| NBA Press Release
|| 08 September 2002
RBI must direct CBI to investigate grave financial irregularities in S.Kumars
NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
At the fag end of the six month period for which the in - principle guarantee given by the Madhya Pradesh government to the controversial S.Kumars promoted Maheshwar power project in the Narmada valley is valid, and with no visible progress on the issue of bonds by the S.Kumars, the Madhya Pradesh government has urged the Project promoters to speedily finalise the financing of this Project before the guarantee lapses on the 30th of September 2002. On the other hand, it is reliably learnt that the panic-stricken S.Kumars are now trying to persuade the Rural Electrification Corporation - a greenhorn in the field of financing of large privatized power projects, to invest in this sinking project.
It may be noted that after the exit of successive strategic foreign investors from this sinking project that has seen no work since the last 1.5 years, and the refusal of the Central Finance Ministry to allow the public Financial institutions to pick up the tab for the vacated Rs. 330 crores equity share on the grounds that both the S.Kumars and the Madhya Pradesh government are persistent defaulters, the GoMP and the financing institutions had asked the promoters to issue bonds in order to raise amount. The state guarantee was to be for these bonds. But S.Kumars are reluctant to face the market and have not been able to come out with any public rights issue for Maheshwar in the last six months. Therefore they have now turned to persuading the Rural Electrification Corporation to pick up the additional amount.
The NBA finds it incomprehensible that the government should give this suicidal guarantee to the S.Kumars, backing it with crores of rupees of public money, at a time when the SBI Caps have filed a winding up petition against the SMHPCL - the S.Kumars company implementing the Maheshwar Project in the Indore High Court in April 2002 for non-realisation of dues of several crores, and when as per reports, the IFCI and the IDBI have decided to report the company S.Kumars Nationwide belonging to the same promoter group to the RBI for appropriate action as willful defaulter and for diversion of funds.
The NBA also expresses extreme surprise that the REC whose charter hitherto was to bring light to the homes of the rural poor flung in distant villages flung all over India, should now involve itself in an Enron-type project that is designed to keep the lights out of the homes of the common people of Madhya Pradesh due to its prohibitively expensive costs, and designed to provide huge guaranteed returns in the pockets of the private promoters.
The Narmada Bachao Andolan calls on both the Madhya Pradesh government and the Rural Electrification Corporation to take cognizance of the deep financial irregularities that both the Maheshwar Project and the Project promoters- the S.Kumars are mired in, and that several financial institutions have declared various S.Kumars companies "willful defaulters" and as engaged in the diversion of funds. It calls on them to take cognizance of the recent notification of the 30th of May, 2002 issued by the Reserve Bank of India, that unambiguously stipulates that no additional facilities by any bank or financial institution or access to the capital market may be given to any willful defaulter and that the promoters of companies where banks / FIs have identified siphoning / diversion of funds should be debarred from accessing any institutional finance for the next five years.
It was in order to address the huge and spiraling problem of over Rs. 80,000 crores of non-performing assets and willful default on public money by corporates and corporate groups, that the Reserve Bank of India has recently passed this notification. The Narmada Bachao Andolan welcomes these measures to arrest the increase of non-performing assets created by willful defaulters and demands that in light of this RBI notification and the proven financial malpractices of the promoters, the Indian financial institutions and banks and the Rural Electrification Corporation- also a registered public financial institution as well as the Government of Madhya Pradesh must desist from wrongly and deliberately putting public money into jeopardy by investing in or guaranteeing S.Kumars Maheshwar Project.
The NBA is writing to the RBI asking that the RBI refers the matter of the financial irregularities that the promoters and the project is mired in, to the CBI for investigation. The NBA is also serving legal notice to all the financial institutions and the REC, raising its objections to their financing this Project in the light of the recent RBI notification.
The press conference was addressed by Shri Alok Agarwal and Suresh Patidar from the NBA as well as Comrade Poddar, Secretary , All India bank officers association,Shri Jagdish Choel Secretary Madhya Pradesh Bank Officers Association, Shri Trilok Singh, President of Oriental Bank of Commerce officers Association , Shri S. P. Chiney, Assistant General Secretary, State Bank of Indore Officer's Coordination Committee. The representatives of the Bank Officer's Association said that the country and the financial sector was facing a massive problem due to the companies willful defaults on public money leading to the accumulation of non- performing assets to the extent of Rs. 80,000 crores. The officers said that in the light of the financial irregularities, diversion and default by the promoter company - S.Kumars, the All India Bank Officers Association would write to the financial institutions and banks as well as the RBI asking them to recall the amounts already disbursed to the Maheshwar.
The NBA demands that nearly Rs. 80,000 crores of public money similarly disbursed by the Indian financial institutions and banks to private corporates which they have refused to pay back, and which are now euphemistically called "non-performing assets" must be immediately recalled and that strong criminal proceedings must be initiated against the corporates who have been guilty of willful default.
With the exit of the foreign investors, and the S.Kumars turning to increased public financing of this privatized project, in the course of the last three years, several cases of financial irregularities, diversion and willful default involving hundreds of crores of rupees of public money taken from Indian banks and financial institutions by the companies of the Private promoter group S.Kumar's companies have come to light.
Most recently, in April 2002, the SBI Capital Markets - the investment arm of the State Bank of India - have filed a winding up petition under Section 433 (e) of the Companies Act against Shree Maheshwar Hydel Power Corporation Limited for non- realization of fees dues aggregating 3.7 crores plus interest in the Indore High Court.
The SBI Caps have also filed a winding up petition against the S.Kumars Nationwide Ltd. for non- redemption of redeemable shares worth Rs. 3 crores plus interest in the Mumbai High Court. The SBI Caps has also started separate legal proceedings against the S.Kumars Nationwide Limited for issuing post dated cheques that have bounced.
Meanwhile, in June 2002, as per reports, the IFCI and the IDBI have decided to declare S.Kumars group company- the S.Kumars Nationwide as "willful defaulter". An IFCI Report of June 2002 notes that the SKNL has willfully defaulted on its loans despite being able to pay and " despite having cash accruals of Rs. 63 crores for the year ending September 2001". The IFCI note also states that the company has diverted substantial funds without permission from lending institutions from the SKNL to their Ready to Wear business division. Recall also the IFCI report on the Maheshwar Project of March 2000 had pointed out that the S.Kumars had given Rs. 106.4 crores meant for the power project to agencies with no contracts and who did not do any work on the project - an obvious case of diversion.
The two CAG reports for 1998 and 2000 had also noted that the S.Kumars are yet to pay even the state owned MPEB and the NVDA for works on the power Project before its privatization in 1992, a decade ago. S.Kumars however have continues to enjoy the properties.
It may also be recalled that the Madhya Pradesh State Industrial Corporation Limited lent Rs. 8.02 crores to the S.Kumars Power Corporation Limited in 1997. The CAG report of 2000 pointed out that this transfer of inter- corporate deposits was in contravention of the legally allowable limits of Rs. 3 crores. After having obtained money irregularly to the extent of nearly three times the legally allowable limit, the S.Kumars company - S.Kumars Power Corporation Limited now rechristened Induj Enertech Limited refused to pay back the amount. It refused even to respond to the demand notices given by the MPSIDC. The MPSIDC then issued a public notice in September 2001 in leading newspapers, declaring the Induj to be a willful defaulter and stating its intention to file a winding up petition against this company.
However, in 1999-2000, despite a track record of default, a further Rs. 45 crores was given by the MPSIDC to the Induj Enertech Limited for the financing of the Maheshwar Project, once again much beyond the legally allowable ICD limits. True to form, the S.Kumars defaulted on Rs. 19 crores of payments on this loan as well. The MPSIDC than issued a Revenue Recovery Certificate on the 10th of September 2001, directing the District administration of Khargone to recover the over due sum of Rs. 19 crores from the attachment and sale of the movable and immovable properties of the Maheshwar Project. In February, 2002, the movable properties of the Maheshwar Project were attached by the District administration. However curiously, after that, the proceedings were stopped. The immovable properties of the Maheshwar Project were not attached. The movable properties already attached were not sold in order to facilitate recovery. In fact the outstanding Rs. 19 crores of public money were not recovered. Nor was the publicly stated intention to initiate a winding up petition against the S.Kumars Power Corporation Limited for default on Rs. 8.02 crores realized. Obviously, some private understanding between the company and the MPSIDC and /or the state government had resulted in the private promoter being spared and public money being thrown down the drain. All written demands for public clarification on the status of the legal proceedings by the MPSIDC have invoked only silence from the state agencies.
Subsequently in August 2002, when the MPSIDC was called upon by the Mumbai Jila Kendraiya Sahakari Bank, Mumbai to return Rs. 50 crores borrowed from it, ostensibly to fund loans such as those to S.Kumars, the MPSIDC issued a cheque of Rs. 50 crores plus two crores in interest. When the cheques bounced, the Mumbai bank that had lent to the MPSIDC found to its horror, that, in fact the MPSIDC had closed the particular account that it had issued cheques on !!
This sordid, deliberate and self serving behaviour of some financial institutions favoring corporates is at the root of the current crisis in the Indian financial system and demonstrates the criminal dereliction of duty by the Financial institutions and state agencies and their failure to protect the public funds that they hold in trust. It is in the context of the above, that the NBA reiterates its demand that the Madhya Pradesh government and the Rural Electrification Corporation as well as the other financial institutions and banks such as the IFCI desist from investing in or guaranteeing the S.Kumars promoted Maheshwar Project, given their knowledge of the proven financial malpractices that the promoter and the project are mired in, as well as more fundamental flaws related to the Maheshwar project .Alok Agarwal