The Ministry of Corporate Affairs is learnt to have given the green signal to the Serious Fraud Investigation Office (SFIO) to launch prosecution against Vaishnavi group companies that were promoted by former corporate lobbyist Niira Radia.
Radia shut down the companies over two years ago following controversy over her intercepted conversations with a range of influential people. Sources said the SFIO report cites violation of the Companies Act on several counts, some of which could attract fines, or up to two years in prison.
The ministry’s move comes as the Central Bureau of Investigation is said to be preparing to seek closure of its probe against Radia in the next hearing in the Supreme Court next month. The agency has reportedly found no criminality in preliminary enquiries registered on the basis of the tapes.
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In July 2012, the then corporate affairs minister M Veerappa Moily had ordered an investigation by the SFIO into the alleged flouting of rules by companies promoted by Radia. The order was based on the recommendations of the Registrar of Companies(RoC), Delhi, which had scrutinised the accounts of Radia’s companies.
In its report submitted to the ministry earlier this month, the SFIO is said to have detected “major violations” of the Companies Act by Vaishnavi Corporate Communications, Vaishnavi Advisory Services and other group firms, and recommended prosecution. Sources said Corporate Affairs Minister Sachin Pilot sanctioned the prosecution last week.
As per the SFIO report, Vaishnavi Corporate Communications committed a “major violation” of the Companies Act by entering into related party transactions without approval of the board of directors and the central government. Vaishnavi Advisory Services did the same, according to the report.
The report has accused Vaishnavi Corporate Communications of having also violated the Companies Act by its “non-disclosure of foreign exchange earnings in notes to accounts”, “non-filing of forms with RoC for creation of charges”, and “non-signing of balance sheet and profit and loss account by the managing director”.
Vaishnavi Advisory Services stepped out of line on account of “non-bifurcation of sundry debtors”, the SFIO said.
“Technical violations” of the Companies Act, as cited in the SFIO report, include non-disclosure of details of long-term investments, non-disclosure of related party transactions in the balance sheet, disclosure of rent as support services, “non-discharge of professional duties by the statutory auditor”, and non-adherence to due procedure for adoption of financial statements.
A Vaishnavi group spokesperson said in a statement, “All the group companies have complied with the rules and regulations. We have also extended our complete cooperation to the process of investigations. We are not aware of the specific contents of the report as the same has not been made available to us despite our request. Intriguingly, a purported copy has been conveniently leaked to the media to yet again launch a trial by media against the companies. This development only reiterates our long-held belief that vested interests continue their efforts to cause irreparable reputational harm to the companies for reasons best known to them.”
Sources close to the companies said the SFIO team “could not find anything substantial, and had to record some technical violations to justify the investigations undertaken”.
Official sources, however, said the violations were “much more than technical”.
“For instance, Radia’s companies have been found in violation of section 628 of the Companies Act (penalty for false statement punishable by imprisonment up to 2 years and fine),” an official said.
“We have invoked many strong sections as per the degree of violations. It is for the court to decide,” the source said.