The XII Additional Chief Metropolitan Magistrate Court at Nampally here today sent Nagarjuna Group chairman and promoter of Nagarjuna Finance (NFL) K S Raju and another director P K Mahadevan to the Chenchalguda central prison on judicial remand till December 29.
The police arrested them on Monday for allegedly defaulting on payments to NFL depositors. The court today rejected a petition from them seeking medical assistance. "The court saw no merit in the petition filed (under Section 54) to send them to a medical examiner," a court statement said.
Though Mahadevan was produced before the court around 2.30 pm, Raju was taken in late evening. It is learnt that the police had taken him to his corporate office for recovering some documents relating to the case.
Plunged into an acute liquidity problem in 1999, NFL, a non-banking financial institution, had defaulted on repayment of matured deposits. The depositors approached civil courts, police stations and consumer fora and filed cases against NFL directors. Nearly 700 warrants issued by courts across the country are pending against them.
The diversified Rs 12,500-crore Nagarjuna Group, a household name in Andhra Pradesh, had set up NFL in 1982 with the objective of entering into the financial services industry though the group's core activity is in agrochemicals, irrigation systems and energy. It collected deposits worth hundreds of crores till 1997-98 from 52 branches country-wide.
The police said the company had collected deposits of Rs 98.3 crore from 85,160 people in 1997-98 in Andhra Pradesh alone. Of this, Rs 23.02 crore belonging to 16,122 depositors matured on December 31, 1999. The company, however, defaulted on payment of the matured deposits.
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The defaults began when the company's borrowers failed to repay the loans taken. According to reports, the company had to receive Rs 130 crore from its borrowers.
In all, it had about 58 borrowers, who had to pay Rs 1-5 crore each. In fact, since 1999-2000, the company had discontinued its financial services activities and focused on recoveries.
With the pressure mounting for repayment of deposits, NFL filed a petition before the Company Law Board (CLB) seeking time for repayment of deposited amount for 12 -18 months. The CLB passed an order on February 29, 2002, allowing the company to repay the deposits over four years at an interest rate of 12. 5 per cent annually. But, the company failed to execute even the deferred payment schedule.
In September 2002, the Nagarjuna Group had entered into an MoU with Mumbai-based Mahalakshmi Factoring Services (MFSL) for divestment of its equity stake in NFL. Thereafter, Raju disowned the responsibility of repaying depositors stating that the onus now lies with MFSL, which has to pay dues by way of realising receivables.
MFSL filed an affidavit before the CLB seeking discharge of the board's earlier order in the matter of implementing the obligation towards the deposit holders. The CLB did not accept the plea and maintained that the arrangement made between NFL and MFSL shall not be of any consequence in relation to repayment of deposits.
The Registrar of Companies here also filed a petition before the Economic Offences Court against Raju and other promoters of NFL for their failure to repay depositors. The RoC submitted that the MoU between the NFL promoters and MFSL does not grant the promoters any indemnity from criminal proceedings.
On the other hand, NFL approached the Andhra Pradesh High Court pleading that in the light of the statutory order of the CLB orders the police be directed not to receive complaints from the depositors or register the case or pressurise the company to repay the deposits. The HC issued a stay order on the arrest of the accused in all cases.