The battle between German sportswear giant Adidas AG and its former managing director in India Subhinder Singh Prem escalated on Thursday after he sent a legal notice to the company and its CEO Herbert Hainer.
Prem challenged the legality of the appointment of the new India head and his own termination. Prem was given a termination notice by email on April 29, a day after he sent his resignation.
In the notice sent by his legal representatives, Prem has challenged his "purported termination" and the appointment of Claus Dieter Heckerott as the new managing director as "illegal" and of no effect since the form 32 filed under the Companies Act (for removal and appointment of a director) by Adidas was illegal, as it did not follow the procedures under section 284 of the Companies Act.
Prem has said under Section 284, a director has to be given a showcause notice before his removal and given the right to defend himself before the board. Prem has alleged the procedure was not followed in his case.
Prem has also demanded the immediate clearance of all his contractual dues along with adequate damages to compensate for the illegal termination and the consequential loss suffered by him to the tune of Rs 12.7 crore (Rs 127 million).
He has demanded Rs 7.7 crore (Rs 77 million) as his entitlement, including bonuses, gratuity, EPF, severance pay and other benefits. That apart, he has also demanded Rs 5 crore (Rs 50 million) as compensation for the harm suffered by him personally and professionally due to the termination and its fallout.
This is over and above a defamation notice he has filed against Adidas, seeking Rs 15 crore (Rs 150 million)
In Frankfurt, Hainer, while announcing the company's first-quarter results on Thursday, said it would cut the number of Reebok stores in India by about one-third as it restructured operations in the country after the irregularities at Reebok India. The company has over 1,000 stores in 325 towns and cities across the country.
The Indian income tax department also swung into action and went to the Reebok premises in Gurgaon to survey its accounts. Confirming the development, a statement by Adidas Group said, "Certain government/regulatory bodies were seeking a clarification about Reebok India company in regards to the announcement made on Monday. We have shared the required details with them."
On the issue pertaining to the legal notice, there was no reply from the Adidas spokesperson.
In his legal notice Prem has elaborated on the serious differences in opinion between him and the top management of Adidas group regarding issues including the team line-up (Adidas appointed its own nominees in key positions in sales and HR and as the chief financial officer, and did not accept his choice), downsizing of Reebok India and a prohibition on expansion.
Adidas had earlier this week admitted to "commercial irregularities" at the Indian unit of Reebok, its most popular and the leading sportswear brand in the country. It had said the situation in India could result in a pre-tax impact of up to euro 125 million (or Rs 871 crore), while further restructuring could cost up to euro 70 million (Rs 488 crore) in 2012.
