Centre seeks 6 nominees on Morepen board

Company law board moved

The government has moved the Company Law Board (CLB) to appoint six directors as its nominees on the board of Morepen Laboratories.

In its petition under section 408 (1) the government has alleged mismanagement on the basis of scrutiny of the company's accounts till September 30, 2003.

Acting on government's reference, the CLB has asked the company to furnish a progress report on the repayment of fixed deposits to the public and reply as to why government directors should not be appointed.

The company had earlier defaulted on repayment of its fixed deposits to the tune of Rs 156.2 crore. A repayment scheme was subsequently approved according to which deposits up to Rs 5,000 were to be repaid within a year and the rest over four years.

The petition sought the appointment of government nominees for three years as the unsecured creditors may not recover their dues in case the company is put under liquidation.

According to government sources, as per the CLB's order the company was required to pay Rs 14.28 crore in the period between August 19 2003 and January 31 2004, but paid only Rs 5.55 crore.

Sushil Suri, chairman and managing director of the company, could not be contacted and his office said that he was currently not in India.

PK Singh, advisor to the company said, "The company was aware of the government's move although to the best of his knowledge CLB had not asked for details of fixed deposit repayments."

The government has alleged that the company defaulted in the redemption of preference shares and also defaulted in redemption of 11 lakh non-convertible debentures.

It also cited contravention of Section 269 of the Companies Act, saying that the company paid Rs 15.64 lakh to Additional Director Sanjay Suri, a relative of the managing director, and Rs 13.08 lakh to a whole-time director without the approval of the shareholders.

Sanjay Suri could not be contacted but his office said that he was no longer a director of the company and had held a board-level post only for a short period.

The government has further alleged that Dr Morepen, which was converted into a 100 per cent subsidiary in March 2002, was 'de-subsidiarised' the following year through a fresh issue of 67.57 lakh shares of Rs 10 each which were issued to relatives of the chairman and managing director.

At the same time, the company spent Rs 65.75 crore on behalf of Dr Morepen between July 2001 and March 2003 and instead of receiving back the money, the company converted the same into preference shares.

The government's argument is that the company spent the money without proper planning which contributed to default in fixed deposits.

It also contended that the Shimla High Court's stay on prosecutions filed in the various courts did not stop the ministry of company affairs, registrar of companies and the CLB to initiate the case.

Morepen Lab had raised $15.25 million in GDR in 2003 which are locked up in a case at Debt Recovery Tribunal.