I tried to contact Noida’s senior superintendent of the police and the superintendent of police for crime. An aide of the SSP said “saab” was not taking calls while the SP said that he was on leave and cut the phone. I also called a joint director in the MCA, who the vendors had submitted the letter to. The joint director, who requested anonymity, said that the complaint had been “processed and forwarded” to the concerned field office. Gurvinder Singh, the former CFO of Homeshop18, also refused to comment while Hardik Shah, who took over as the CEO on 24 June, did not answer calls to his cellphone. The report will be updated if any responses are received.