JCT loans to group companies

MUMBAI, Sept 28: It is a classic example of a company taking loans from Financial Institutions (FIs) at high interest rates, but giving awa...

MUMBAI, Sept 28: It is a classic example of a company taking loans from Financial Institutions (FIs) at high interest rates, but giving away interest-free loans to subsidiaries and other corporates, that too without making any stipulation about recovery of the loan. The auditors of JCT Ltd, belonging to the Thapar group, has qualified the balance sheet of the company by observing that there is no stipulation for recovery of interest-free loans and advances of Rs 244 crore given to subsidiary companies and other corporates.

According to the auditors Thakur, Vaidyanath Aiyar & Co, the company has given interest-free loans to Poly Investments (Rs 116 crore), Chohal Investments (Rs 15.55 crore), Gupta & Syal Ltd (Rs 1.04 lakh) and Kidarnath Kishanchand Finance (Rs 24.76 lakh). However, there is no stipulation for recovery of loans/advances,” it said. Significantly, Poly Investments which took the maximum loan has made a loss of Rs 16.49 lakh during the year ended March 1997.

Similarly, JCT — which made a loss of Rs 13.76 crore last year — has given loans of Rs 112 crore to other body corporates but, according to the auditors, there is no stipulation for recovery of the principal amount and interest. “Loans to certain corporates including interest accrued… are considered good for recovery by the management in the due course of time,” the company said.

At a time when JCT had given interest free loans to others, the company has taken loans (both secured and unsecured) of Rs 652.50 crore from FIs and banks paying interest rates.

The interest burden affected the performance of the company in the last year. Now the company is selling one of its divisions to get out of the loan burden.

According to the Directors Report, on preference shares of Rs 5 crore allotted in January 1996, a dividend of 14 per cent (as per the terms of the issue) has been paid. These shares were due for redemption on July 8, 1997, but the company has now sought the concurrence of the shareholders for deferment of payment.

Further, the company has not been able to pay the instalment of redemption dues in respect of debentures on November 31, 1996 (G series) and August 3, 1996 and August 3, 1997 (K series and on April 3, 1997 (I series) due to financial constraints.Even though the amount due to the individual holders of debentures has been paid on time, it has decided to approach banks and other institutional subscribers for rescehduling the payment of redemption amount (or alternatively reissue the debentures) to them.

Story continues below this ad

In the meantime, JCT has decided to utilise the proceeds from the sale of its synthetic fibre division to the Indonesia-based Polysindo for repayment of loans. The company is to receive Rs 420 crore out of the sale of its synthetic fibre division to a new 74:26 per cent joint venture company — JCT Synthetics. Out of around Rs 504 crore sale proceeds, Rs 80 crore will be used as the working capital in the new company.