The IFCI said the JKCM's management was "not trustworthy", citing a special audit report that uncovered certain "dubious transactions" between the company and six of its dealers who owed nearly Rs 40 crore to JKCM.
The IFCI report also pointed out that the company's operations suffered a setback mainly on account of management deficiencies, and faulty production planning and marketing strategies.
Repeated attempts by Business Standard failed to elicit a response from the company.
The IFCI's pronouncements on J K Cotton assume special significance since it reflects an emerging trend where the FIs are being increasingly called upon to assess the quality of managements in various corporate houses.
The Board for Industrial and Financial Reconstruction (BIFR) had on September 18 directed operating agency IFCI to invite bids for change in the company's management.
At that time, as per the directives of BIFR, IFCI had also carried out a viability study. It had also initiated an independent special investigative audit into the transactions of JKCM with six dealers who owed Rs 39.72 crore to JKCM.
The audit report revealed that the transactions with these dealers were "of a dubious nature and it was unlikely that JKCM would be able to recover any amount from the dealers or the guarantors".
The IFCI report as well as the audit report were discussed by the institutions, banks, the RBI and the state government.
"The consensus at the joint meeting was that since the management of JKCM was not trustworthy in view of the findings in the audit report...the institutions/banks might not support any rehabilitation proposal for JKCM," the IFCI report revealed.
