NEW DELHI — A first information report (FIR) was registered Monday in the criminal case filed by Reebok India Co. against its former managing director, Subhinder Singh Prem, and former chief operating officer Vishnu Bhagat, bringing the matter into the police jurisdiction for “immediate action.”

While Rohit Kochhar, chairman and managing partner of Kochhar & Co, the counsel for Adidas India, declined to comment, the next move appears to be in the hands of the Gurgaon police.

The case has received huge publicity in India given the significant growth enjoyed in the country by Reebok and Adidas, which have 70 percent of the country’s branded sports market. Adidas AG, Reebok’s parent, said financial irregularities totaling 125 million euros, or $156.56 million, pushed it into a pretax loss in India in the first quarter.

The Reebok India complaint alleges that Prem and Bhagat set up secret warehouses and fudged accounts.
Documents accessed by WWD show that Reebok India has supported its accusations with details of the amounts of fraud made at different times as well as attachments of photographs of the warehouses.

The complaint states that “very serious offences have been committed by the accused persons including inter alia criminal conspiracy punishable under section 120B of the Indian Penal Code, falsification of accounts under Section 477A (punishable with seven years imprisonment), criminal breach of trust under Section 409) punishable with 10 years imprisonment, theft under Section 378, cheating, forgery, and forgery with the purpose of cheating.”

Among the main accusations is theft through four secret warehouses. (The company had nine legal warehouses.) Control Risks, an independent private firm that was engaged by Adidas India, visited the warehouses on March 30 and 31, and photographs and lists of the stolen products were included in the FIR.

According to the complaint, the warehouses were “being operated to keep the clandestinely diverted and stolen stocks of the company where products returned by franchisees were surreptitiously diverted and stored to the tune of 629.9 million rupees ($11.2 million) as of Sept. 31, 2011.” A summary of these products was also attached in the report.

Reebok India also claims the two men cheated K.K. Enterprises, a customer, of 193.9 million rupees, or $3.5 which was in addition to the $11.2 million acquired through theft and cheating. The complaint said that products bound for K.K. Enterprises were “mischievously, fraudulently and secretly stored in the secret warehouse.” This resulted in “tampering with the accounts and illegally reporting of higher sales figures” to “claim and extract higher performance bonuses, incentives and increments which were otherwise not due to them.”

Prem had earlier filed a suit for damages and permanent injunction in the high court in New Delhi against Adidas AG but was not successful in procuring any injunctive relief.

In this suit, he asked for damages to be paid to him while explaining that he had unearthed some “major frauds” pertaining to a time before he took over as head of marketing, India, and managing director of Adidas India in 2011 and took corrective action against them.

According to Prem, since he was earlier with Reebok, his corrective actions created “bad blood” with Adidas after the merger of the two companies took place. He said he also unearthed a “scavenger deal running into approximately 2 billion rupees [$36 million]”, pertaining to a time before he took over Adidas and that the scam “involved the liquidation of excess inventory at unheard of discount of approximately 85 percent of the maximum retail price to certain preselected customers (scavengers).”

He said he raised an objection against this in July-August 2011 and was assured that the practice was stopped. He also noted in the appeal that even after he pointed out these events and irregularities he was “directed to stop any internal investigation on the matter and that the huge scam was, for reasons best known to them, brushed under the carpet by the finance team in the headquarters at Germany” while he was removed from his post “on one pretext or the other.”

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