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Public enterprise panel calls for CBI probe into special credit to CRB group

The Committee for Public Enterprises has recommended a CBI inquiry following revelations that the state-owned Gujarat State Financial Corporation went out of its way to extend credit facilities to CRB Capital Markets in 1995.

Written by Tanvir A Siddiqui | Ahmedabad |
February 24, 2009 1:36:26 am

Committee report accuses GIIC of ignoring its own board’s directives

The Committee for Public Enterprises has recommended a CBI inquiry following revelations that the state-owned Gujarat State Financial Corporation went out of its way to extend credit facilities to CRB Capital Markets in 1995.

The Committee tabled its report in the state Assembly last week.

The Committee has taken a serious note of Gujarat Industrial Investment Corporation (GIIC) ignoring its own board of directors in helping CRB Capital Market,a non-banking financial company owned by the C R Bhansali group.

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The GIIC board of directors had approved dealings with only four Non-Banking Financial Corporations — Gujarat Small Industries Corporation Ltd,Anagram Finance Ltd,Gujarat Lease Finance Ltd and Lloyds Finance Ltd. But GIIC’s then managing director went ahead to allow credit facility to CRB Capital Markets.

The credit limit was jacked up from the initial Rs 5 crore in February 1995 to Rs 10 crore in March 1995 and to Rs 20 crore in November 1995 “showing undue haste”,the Committee said.

CRB Capital Markets defaulted in repayment in November 1996 and this resulted in reduction in limit to Rs 5 crore,but it was raised to Rs 10 crore by July and to Rs 12.50 crore by August that year in view of specific request,it added.

The committee said that the CRB again defaulted thrice between December 1996 and January 1997 in repayment to the extent of Rs 9.94 crore due to the cheques getting bounced. It was decided to sell the mortgaged CRB shares estimated to be worth Rs 17.76 crore in December 1997,but the decision was reconsidered in view of the time sought for rescheduling.

Even the then State Minister for Industry and Tourism had recommended rescheduling in favour of CRB,the committee said.

Incidentally,a notice was issued to the mortgagor in April 1997 for seizing the leased assets of the company,but since nothing existed in physical form,there was no question of seizure or recovery,it said.

The audit report pointed out that GIIC allowed credit facility worth Rs 10 crore in September 1996 despite defaults from November 1995 to February 1996,and rescheduled the debt for a second time in February 1997. “This was unduly in favour of CRB Capital Markets because the bill rediscounting it was deliberately in favour of its own group companies,leaving no scope for recovery from CRB,” it said.

Again,no physical verification was done of mortgaged assets; rather it was simply based on the report of the chartered accountant,it added.

The Committee has now questioned how GIIC could accept CRB’s requests for rescheduling despite their cheques getting bounced frequently.

The committee has said that by not selling the mortgaged CRB shares on time,GIIC has caused financial loss to its coffers. It has also not accepted the GIIC’s argument that such shares could not be sold due to Reserve Bank of India guidelines in such cases.

“The very objective of taking guarantee from any party is that the lender can recover the money lent by selling such assets in case of default …this should have been kept in view at the time of extending the credit,” the committee said, while recommending a CBI probe into the matter.

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