Sesa Goa, one of the country’s leading iron ore exporters, has denied charges levied against the company by the Serious Fraud Investigation Office that works under the Ministry of Corporate Affairs.
In a written response to the ministry that runs into more than 40 pages, the company has termed the SFIO report “legally and factually incorrect”.
Based on the allegations of a shareholder, charges have been levied against the company for under-invoicing of iron ore exports; excess commissions paid; over-invoicing of import of coking coal and over-invoicing of iron ore sold to the subsidiary company.
The company said SFIO’s conclusions were contradicted by its own findings that there had been no siphoning of funds and no suspicious transactions observed on investigating the records of the company, banks and customs over the period of 10 years. “It is indeed surprising that allegations have been levied against the company,” the firm said in a recent response to the corporate affairs ministry. The company has alleged that the SFIO report was based on a complaint of a “disgruntled shareholder”, his family and friends, who have a history of speculating heavily in the securities market.
The Vedanta group company also said that SFIO carried out investigations with “a pre-determined mind” and the aim seemed to have been to somehow establish wrong doing by the company. When contacted, the official spokesperson declined to comment.
The investigation had obtained copies of bank statements and related records from various bank branches, especially from Canara Bank, State Bank of India, and HDFC Bank, the main bankers of Sesa Goa, to scrutinise any suspicious transaction relating to the siphoning of the funds.
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Quoting the SFIO report itself, the company said a sample of transactions with high value was checked with their General Ledger accounts and nothing contrary was established.
“Copies of statement of export earnings foreign currency accounts were also seen and matched with their related transactions in books of account and no suspicious transactions was found during the course of investigation.”
The company has also contested charged of excess commission paid to Mitsui & Co in comparison to agents in Pakistan and Turkey. It said despite the commission the price realisation per tonne of iron ore at $11.69 was higher in China than $11.04 in Turkey in 2001-02. Similarly, it was $30.98 for China in 2004-05 as compared to $19.82 for Pakistan and $19.84 for Turkey.
“There was a vast difference in the work performed by Mitsui & Co in China versus agents in Pakistan and Turkey. The agents in Pakistan and Turkey were for sales to one party and primarily involved in coordinating payments and timely opening of L/C. Mitsui opened up the China market for Sesa Goa, dealt with multiple parties across a vast geographical area and also underwrote credit risks,” said the company in its response.
On charges of over-invoicing of import of coking coal, the company has maintained that the price for import of coking coal made by other companies in the country during the same period were similar to the price paid by Sesa Goa. Tata Metaliks and Kalyani Steels, which also imported coal from BHP Mitsui during the same years, paid the same price. “In fact, some companies paid a higher price for coking coal (SAIL paid $105 a tonne from Xstrata and $115 from BHPB. During the same time, Sesa Goa, Tata Metaliks and Kalyani Steels got coal at $65 a tonne).”
Even in the case of alleged under invoicing of exports of iron ore made by Sesa Goa Ltd, the company has said the comparison made by SFIO of a long-term price contracts made with Zhangdian, a steel mill in China, with other long-term contracts was incorrect. The contract with Zhangdian was made during the year 2004 when the supply of iron ore was limited. Further, the export prices of Sesa Goa to other customers were comparable with those of other exporters from Goa during that time. Even MMTC’s price for much higher grades under contracts were far lower than Zhangdian price of Sesa, it said.
On charges of over invoicing of iron ore sold by Sesa Goa to Sesa Industries which now stands merged with the former, the company said the pricing of iron ore was done strictly according to the transfer pricing policy approved by the boards of the respective companies, which was also certified by the company’s auditors.
“The alleged loss calculated by SFIO between 2005 till 2009 does not stand to any logic as Sesa Industries has merged with Sesa Goa effective April 1, 2005. In any event, Sesa Goa had more than 88 per cent shareholding in Sesa Industries. Any alleged excess recovery from Sesa Industries was, therefore, predominantly revenue neutral, particularly when Sesa Goa does not have the benefit of any carried forward loss under income tax act.”
The SFIO report had also alleged violation of Section 68 of the Companies Act of 1956, amounting to dishonest concealment of fact. The company has, however, contended that the application of the charges was erroneous as there was there was no public offer or prospectus in the preferential allotment of shares to SGL shareholders, as mentioned by SFIO itself in its report.