Financial Daily from THE HINDU group of publications
Thursday, Nov 10, 2005
Financial Daily from THE HINDU group of publications Thursday, Nov 10, 2005 |
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Corporate
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Regulatory Bodies & Rulings Industry & Economy - Economic Offences SFIO suggests action against Mardia Chem over funds misuse Richa Mishra
New Delhi , Nov. 9 MARDIA Chemicals' brush with the law seems to be far from over. The Serious Fraud Investigation Office (SFIO), which has submitted its report to the Ministry of Company Affairs (MCA), has suggested prosecution against the company under the Companies Act and other statutory legal framework, for diversion and siphoning of funds. According to a senior official, the SFIO report said the company had indulged in falsification of accounts, false promoters claims, and diversion of funds. The official told Business Line that the SFIO had found false promoters claim in violation of Section 77 of the Companies Act. The section puts a restriction on purchase by a company, or loans by a company for purchase, of its own or its holding company's shares. The SFIO has also suggested asking the Institute of Chartered Accountants of India to initiate action against statutory auditors of the company. It has also found various other violations under the Companies Act including managerial remuneration and improper maintenance of records. Violations have also been found under Section 297 of the Act. The section requires the company's board of directors' consent for certain contracts in which particular directors of the company are interested. The company was also found guilty of non-compliance with disclosure requirements prescribed under the Act. The SFIO has also recommended action under the Indian Penal Code against Mardia Chemicals. The Ministry had referred the case to the SFIO to examine the allegations of diversion of funds by the company. Mardia Chemicals had bought property worth Rs 34 crore and converted them into company guest houses without giving any information on the source of funds. Also, with ICICI taking recourse under the Securitisation Act, the Ministry had to conduct a detailed investigation on the company, the official said. Mardia Chemicals' legal hurdles began in 2002. The Mardia issue was the among the first cases to be taken up under the Securitisation Act and was the first to be relieved from the Board for Industrial and Financial Reconstruction, as the financial institutions had initiated proceedings under the Securitisation Act. In May 2004, a court-appointed receiver started taking possession of the inventory and the company's factories. A Rs 1,000-crore company, Mardia Chemicals was the flagship of the Mardia Group, which owed over Rs 700 crore to the financial institutions. The group has facilities to manufacture a range of products including dyes, dye intermediates, basic chemicals and caustic soda. It owed over Rs 1,450 crore (a principal of Rs 800 crore and unpaid interest forming the balance) to 22 lenders, including Bank of Baroda, Bank of India, Corporation Bank, Union Bank, IDBI, Life Insurance Corporation, IFCI and New India Assurance. The exposure of ICICI Bank to the Ahmedabad-based dyes and dyes intermediaries company is Rs 110 crore (principal) and with interest works out to Rs 392 crore. In November 2003, ICICI Bank took over a unit of Mardia Chemicals, at Vatwa in Ahmedabad, but got stuck in legal proceedings as the right to sell seized assets came into question till the Supreme Court upheld the constitutional validity of the Securitisation Act in April 2004.
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