One reason why some companies default on their loans is because they are not able to collect their dues from customers to whom they have supplied goods on credit. That appears to be the story of Varun Industries, a maker of stainless steel products, which owes Rs 2,000 crore to several state-owned banks.
According to documents submitted by the company to the Bombay High Court, two Dubai-based firms — White Impex General Trading LLC and Al Rad International Est. owe Rs 1,800 crore in the form of export receivables to Varun. But where Varun’s case gets murkier is the fact that the firm’s two promoters told the court that the company did not recover the money from these overseas entities for the last three years.
This came to light when one of Varun’s other creditors SE Investments Ltd dragged Varun to court filing a winding up petition. Varun Industries owes Rs 58 crore to SE Investments. In its high court plea, SE Investments has alleged that Varun Industries has “not utilised the funds for the purpose for which they were raised, thereby amounting to siphoning off funds”.
Apart from SE Investment, at least six other firms and financial institutions have moved court against the company.
That is not the least of Varun’s troubles. The company is currently being investigated by the Enforcement Directorate (ED) for alleged transactions with a firm that has been chargesheeted in the coal block allocation scam, according to a top ED official.
The ED has found that Varun Industries and its subsidiary Varun Jewellery routed at least Rs 3.80 crore to Vini Iron and Steel Udyog Ltd, a Kolkata-based company which acquired Rajhara North coal block in Jharkhand in 2008. The ED is now probing the nature and purpose of these transactions and has summoned the directors of Varun Industries . “We are trying to unravel the money trail in this case,” said an ED official.
The Indian Express sent a detailed mail to all the banks that have an exposure to Varun Industries, seeking a comment but none responded.
An email sent to Varun Industries and Jitendra Gandhi, general manager, secretary and compliance officer of the company remained unanswered.
The two promoters of the company, Kiran Mehta and Kailash Agarwal, have admitted in high court that while the company’s bank liabilities are “more than Rs 1,500 crore, the assets of the company are only worth Rs 300 crore”. The Indian Express has reviewed a copy of the court filings.
According to its annual report for the fiscal year ended March 2013, the latest available, the company has fixed assets of Rs 380 crore and receivables of Rs 1,723.9 crore.
Even at the peak of its business in 2010-2011, the company’s net worth was Rs 461.62 crore and it debt was two times its net worth at Rs 932.05 crore. At that time, sundry debtors — typically consumers who would have owed it money — accounted for almost 60 per cent of its assets.
Now, Varun filed a recovery suit against the Dubai firms only in January, after Mehta and Agarwal were summoned by the Bombay High Court.
According to a person familiar with the case, White Impex was a related party of Varun Industries and so it never insisted on payments. To substantiate his point, this person directed The Indian Express to an online profile of a former top executive of Varun on professional networking site LinkedIn.
The profile said, “White Impex General Trading LLC, a office run by Varun Industries Limited, is into the business of general trading and re-export of items like stainless steel kitchenware, sundry items, porcelain, glassware, gift items, melamine, cookware sets, non-stick items etc.”
According to the profile, before reaching a top executive rank at Varun, this employee worked with White Impex for over six years. The Indian Express was not able to contact the executive and hence not naming him.
SE Investments has submitted a copy of this profile as a part of submissions in the high court to corroborate its claim that the Dubai firms were controlled by Varun.
Apart from this, a November 2012 report of Dun & Bradstreet Information Services has found that the foreign partner of both White Impex and Al Rad is common. The general manager of Al Rad International held 13 per cent shares in White Impex, said the report, commissioned by SE Investments.
When officials of SE Investments visited the offices of these Dubai firms in February 2012, they found that the firms did not exist at the official address.
“It is a clear case of impersonation and fraud of the highest order. Both Dubai entities are front of Varun Industries Ltd. only,” said SE Investments in an email response to The Indian Express.
While the high court issued a winding up order against Varun Industries in March this year, the official liquidator has not been able to move against the company or ascertain the assets and liabilities of the company in India and abroad.
In a response to a Right to Information query of SE Investments, the official liquidator said, “…In spite of notices issued to the ex-directors of Varun Industries, they have neither handed books of accounts, records etc nor have attended to record their statement or filed statement of affairs”.
Meanwhile, stock exchanges have suspended trading in Varun shares citing non-compliance with the listing agreement. Varun’s lenders, mostly state-owned banks, have not approved corporate debt restructuring and have taken steps under the Sarfaesi Act to take possession of the secured assets of the company, but the case drags on.
Indian Bank has invited proposals from asset reconstruction companies (ARCs) for sale of Varun Industries NPA worth Rs 429.23 crore, according to court documents.
The Central Bureau of Investigation is also investigating Varun for the alleged default.
“It is informed that matter is being enquired. No further details can be shared at this stage,” the official spokesperson of CBI told The Indian Express in an emailed response.