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Tata Finance takes Rs 1.25 bn hit on irregular Niskalp deals

BS Banking Bureau

The board of directors of Tata Finance Ltd has decided to take legal advice in respect of certain unauthorised financial transactions undertaken by the previous management of the company led by Dilip S Pendse, former managing director. These transactions reportedly caused a loss of around Rs 1.25 billion to the company.

In a statement on Wednesday, the company said the unauthorised financial transactions recently discovered by the board "include, inter alia, diversion of funds to TFL's subsidiary Niskalp Investment and Trading Company Ltd and certain other associate companies, whose affairs were also controlled and managed by the then management of TFL."

Niskalp and the associate companies used these funds to purchase certain scrips in the stock market. These have led to sizeable losses for Niskalp and the associate companies, the statement said.

TFL has been advised that there was a prima facie case of criminal breach of trust, falsification of accounts and cheating which are punishable under the Indian Penal Code, the company said.

The statement said that a preliminary inquiry instituted by the TFL board through AF Ferguson, the accounting firm, had revealed several operational lapses and irregularities that the former management team had committed in the functioning of TFL and in compliance with its reporting requirements to the regulatory authorities, including possible mis-declarations/misstatements in the letter of offer issued by the company in March 2001 in relation to the issue of preference shares.

"The audit is still going on and it may take some more time to finish. Moreover, our year ends on June 30, 2001 and it will take a couple of weeks for the accounts to be finalised," Kishore Chaukar, TFL director, told Business Standard.

Chaukar said that five TFL executives had been asked to leave "because we had lost confidence in them." Other TFL sources claimed that of the five, four were directors of Niskalp. The day-to-day operations of TFL were under the control of Pendse between June 1, 1996 and May 31, 2001. The statement said that Niskalp has ceased to be a subsidiary of TFL effective June 28, 2001.

According to market sources, TFL has made losses on account of investments made in Global Telesystem and Vakranagee Software. The Securities and Exchange Board of India has asked for clarifications on the disclosure of investment losses made by Niskalp ahead of its convertible preference issue of Rs 910 million.

Niskalp has been hit by losses of more than Rs 1.25 billion because of incorrect investment decisions. The subsidiary even failed to pay any dividend this year.

TFL recently sold 50 per cent of its stake in Niskalp to another Tata group company, Tata Sons, for a price of Rs 410 million. Industry sources said the move has been taken to save TFL from the losses made by Niskalp. TFL will ultimately bring down its stake to 49 per cent.

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