Saradha Group companies used maze of loans to cover up finances

A recent probe by the Registrar of Companies,West Bengal

A recent probe by the Registrar of Companies (RoC), West Bengal, has revealed a series of financial transactions between different Saradha Group companies during the fiscal year ended March 31, 2012, wherein the funds were not used for any ?constructive purposes?. In a report filed with the ministry of corporate affairs on April 23, the RoC West Bengal has stated that the cross-loans were to create a maze of financial transactions to cover up the mess.

The report has also said that the flagship Saradha Realty India has not filed a balance sheet for fiscal 2012, for which default action against it is in progress.

However, it is the balance sheet of another group company ? Saradha Construction, which happens to be the second-largest company in the group ? that provides details about inter-group companies? financial transactions. During 2011-12, Saradha Construction received long-term advances of R40 crore from Saradha Realty. Subsequently, in a series of transactions, Saradha Construction lent Saradha Realty around R30 crore, thus leaving it with a balance loan of R10 crore. However, this R10 crore was never spent by Saradha Construction in creating any business asset but was instead lent to other group companies where there were no business activities.

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Hence, the RoC report has noted that despite the precarious financial health of Saradha Realty as evident from its eventual debacle, it diverted R10 crore to its associate company Saradha Construction, indicating clear misutilisation of resources.

Of the R10 crore that Saradha Construction received as a loan from Saradha Realty, it extended a loan of R2.9 crore to its wholly-owned subsidiary, Devkripa Vyapaar, and invested another R3.5 crore in its shares.

The RoC has noted that the subsidiary firm has no business activity.

Its balance sheet indicates that it spent all the money in developing a TV studio where work remains incomplete as has been stated in the director?s report of Devkripa Vyapaar for the year ended March 31, 2012.

The RoC has said that Devkripa Vyapaar became the subsidiary of Saradha Construction during the year ended March 31, 2012, and used the money to pay its shareholders without any business activity. The balance sheet of Devkripa Vyapaar shows that it had separately taken a loan of Rs 10.83 lakh from Saradha Realty during the same year.

Another loan of Rs 2.31 crore was given by Saradha Construction to Bengal Media, whose net worth was negative at (Rs -43 crore) and its losses for the year ended March 31, 2012, stood at Rs 14 crore.

Saradha Construction lent another Rs 36 lakh to another associate company, West Bengal Awadhoot Agro, during 2011-12. However, the latter?s balance sheet does not show this borrowing, thus drawing a hole in the credibility of the accounting exercise.

The balance sheet of West Bengal Awadhoot Agro shows that during the year ended March 31, 2012, it borrowed Rs 1.56 crore from Saradha Realty. The RoC report states that Awadhoot Agro had no earnings during the year but its balance sheet shows large assets ? land worth Rs 1.78 crore, building worth Rs 1.35 crore, plant and machinery worth Rs 0.70 crore ? which indicates that these assets are not physically available for use.

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First published on: 29-04-2013 at 01:26 IST