SAIL hauled up for decision to buy Reddy-owned firm

The story was first published in DNA on February 19, 2013.

By Gangadhar S Patil Mumbai: Expressing concern over the decision of the state-run Steel Authority of India (SAIL) to acquire former Karnataka minister G Janardhan Reddy-promoted Brahmani Steel Ltd(BIL), a parliamentary standing committee has hauled up the ministry of steel for not conducting any investigation before submitting expression of interest as BIL had taken huge loans from banks and had legal disputes. In March 2012, Union steel minister Beni Prasad Verma informed Parliament that SAIL in September 2011 registered its interest with the Andhra Pradesh government for acquiring BIL, which is mired in controversy in connection with YS Jaganmohan Reddy’s disproportionate assets case. The company was allotted 14,700 acres of land for iron ore mining in Kadapa district by the then chief minister YS Rajasekhara Reddy in May 2007 for setting up a steel plant with an investment of Rs 4,430 crore. The committee found that the PSU was jumping into the mining sector without conducting any investigation or finding if the company was engaged in any criminal litigation. However, SAIL, in its official response, said it had only registered its preliminary interest with the government of Andhra Pradesh, to seek its views formally. Had a formal confirmation come from the AP government, due diligence exercise would definitely have been carried out. Otherwise the exercise would have been seen as an avoidable exercise. The PSU contended that the main objective of the takeover was to ensure raw material security as it was learnt that BIL had 100 MT of iron ore reserve. But rejecting it, the standing committee recommended a proper investigation before any offer is made, which was accepted by both the ministry and SAIL. Replying to a query on the huge loans that BIL have taken, SAIL officials said this question needs to be answered by the Andhra Pradesh government as SAIL has not had any direct dealing with BIL. “At no point has SAIL either committed or suggested to take over the liabilities of the company.” Though it has been more than a year since SAIL expressed its interest, there has no response from the Andhra Pradesh government so far, the officials said. gangadharpb@gmail.com

Cost of Truth - Rs 250 Cr

BEML responds to Tatra Trucks scam; threatens to file Rs 250 Cr defamation case

Dear DNA Chief Editor & Publisher

Please refer to your email dated 23rd August 2011 addressed to our CMD with copy marked to the undersigned seeking certain clarifications.

02. In this connection, we wish to point out that your newspaper has not responded so far to the letter no.PR/09/11 dated 27th July 2011 of our PR department.  In the said letter,  we requested you to publish our factual version in a prominent manner in your newspaper in front/first page within three days from the date of receipt of the letter.  Almost after a month you are now seeking certain clarifications rather in a casual fashion.

03. We also have to point out that on 4th August 2011, the JUST LAW, our advocates have issued a legal notice on the same issue to Diligent Media Corporation Ltd, the Editor in Chief, Printer and Publisher  and the Resident Editor requiring them to tender an unconditional public apology to BEML for publishing the false and baseless reports on 22nd, 23rd and  24th July 2011 and issue a letter to BEML regretting the publication of the above said false reports within seven days from the date of receipt of the notice. The legal notice further states that in the event of failure to comply the persons on whom the notices have been served, shall be liable to pay BEML a sum of Rs. 250 Crores towards the damages suffered by BEML on account of your false, malicious and defamatory report published. Till now, there has been no response to the said legal notice nor any publication has been made as sought for.

04. In light of the above position, instead of furnishing intermittent and piecemeal reply to your queries sought in your above said email dated 23rd August 2011 or other queries you may have or ask for, we propose to invite you and your DNA Investigations Bureau Team to visit our manufacturing plant producing Engine of TATRA on TOT and also to other factory  producing BEML TATRA Trucks  to prove it  to you and your team and to establish our stand and claim that substantial indigenization has been done and only a few critical components are imported to build BEML TATRA Trucks.  

During the visit proposed, we will organize a press meet with your team and other National Press / Media reporters will also be invited wherein we are willing to provide any information or documentation or clarification that you may need on the subject and to completely clear your doubts including the ones asked for in your email dated 23rd August 2011.  This is proposed with a view to ensure that the whole issue is clarified once and for all to you and the national press so that the whole country can report the
same appropriately for the benefit of the public at large.

05. Please send in a line of confirmation for participating in the above program so that BEML can organize the same on a convenient date and invite all of you along with other National Press / Media reporters.

Regards


--
Thanks
B S Sridhar
Dy General Manager(PR)
BEML Limited
BEML Soudha, 23/1, 4th Main
S.R.Nagar
BANGALORE - 560 027
Ph   : 080-22224457
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CVC enquires into Rs 200 crore frauds by Kinetic Group

Gangadhar S Patil

Mumbai: The central vigilance commission (CVC) has ordered a probe into alleged misuse of Rs200 crore by a subsidiary of Kinetic group companies eight years back.

Kinetic Finance Limited (KFL) misappropriated the money borrowed from a consortium 23 banks led by State Bank of India (SBI). The CVC has directed SBI and several other public sector banks to investigate the matter and submit its report. Kinetic Finance Limited, presently known as Athena Financial Services Limited, which is under liquidation, is a non-banking financial company (NBFC) into lease and hire purchase of two wheelers manufactured by Kinetic Engineering Ltd.

“In view of the serious nature of alleged fraud, a large amount involved in the fraud and the facts being verifiable to a great extent we may seek an investigation and report in the matter from the public s banks named in the complaint and also seek a status report from the RBI,” according to a CVC file noting. The noting further said that the fraud has been alleged to be perpetrated on banks by manipulating the stocks and also through issue of non-convertible debentures of Rs 55 crores against the security of two office premises actually valuing only Rs 4.5 crores.

This was following a complaint filed by a Delhi-based RTI activist, who alleged KFL of manipulating stocks and other records to cheat the consortium of banks in his complaint filed with CVC. While all the five private sector banks in the consortium filed cases against the company, none of the public sector banks did it.

In 2001, the consortium signed a working capital loan agreement with KFL, Pune, for a sum of about Rs 200 crore. Subsequently, in 2002, a stock audit report conducted by SBI indicated inflated stock position. Audit also found procedural lapses on the part of the company. According to a criminal complaint filed with district court Pune the company “has fraudulently violated the terms and conditions of all the loan agreements jointly and severally with the intention to defraud the consortium bank members.” KFL had misrepresented and fraudulently concealed the material facts from the banks right from the beginning and obtained the loans fraudulently,” it added.

And by August 2003 the company started defaulting on regular payments of debts and evading submission of monthly stock statements. In 2004, the consortium conducted a special investigation audit which showed that the company had violated the terms and conditions of the loan agreements. 

However, Kinetic management in their official response denied all allegations. " The Company did not misuse or divert any funds it borrowed. In fact, the banks conducted an independent audit through a third party auditor to examine the operations of the company and concluded that the company was following the norms laid down by RBI for NBFCs," said the response.

The company has never diverted any funds it borrowed and it had been regular in its payments to banks since its inception in early nineties, it added. In the year 2003, the banks themselves entered vehicle financing business due to which the company faced severe financial difficulties owing to sudden fall in its business and recovery of loans, said the response.

The company then tried its best to revive the business and ensure repayments by putting in place a new business model and through proposal of CDR (Corporate Debt Restructuring) led by SBI. However, one of the lenders, BOB Mutual, filed a liquidation petition and caused the Company to hand over its assets and operations to the official liquidator's office, as per directive of the Honorable High Court.  Post the liquidation, the official liquidator has been given the charge of recovery of loans and sale of assets of the Company, towards repayment of lender dues. In fact, in the liquidation of Athena Finance, Kinetic group and Promoters suffered a bigger financial loss, more than loss suffered by any of the lenders, said the response.

Even after the fraud was detected, none of the public sector banks reported the matter to appropriate authority as per the Reserve Bank of India (RBI) guidelines. Further, cases filed by the private banks against the company have been dropped, said the complainant.

Box 1:

Public sector banks in the consortium:                                     

UTI Bank

Allahabad Bank

Corporation Bank

Canara Bank

Punjab National Bank

Bank of Baroda

IDBI Bank Ltd

Bank of Maharashtra

Box 2:

According to RBI, the amount outstanding on account of Non-Performing Assets (NPAs) by 2012 is 1, 37,102 crores which is equal to 10% of India’s annual budget. Out of the total, Rs 21,604 has already been written off.