CAG flays IRDEA for lending money to Purti Group, calling it 'violation of financial guidelines.'
Government auditor CAG has flayed state-run IREDA for “violation of financial guidelines” in connection with Rs 48.65-crore loan to Nagpur-based Purti Sakhar Karkhana for which company’s promoters and directors including Nitin Gadkari had given “personal guarantee”.
The Purti Sakhar Karkhana Limited was sanctioned a term loan of Rs 48.65 crore by Indian Renewable Energy Development Agency Limited (IREDA) in March 2002 for setting up a 22 MW bagasse based co-generation POWER project at Nagpur in Maharashtra.
The CAG reports said “promoters and/or directors of the borrower company had given their personal guarantee for the loan”.
As per the report, the promoters and directors of the company were Nitin Jayaram Gadkari, Jayakumar Rameshji Verma, Anandrao Motiram Raut, Astik Janglu Sahare and Vishnu Govind Chorghade.
Gadkari, now Union Minister for Road, Transport, Highways and Shipping, had run into a controversy a few years ago over his links with Purti Group. At that time, Gadkari had said he was no more associated with Purti.
The Comptroller and Auditor General of India (CAG) said IREDA disbursed first installment in March 2003 of Rs 10.25 crore and second installment in July 2003 of Rs 4.25 crore as an interim loan totaling to Rs 14.50 crore on request of the borrower which was more than 25 per cent of the loan sanctioned, “in violation of financial guidelines”.
The CAG noted that after the first installment in March 2003 the borrower’s financial position appeared to be unstable as one of the creditors Canbank Factors Limited of the borrower requested IREDA directly to clear the liability of the company to the extent of Rs 1.50 crore.
CAG observed that though other lenders of the borrower company, i.e. a consortium of cooperative banks and State Bank of Indore had informed IREDA in a meeting in October 2006 that they had classified the borrower’s account as NPA, IREDA rescheduled in October 2006 its loan to facilitate the borrower to complete the project.
The project was commissioned in March 2007 and in the same month IREDA classified the loan as NPA.
As per the CAG report, the borrower did not deposit revenue from sale of generated electricity in the Trust and Retention Account (TRA), as committed, which would ensure the repayment of loan, as IREDA held the first charge on this account.
The non-compliance on the part of the borrower was, however, overlooked by IREDA. The borrower paid only Rs 1.45 crore to IREDA and paid Rs 5.73 crore to other lenders, despite IREDA being the sole financier of the power project and having first charge over revenue earned by sale of power generated from the plant during 2008-09 and 2009-10.
CAG said that the concurrent auditor, in its report for the period January-June 2007, stated in October 2007 that the borrower had already settled another term loan with the consortium bank at Rs 42 crore through one-time settlement against the dues of an equal amount without the approval of IREDA.
Out of an advance of Rs 15 crore against the sale proceeds of power over which IREDA had the first charge, Rs 10.67 crore was also utilised to discharge the one-time settlement (OTS) with a consortium of banks, CAG said.
CAG held that the contention of the Management that the borrowers and other lenders were free to negotiate the settlement without seeking permission of IREDA is not tenable.