Dilip Pendse, former Tata Finance managing director, has alleged that Tata Finance Ltd (TFL) and its erstwhile subsidiary Niskalp discounted bills of exchange aggregating to over Rs 7,000 crore between 1996-97 and 1999-00.
Pendse, in his affidavit filed in the Mumbai High Court, said that there was an arrangement between Tata Finance and Telco -- duly approved by the broad of directors of both companies -- to provide financial support to Telco dealers.
This support was in the form of trade advances for purchase of vehicles and term loans and inter-corporate deposits (ICDs) for financing needs, subscription to debentures for financing long term working capital and infrastructure facilities. Niskalp has also securitised bill market scheme (BMS) receivables of Telco dealers.
Under the said arrangement, at the end of every quarter an assessment was made of the total value of the discounted bills. The assessment was also made as to how many of such bills had matured and remained outstanding for a period of over 180 days.
Telco had an undertaken to make payment of such bills, together with interest, which had remained outstanding for over 180 days, subject to a maximum of 25 per cent of the total value of the discounted bills at the end of the quarter.
This exercise was carried out at the end of every quarter. Telco honoured this arrangement until around June 30, 1999, the affidavit said.
However, thereafter Telco started resiling from its obligations as due to general slowdown in the economy, the automobile industry was adversely affected. The Telco dealers -- to whom the money had been advanced by Tata Finance and whose bills had been discounted by the company -- started committing substantial defaults and the amounts of the dishonoured bills started mounting.
At the same time, Telco defaulted in its obligation and commitments to make payments at the end of each quarter. This caused the books of account of the Tata Finance to reflect substantial un-recovered debts from Telco dealers.
Tata Finance looked up to Telco to honour its obligation under the risk sharing arrangement. However, instead of honouring its commitment, Telco management, directed that a scheme be framed where under in the books of both the Tata Finance and Telco, the overdues of Telco dealers under the bill discounting scheme of the Tata Finance could be dealt with, the affidavit pointed out.
Accordingly, the scheme was framed and it was decided that Telco would pay to the Tata Finance about Rs 120 crore over and above Rs 25 crore paid earlier, which in turn Tata Finance was to pay as and by way of advances to Niskalp.
Again Niskalp in turn would advance this money to the same Telco dealers to enable them repay the earlier outstanding of Tata Finance being taken over by Telco.
This tripartite transaction between Telco, Tata Finance, and Niskalp was completed around March 31, 2002.
In this manner, Telco effectively showed the recovery of the overdues in its own books and instead substituted the same under the above arrangement through fresh loans from Niskalp, the affidavit said.
It further pointed out: "It is apparent that a substantial amount of over Rs 120 crore which were advanced by the Tata Finance to Niskalp were in fact money which were received from Telco, in the aforesaid manner, routed back to Telco. This transaction involving Telco, Niskalp and Tata Finance took place with the consent and approval of board of directors of all the three companies as the person in control and in charge of the entire Tata group. The entire arrangement was also to the full knowledge and with the approval of the common statutory auditors of all the three companies."
