Liberty Shoes Ltd Forensic Report - SOIC x StockScans Report

as of Sep 2026

Liberty Shoes' record shows an audit history with two Emphasis of Matter paragraphs in the FY2024-25 audit report but carries material risks: a legal battle over its own brand trademarks, a large tax dispute, governance failures around promoter pay and removal, and a major fire loss. The company's cash flow has not covered profits, with cumulative CFO/EBITDA at 0.65x, but revenue quality is strained by overdue receivables and regulatory fines.

Key findings

  1. Core brand and trademark arrangements with promoter-linked partnership firms are under legal attack, with termination notices, competing court orders, and arbitration threatening the company's right to use its own brands beyond March 2028 Critical - Liberty Shoes paid or provided trademark license fees of ₹17.95 crore to Liberty Footwear Co. in FY2025-26, up from ₹16.5 crore in FY2024-25. Partners of Liberty Enterprises, Liberty Group Marketing Division, and Liberty Footwear Co. issued termination notices effective 1 April 2023, but the company obtained status quo orders from Karnal Court dated 16 March 2023 and 20 July 2023; an arbitral award confirmed continuation with LGMD until 31 March 2028, while the LFC arbitration remained pending as of the FY2025-26 annual report. The auditor's report on FY2024-25 contains an Emphasis of Matter that these arrangements expire on March 31, 2028, and management expects to acquire, renew, or implement alternatives based on ongoing arbitration.
  2. The Income Tax Department alleges ₹55.96 crore of escaped income across two assessment years, with the larger AY 2020-21 dispute centered on the deductibility of trademark license fees paid to related partnership firms Major - The Income Tax Department assessed income of ₹40.38 crore for AY 2020-21 against returned income of ₹20.14 crore, with disallowances primarily on trademark license fees treated as enduring in nature, and the company's appeal before CIT(A) NFAC Delhi remained pending as of the FY2025-26 annual report. Reassessment proceedings under Section 148A for AY 2016-17 allege escaped income of ₹15.58 crore comprising salary payments of ₹64.07 lakh, foreign remittances of ₹14.54 crore, and export shipping bills of ₹39.48 lakh, stayed by the Punjab & Haryana High Court in CWP No. 13252 of 2023 with next hearing on 20.08.2026. Revision proceedings under Section 263 initiated on 28 March 2025 were quashed in the company's favour by ITAT order dated 29 January 2026.
  3. Promoter directors raised their own pay from ₹48 lakh to ₹1.2 crore per year and secured shareholder-approved incentives exceeding statutory limits, while a shareholder-led removal of one promoter director succeeded and a promoter-group member sought reclassification to public Major - Executive Director remuneration was increased from ₹48 lakh per annum to ₹1.2 crore per annum w.e.f. 1st October 2025, with consolidated monthly salary of ₹10,00,000 per month to three Executive Directors each and ₹3,50,000 per month to Sh. Ashok Kumar. Sh. Shammi Bansal, Sh. Anupam Bansal, and Sh. Adish Gupta each received shareholder-approved annual incentives for FY2024-25 of ₹1.25 crore, ₹1.25 crore, and ₹50 lakh respectively, in addition to existing remuneration of ₹48 lakh p.a. each, with the proposed incentives exceeding the statutory limit of 11% of net profit under Section 197 of the Companies Act, 2013. Sh. Adesh Kumar Gupta was removed as Director/Executive Director by ordinary resolution at the AGM held 30th September 2023, following a special notice dated 2nd September 2023 from shareholder Sh. Sachin Gupta holding 2,49,900 equity shares (1.47% of paid-up capital).
  4. A fire destroyed ₹17.64 crore of inventory at the Central Warehouse, Panipat, and the company booked a differential loss of ₹4.70 crore as exceptional items while insurance recovery fell short of estimates Major - A fire at the Central Warehouse, Panipat on 7 February 2024 destroyed finished goods and packing material worth ₹17.64 crore, with building and plant & machinery loss of ₹1.51 crore including a third-party claim of ₹65 lakh net of salvage, and insurance claim received of ₹13.53 crore against an estimated ₹14.25 crore. In FY2024, the differential loss of 4.7 crore was charged to P&L as Exceptional Items. In FY2025, the Panipat fire incident resulted in a differential charged to Profit & Loss under Exceptional Items: loss of Input Tax Credit ₹71.45 lakh, GST liability discharged ₹1.45 crore, and reconstruction cost over estimate ₹29.03 lakh.
  5. Revenue quality is strained by persistent, large overdue receivables from government tender supplies and long-standing customers, with write-offs and credit impairments recurring across years Major - Trade receivables outstanding more than 180 days were ₹48.53 crore in FY2020-21, down from ₹53.55 crore in FY2019-20, attributed to Government Tender Supplies and long-standing overseas/domestic customers, with ₹2.91 crore considered doubtful and provided for in FY2020-21 versus ₹1.07 crore in FY2019-20. Book debts written off were ₹12.25 crore in FY2020-21 versus ₹4.66 crore in FY2019-20, with the abnormal increase attributed to pandemic impact on channel partners. Goods billed during FY2024-25 remained pending for dispatch beyond reasonable time after year-end at buyers' instance, aggregating ₹9.12 crore, included in inventory at cost of goods sold value.
  6. Liberty Shoes has a recurring pattern of SEBI LODR non-compliance fines for board composition and corporate governance filing delays, plus pending criminal complaints against its directors under the Negotiable Instruments Act Major - In FY2024-25, Liberty Shoes Ltd was fined ₹1,41,600 (BSE ₹70,800; NSE ₹70,800) for delay in filing the Corporate Governance Report for the quarter ended June 30, 2024 under Regulation 27(2) of SEBI LODR, with the report submitted on 21.08.2024. In FY2024-25, Liberty Shoes Ltd was fined ₹9,91,200 (BSE ₹4,95,600; NSE ₹4,95,600) for failure to maintain required Board composition under Regulation 17(1) of SEBI LODR following the cessation of Independent Director Sh. Aditya Khemka on 26th September 2024, with non-compliance rectified on 19.12.2024. Cheques were dishonoured due to non-compliance with board mandate/bank mandate, and criminal complaints under Section 138 of the Negotiable Instruments Act were filed against three Executive Directors and Liberty Shoes Ltd, with revision pending before the Hon'ble High Court as of the FY2024-25 Annual Report.
  7. Liberty Shoes' reported borrowings understate its economic obligations through leasehold rights, channel-partner security deposits, and a working-capital borrowing base that has swung sharply while utilization stayed low Major - Working capital borrowings rose from ₹50.92 crore in FY2022 to ₹75.80 crore in FY2023, then declined to ₹68.13 crore in FY2024, ₹69.36 crore in FY2025, and ₹73.87 crore in FY2026. Leasehold rights recognized under Ind AS 116 stood at ₹25.99 crore in FY2026, with ₹1.38 crore relating to terminated contracts adjusted during the year. The company defaulted in repayment of dues to banks, as stated in the FY2020 independent auditor's report.
  8. Liberty Shoes' reported profits are shaped by recurring exceptional items, leasehold-rights accounting under Ind-AS 116, and fully-depreciated asset write-offs, while deferred tax liabilities remain negligible despite depreciation-driven timing differences Minor - In FY2020, Liberty Shoes reported PBDIT of ₹61.19 crore versus ₹41.89 crore in the prior year, with the ₹19.97 crore increase attributed to Ind-AS 116 adoption moving lease rental expenses from other expenses to depreciation/amortization; PBDIT ignoring lease rental was ₹41.22 crore versus ₹41.89 crore prior year. In FY2024, Liberty Shoes wrote off fully depreciated gross block of tangible assets (not under lease) aggregating ₹46.07 crore with corresponding accumulated depreciation; sale/adjustment during the year was ₹49.59 crore. In FY2025, Liberty Shoes recognized a deferred tax liability of ₹51.25 lakh (previous year: Nil), primarily due to depreciation differences.
  9. Liberty Shoes rotated its statutory auditor in FY2022-23 after the prior firm's term expired, and the new auditor has served without resignation through FY2025-26 Clean - M/s U. Shanker & Associates (Firm Registration No. 014497N) served as statutory auditor until its term expired at the 36th AGM, and M/s Pardeep Tayal & Co. (Firm Registration No. 02733N) was proposed as the new statutory auditor for five consecutive years from the 36th AGM (30th September 2022) to the 41st AGM in 2027, with proposed fees of ₹17.5 lakh plus taxes including tax audit fees, annual certification charges, and out-of-pocket expenses. M/s Pardeep Tayal & Co. signed the FY2024-25 standalone audit report on 28th May 2025, with Sukesh Gupta (Partner, Membership No. 514675, UDIN: 25514675BMIBPU9440) as the signing partner. CARO clause 18 in the FY2025-26 standalone audit report states there was no resignation of statutory auditors during the year.

What to watch

Bottom line: Liberty Shoes' financials are audited with an emphasis of matter regarding brand-usage arrangements expiring in March 2028, and cash flow has not fully covered profits, but the company faces a fundamental threat to its brand usage beyond March 2028, a ₹55.96 crore tax dispute, governance failures around promoter pay and removal, and a ₹17.64 crore fire loss. The most urgent watch item is the trademark arbitration and the March 2028 expiry of the brand arrangements, as losing those rights would directly impair the core business.