Usha promoters to be charged for funds diversion
The ministry’s order came last weekend based on the charges SFIO levelled against the promoters of Usha (India), Malvika Steel and Koshika Telecom in its detailed investigation report.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: Usha promoters to be charged for funds diversion.The company affairs ministry has asked the Serious Fraud Investigation Office (SFIO) to prosecute promoters of Usha group for offences including siphoning off borrowed funds out of group companies, creating fictitious equity by rotating money among front companies and wrongfully using loans to buy real estate.
The ministry’s order came last weekend based on the charges SFIO levelled against the promoters of Usha (India), Malvika Steel and Koshika Telecom in its detailed investigation report. Company affairs minister Prem Chand Gupta asked SFIO to probe the case last year after the Company Law Board told the government that it should investigate the case under Section 237B of the company law as an earlier CBI probe was not comprehensive.
The CLB recommendation came on a petition filed by the Industrial Finance Corporation of India (IFCI), which has lent Rs 170 crore to Usha India. SFIO would prosecute the promoter brothers and other officers in default only for violations of the company law and the Indian Penal Code. The ministry would therefore, forward the report to other agencies like the RBI, CBDT, CBEC and CBI for violation of other laws. It would also ask the Institute of Chartered Accountants of India (ICAI) to take action against the company’s auditors Bansal & Co.
According to the investigation report, the promoters allegedly set up 250 front companies with nominal equity capital and with employees as directors. These were used to divert loans from financial institutions out of group companies. Usha India allegedly used 20 front companies to show investment in the flagship firm by rotating funds.
The diverted funds were used to purchase real estate. The group then started showing losses and the share prices fell. The group then declared erosion in net worth and approached the BIFR to avoid re-paying the debt. BIFR rejected the reference in ‘01, but the company moved a second time in ‘03, which is pending now. The group has reported a loss of Rs 1,200 crore.
The ministry’s order came last weekend based on the charges SFIO levelled against the promoters of Usha (India), Malvika Steel and Koshika Telecom in its detailed investigation report. Company affairs minister Prem Chand Gupta asked SFIO to probe the case last year after the Company Law Board told the government that it should investigate the case under Section 237B of the company law as an earlier CBI probe was not comprehensive.
The CLB recommendation came on a petition filed by the Industrial Finance Corporation of India (IFCI), which has lent Rs 170 crore to Usha India. SFIO would prosecute the promoter brothers and other officers in default only for violations of the company law and the Indian Penal Code. The ministry would therefore, forward the report to other agencies like the RBI, CBDT, CBEC and CBI for violation of other laws. It would also ask the Institute of Chartered Accountants of India (ICAI) to take action against the company’s auditors Bansal & Co.
According to the investigation report, the promoters allegedly set up 250 front companies with nominal equity capital and with employees as directors. These were used to divert loans from financial institutions out of group companies. Usha India allegedly used 20 front companies to show investment in the flagship firm by rotating funds.
The diverted funds were used to purchase real estate. The group then started showing losses and the share prices fell. The group then declared erosion in net worth and approached the BIFR to avoid re-paying the debt. BIFR rejected the reference in ‘01, but the company moved a second time in ‘03, which is pending now. The group has reported a loss of Rs 1,200 crore.
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