Financial Daily from THE HINDU group of publications
Tuesday, Sep 06, 2005
Money & Banking
CAG pulls up Goa finance body for losses
Panaji , Sept. 5
THE latest report of the Comptroller and Auditor General of India (CAG) on Goa's financial functioning has, among other things, pulled up the state-owned apex financial institution Economic Development Corporation Ltd (EDC) for losses on account of injudicious investment in the equity of private limited companies.
The report has pointed to the failure of the EDC management to formulate any policy norms with regard to participation in the equity of private limited companies.
The report for the year ended 31 March, 2004 tabled in the Budget session of the State Assembly this week by the Chief Minister, Mr Pratapsing Rane, focusses on two such major cases of injudicious investment, with regard to private limited companies, the shares of which could not be freely traded.
That resulted in non-recovery of Rs 1 crore and interest thereon, it notes. The report also mentions an earlier report of CAG for the year ended March 31, 2002 which had similarly pointed out the loss of income, interest and investment to the tune of Rs 1.5 crore to the EDC due to non-acceptance of the buy-back offer in respect of shares held in Marmagoa Steel Ltd, a South Goa-based steel unit.
In the action taken report, EDC had stated that the disposal of the shares was deferred at the instance of the Government.
A Rs 50-lakh financial assistance sanctioned by way of equity participation to Desai Cement Company Ltd (DCC), Ponda, Goa for setting up a clinker grinding unit for production of cement was on the condition of buy-back from the commencement of production with a minimum annual return of 21.5 per cent. EDC also had a right to nominate a director on board of DCC, which started commercial production in March 1998.
EDC, in March 2003, decided to transfer the shares to DCC at a total price of Rs 55 lakh (principal with 10 per cent interest) in full settlement, against Rs 1.18 crore receivable under the agreement. DCC, however, paid Rs 5 lakh towards interest only and the principal of Rs 50 lakh remained unpaid (till December 2004), the report stated.
Similarly, EDC extended assistance of Rs 50 lakh to Karapur Agro Ltd (KAPL), Goa, by way of participation in equity capital. After three years, in July 2001, EDC worked out a buy-back of one-third of shares at Rs 172.24 per share as per the terms of the agreement. KAPL did not buy back the shares on the ground that it had become sick due to heavy losses and, after legal action from EDC, offered to buy back shares at the principal amount of Rs 50 lakh in a phased manner.
In subsequent developments, EDC neither insisted on down payment, which was a condition in the settlement, nor did it initiate any recovery action after withdrawing its offer, observed the CAG report. Moreover, it granted further extension of time up to October 31, 2004. No payment had been received from the party till December 2004.
The report also found fault with the sanction of financial assistance by way of equity participation in the above companies and termed it "without proper pre-sanction appraisal, inadequate security-mortgage of assets" and pointed to the failure of EDC to appoint a nominee director for timely monitoring of the functioning of assisted companies, which resulted in non-recovery of Rs 1 crore and loss of interest of Rs 1.36 crore. EDC did not initiate any action to invoke personal guarantee of the promoter directors to recover the dues, it stated.
In another case, defective appraisal of credit worthiness, inadequacy of securities and indiscreet extension granted to a Anderson Marine Pvt Ltd, engaged in shipbuilding and marine engineering services, resulted in non-recovery of Rs 6.98 crore by EDC, said the report.
In another instance, the CAG report has indicted the Goa State Infrastructure Development Corporation Ltd, a special purpose vehicle of the State Government established to take up infrastructure development projects, of going ahead with an agreement of development and implementation of four projects with private participation at an estimated cost of Rs 115crore "without adequate feasibility studies" which resulted in unproductive expenditure of Rs 66.41 lakh.
The CAG report has given several instances of poor returns on the State Government's investments in public sector undertakings including joint stock companies, corporations and co-operatives. While an amount of Rs 202.93 crore, considered substantial for this tiny State, has been locked up by March 31, 2004, the percentage of returns was abysmally low between 0.01 per cent and 0.25 per cent.
According to Desai Cement Co. Ltd., the company has settled the issue by paying the EDC the entire amount of Rs50 lakh along with interest on May 30, 2005 and the EDC had transferred all the shares back to DCCL on June 7.
Stamp scam in Goa?
THE CAG report has indicated a possible stamp scam in Goa, which had so far remained unaffected by the Telgi stamp scam that hit many States.
The report has revealed an unexplained difference of Rs 30.19 crore between the sale and the registration of non-judicial impressed stamp-papers.
Ms Sangeeta Choure, Accountant General of Goa, said "This difference needed to be investigated by the State
Government, and specially the Finance Department about a year ago had been asked to explain the difference, but they have been unable to do so."
The report laments that there has been no mechanism in the State Treasury office here for periodical comparison between the paper sold and the paper registered.
Non-judicial impressed stamp-paper worth only Rs 72.54 crore was sold by the State treasuries from 1998 to 2003 against Rs 102.73 crore registered during that period. The difference of over 40 per cent was seen as "alarmingly high".
The report also points out that as on March 31, 2004, non-judicial impressed stamp-paper worth Rs 58.12 crore was lying in the State treasuries, which was much higher than the estimated average sale worth Rs 14.96 crore.
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