The government has ordered a probe against steel giant Ispat Industries promoted by the Mittals, for alleged exposure to Rs 8,500 crore of public funds, erosion of net worth and high accumulated losses, highly-placed official sources said.The probe has been ordered under Section 235 of the Companies Act (investigations into a company’s affairs) and the case has been referred by the DCA to the Serious Frauds Investigation Office (SFIO).When contacted, an Ispat Industries spokesperson declined to comment on the issue whereas its executive director (finance) Anil Surekha was out of the country and also declined to comment. SFIO, set up to look into large-scale fraud and misappropriation of funds by companies, takes up only those cases which DCA refers to it, after a nod from the Finance Minister. “We have ordered an investigation under Section 235 of the Companies Act against Ispat and the case has been referred to the SFIO. The probe is being ordered because of the company’s exposure of Rs 8,500 crore of public funds, erosion of net worth and high accumulated losses,” the sources added. Sources said while DCA ordered the probe about a week back, the order is awaiting a nod from the Finance Minister. Since the SFIO was set up late last year, Ispat is the fifth case to be referred to it for thorough investigation. Daewoo Motors, DSQ Software, Design Auto and Benonza Biotech are the other four cases already being probed by SFIO, sources said. Daewoo Motors is being probed for financial mismanagement and networth erosion whereas the government is investigating DSQ Software’s role in the stock market scam. Daewoo had taken a huge loan from Indian banks and institutions and defaulted. The role of DSQ promoter Dinesh Dalmia is also under the scanner. Design Auto and Benonza Biotech allegedly first allotted duplicate shares worth Rs 100 crore to each other and then offloaded these in the market through the demat route. These shares are currently worthless.Ispat Industries has been referred to SFIO due to the large amount of funds involved and the fact that it has eroded almost its entire net worth. As per information available with the Bombay Stock Exchange, Mudra Ispat and Ispat Finance held about four per cent stake in the company as on December 31, 2003 whereas foreign promoters held another 47.72 per cent stake. Indian public held about 15 per cent of Ispat Industries. The company is currently managed by Pramod and Vinod Mittal, younger brothers of L. N. Mittal of Ispat International based in the UK. The company got a bailout package from financial institutions last year. Following its restructuring plan as per the corporate debt restructuring recommendations, Ispat Industries Ltd has been able to reduce the total loan — which was about Rs 5,600 crore — by around Rs 445 crore by way of conversion of the same into equity. This has also led to reduction in the rate of interest by around four per cent.
