Hyderabad-based Rs 12,500-crore Nagarjuna group's Chairman K S Raju was today arrested for allegedly defaulting on the payments to depositors of Nagarjuna Finance (NFL), a non-banking financial institution (NBFI) promoted by the group.
Along with Raju, another director, Pundi Krishna Swamy Mahadevan, was also arrested.
According to the police, NFL, incorporated as an NBFI in 1982, collected deposits of Rs 98.3 crore from 85,160 depositors in Andhra Pradesh during 1997-98. Out of them, deposits of 16,122 depositors amounting to Rs 23.02 crore matured on December 31, 1999.
The company, after maturity of deposits, allegedly defaulted on repayment of the amount. LVV Iyer, one of the directors, filed a plea before the Company Law Board (CLB) Southern Region in Chennai to give 12-48 months time for repayment of the deposited amount. CLB, in its order in February 2002 proposed a scheme for repayment at the rate of 12.5 per cent per annum over a period of 12-48 months.
According to the police, NFL even failed to repay the amount to the depositors. Following this, the depositors filed cases in various police stations and consumer forums. Several cases were filed between 2000 to 2003 and subsequently 82 of them were transferred to the Central Crime Station (CCS), Hyderabad in November 2003 for investigation. Another 12 cases were registered at CCS. All the 94 cases were under investigation against NFL.
However, disowning the Nagarjuna group the responsibility of repaying depositors, it had said that since the group had divested its equity holding in NFL in favour of the Mumbai-based Mahalakshmi Factoring Services (MFSL) in September 2001, the onus now lies on MFSL to pay the dues.
The tribunal has not accepted this and ordered that the arrangement made between NFL and MFSL shall not be of any consequence in relation to the repayment approved by CLB.
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It maintained that NFL was responsible for repayment.
After this NFL approached the Andhra Pradesh High Court in July 2001 in view of the statutory order passed by the CLB, for a direction to the police to not receive complaints from the depositors or register the case or pressurise the company to repay the deposits contrary to the CLB order. The High Court passed the orders directing the police to not arrest the directors or other employees. A counter affidavit was filed in the court to vacate the stay. The stay orders were vacated on September 19, 2008.
When contacted, Ramakanth, company secretary of Nagarjuna Fertilizers and Chemicals, the flagship company of the group, said he would talk about the issue "later".
The depositors in their complaint have alleged that the group company evaded paying dues of about Rs 98 crore to them.
In 2005, the Ministry of Company Affairs (MCA) had moved the Economic Offences Court against Raju and other directors of NFL, responsible for raising public deposits. Raju then maintained that the NFL was sold to Mumbai-based Mahalakshmi Factoring Services (MFSL) in 2000 but retained the old name. It had no responsibility to the depositors' claims.
NFL was established in 1982 by the Nagarjuna group with the objective of entering into the financial services industry. It collected deposits worth about Rs 360 crore till 1996-97 from 52 branches across the country. The default of payments began in 1999.
Raju claimed in 2005 that he had repaid deposits of about Rs 278 crore. Disowning himself and the Nagarjuna group, the responsibility of repaying depositors any further, he said that now repayments are to be made by MFSL to which the group had divested its equity holding.
State home minister K Jana Reddy had earlier informed the assembly that a total of 91 cases had been registered against NFL.
Reddy, however, said the Andhra Pradesh High Court had issued a stay order on the arrest of accused persons in all cases. Counter affidavits have been filed and efforts were on to vacate the stay orders. Sources said the HC had vacated the stay order on November 18, 2008.
When contacted by Business Standard, Ramakanth, company secretary of Nagarjuna Fertilizers and Chemicals, the flagship company of the Nagarjuna group, said that he would talk about the issue later.