Frauds office to probe Ispat Inds finances

The government has ordered a probe against steel giant Ispat Industries for alleged exposure to Rs 8,500 crore of public funds, erosion of networth and high accumulated losses, officials have said here today.

The investigation had been ordered under Section 235 of the Companies Act (investigations into a company's affairs) and the case had been referred by the department of company affairs to the Serious Frauds Investigation Office (SFIO), the officials said.

Ispat Industries, however, has said it is not aware of any investigation being launched by the SFIO against the company and that it has been meeting "all obligations" to lenders.

Executive Director (Finance) Anil Surekha, who had earlier declined to comment on the story, said later, "We are not aware of this. The government has told us nothing."

SFIO, set up to look into large-scale fraud and misappropriation of funds by companies, takes up only those cases which DCA refers to it, after a nod from the finance minister.

"We have ordered an investigation under Section 235 of the Companies Act against Ispat Industries and the case has been referred to the SFIO. The probe is being ordered because of the company's exposure to Rs 8,500 crore of public funds, erosion of net worth and high accumulated losses," the sources added.

The officials said while DCA ordered the probe about a week ago, the order was awaiting a nod from the finance minister.

Surekha said the company had about Rs 6,000 crore as debt on its books but "we are meeting all our obligations to the lenders". He said Ispat Industries owns assets worth about Rs 8,000 crore.

He also said Ispat Industries posted a "small" net profit of Rs 17 crore for nine months ended December 31, 2003 on a Rs 4,000 crore sales turnover.

Since the SFIO was set up late last year, Ispat is the fifth case to be referred to it for thorough investigation.

Daewoo Motors, DSQ Software, Design Auto and Benonza Biotech were the other four cases already being probed by SFIO, sources said.

Daewoo Motors is being probed for financial mismanagement and networth erosion whereas the government is investigating DSQ Software's role in the stock market scam.

Design Auto and Benonza Biotech allegedly first allotted shares worth Rs 100 crore to each other and then offloaded these in the market.

Ispat Industries has been referred to SFIO due to the large amount of funds involved and the fact that it had eroded almost its entire networth.

As per information available with the Bombay Stock Exchange, Mudra Ispat and Ispat Finance held about four per cent stake in the company as on December 31, 2003. Foreign promoters held another 47.72 per cent stake in the company. About 15 per cent stake is held by the public.