Mescos: all messed up, nowhere to go

Today, the Mescos farmhouse on Delhi’s outskirts in Satbari, is probably Singh’s only sizeable personal asset left, but it badly needs a coat of paint. A skeletal staff works from a makeshift office that was once a showroom for Mescos Shoes.

‘‘Everybody makes mistakes, but nobody has been punished the way I have,’’ says Singh in an interview to The Indian Express, her first in two years. She’s in a modest DDA flat near Saket, once a bustling guest house for Mescos Airline pilots.

Rs 527.5 crore in unpaid loans is a big mistake, but Singh, 50, blames her misfortunes on her foray into politics. She unsuccessfully contested the 1996 general elections from Ghaziabad on a Congress ticket and the following year, income tax raids brought the shutters down on what till the mid-nineties looked like one of the fastest growing empires of a first-generation entrepreneur.

Singh says much of her unpaid debts figure is made up of interest, which ‘‘shouldn’t have been added’’. Reason: the group’s largest company — Mideast Integrated Steels Limited — was declared an NPA in 1999 and thus, she says, interest on the Rs 275 crore outstanding shouldn’t have been calculated from that time.

Former Mescos Joint MD, G.N. Srivastava, explains that the ‘‘arbitrary attitude’’ of the FIs had a lot to do with the downfall of the group. ‘‘After the tax raids, the FIs stopped disbursals of loans. At that time, we were just six months away from starting the first blast furnace at the Orissa plant.’’

Work at the doomed steel plant came to a halt two years ago. ‘‘Five crores,’’ Srivastava rues ‘‘is all we needed.’’ The humungous unpaid loans are clearly not problem number one for the beleaguered Mescos Group.

After the Income Tax Department pounced on them, it was the turn of the Central Bureau of Investigation (CBI) to turn their attention to financial frauds committed by the group. In 1998, the CBI filed two FIRs against Rita Singh, her husband J.K. Singh, their daughter Natasha Singh and other company officials.

The charges: forgery, manipulation of accounts, siphoning of funds and setting up of fictitious firms. In July 2000, the Singhs were arrested and it was only in August this year — after two jail terms, that Rita Singh was granted bail.

Today, Rita Singh admits most of her time is spent with her lawyers, deciding the line of defence to be taken in the criminal cases. But gradually, the Singhs says, they are turning their attention on making a turnaround.

Only a few months ago, Director General Civil Aviation (DGCA) gave Mescos Airlines back its flying licence and two helicopters have now started doing commercial sorties. One was sold off to pay back debtors. Their other flying machines are parked in hangers in Mumbai, waiting for servicing and spares.

HOW THEY GOT THE MONEY

It was in the mid-1970s that Rita Singh began her first export firm. She initially traded in commodities like rice and tapioca and then moved into garments and leather. She married N.K. Singh, a former airforce pilot and for 24 years, concentrated on exports.

Between 1982-1986, their sales jumped from Rs 40 lakh to Rs 70 crore. ‘‘It was around 1991 that we diversified with a vengeance,’’ recalls Rita Singh. The Russian and European markets were looking up and what could be a better boom industry than steel?’’

Jump to 1994, and the Mescos Group was recording what could only be described as a phenomenal growth graph. The group had unveiled plans to invest a whopping Rs 3,526 crore in diverse fields such as steel and mining (with an investment of Rs 3,200 crore), leather and shipping.

The most ambitious project was a pig iron plant in Jajpur, Orissa, as a joint venture with China Iron and Steel Industry Trade Corporation (CSGC). Mescos got a 100 per cent export commitment from CSGC and began their ‘‘greenfield’’ project, one of the 16 to be set up in what was conceived by the then State Government of Biju Patnaik as the country’s steel bowl.

The Rs 1,200-crore Jajpur project proved to be Mesco’s undoing. The plant was slated to go on stream by end-1995. But around this time, its capacity was raised by 25 per cent, and an IDBI-led consortium pledged Rs 107 crore more of loans.

This added a burden of Rs 75 crore on the group by way of interest alone. Meanwhile, the Singhs announced the baptism of Mescos Kalinga, which would convert MISL’s pig iron into flat products. The cost of this mega project: Rs 2,000 crore.

The Mescos empire, by this time, comprised 11 companies. The group had acquired two iron ore mines in Orissa and announced plans to purchase two ships, intended to transport pig iron directly to foreign shores. Two foreign ventures — tanneries in Russia run by Mesco Marita and a pharmaceutical concern called Mescos Mauritius were in place.

The heavy borrowing showed up in the high debt-equity ratio of these companies but Mescos wasn’t looking back. Meanwhile, one question was echoing in the corridors of power: are the Singhs biting more than they can chew?

AND HOW THEY GOT AWAY, OR DIDN’T

Mescos is one group that actually didn’t get away. They’ve been brought to heel by the long arm of the law. That’s not due to their bank defaults, however, but because of their alleged crimes.

It all started falling apart in 1996 when Mescos defaulted on payments on Inter-Corporate Deposits (ICDs). They also had to shelve their issue of Global Depository Receipts (GDRs) to fund the steel project. The final nail in the coffin came from the FIs who decided, in their wisdom, that no decision would be taken for funding Mescos Kalinga till the Jajpur pig iron plant was functioning.

Then, in 1997, came the tax raids that Rita Singh claims were politically motivated. ‘‘Because I jumped into politics and ran what the media dubbed as a high-profile campaign, I made enemies. The IT officials didn’t find anything much but the FIs backed out. Rs 30 crore disbursal for the Jajpur project never came. That was our most serious setback.’’

She says the IT Department has sent them notices for recoveries of around Rs 100 crore by way of tax and penalties, which they have challenged in a tribunal. The final order is still awaited.

The CBI action came in 1998. Two FIRs were filed and Rita Singh, J.K. Singh, his nephew, Deepak Singh were taken in custody in 2000. The charges were serious:

• The Mesco groups flagship company Mideast India defaulted in repaying crore of rupees to Fixed Deposit (FD) investors.

• The Singhs cheated United India Insurance by filing a fire claim on the basis of forged certificates.

• They used forged invoices for obtaining lease financing from Birla Finance. The promoters also pledged 27 lakh fake share certificates to banks like Bank of Baroda, Federal Bank, Bank de Paris and the Bank of Madura.

• The Singhs conspired with officials of the Airports Authority to get prime land and hanger space at throwaway prices at Juhu airport, Mumbai.

• MISL also signed on for lease financing from the Bank of Baroda, First Leasing Company, Ashok Leyland, Onida Finance and Monnet Finance on the basis of fake invoices.

The CBI’s case was that the fraud was committed by promoters to obtain huge loans and credit facilities from the FIs and banks. The Board of Industrial and Financial Reconstruction (BIFR) also asked IDBI to launch an investigation into how Mideast India Limited had manipulated accounts to declared itself a sick company.

The FIs alleged that MIL was showing a net worth of Rs 272 crore till December 1998 and this was wiped out to losses of Rs 258 crore in a short time to dupe the lenders.

As far as the bank defaults are concerned, cases in various Debt Recovery Tribunals (DRTs) have been filed against the Mescos for recoveries of Rs 310 crore. Recovery suits were filed against even smaller group companies like Srusti Shoes and Mesco Airlines. The Mescos counter these figures by saying that MISL’s NPAs had actually been pegged at Rs 275 crore, of which the FI’s had disbursed only Rs 186 crore.

Mesco’s lawyers say that while the CBI may have filed their chargesheets, the charges per se have not been framed and they are still unclear about the documentary evidence with the investigating agency.

Rita Singh herself is desperate to get a bailout for the Jajpur project and obviously realises that given the environment created by the tough new law on defaults, that might not happen. Singh says she has even sold off her claim on the two ships and got back Rs 12 crore. Most of the other group companies are now non-existent.

‘‘We just need Rs 20 crore to get the first blast furnace going in Jajpur. Then there will be enough cash flows to start the second furnace,’’ she pleads. ‘‘Let the plant run. The plant will start paying the debtors back.’’ The banks have heard that before.