The corporate debt restructuring (CDR) cell has started forensic audit of companies that want to recast their loans. In January, the CDR cell rejected recast proposals of REI Agro and Shree Ganesh Jewellery House (SGJHL) after a forensic audit showed irregularities in their books.
According to a banker at the cell, since the managements of these companies decided to withdraw the proposals after the findings of the audit, the cases were rejected. While the joint lenders’ forum decided to take REI Agro’s debt of Rs 4,400 crore to the cell in July, Shree Ganesh Jewellery was referred in August and has a debt of around Rs 2,500 crore.
Forensic audit takes an investigative approach to the financial statements of the company to find out fraudulent accounting practices.
“Conducting a forensic audit of a large account before the CDR approval allows us to eliminate the possibility of firms fudging their books,” he said.
Sandip Jhunjhunwala-led REI Agro a basmati rice processing company with a global market share of 22%, according to the company website. It reported a net loss of Rs 999.1 crore in Q3 FY15 on the back of Rs 519.1 crore in revenues.
The JLF was held on May 7, 2014, where the company was told to present a revival plan. However, on May 10, Kolkata-based United Bank of India had filed a winding-up petition against the company in the Calcutta High Court.
A lender said that taking a note of the recent exits of around Rs 15,000 crore in the last few quarters, we have decided to conduct forensic audit on every large account after it is referred to us. “While independent evaluation committee (IEC) approvals have been made mandatory for recasts above Rs 500 crore, a forensic audit gives greater clarity,” a banker said.
In the case of Shree Ganesh Jewellery House (SGJHL), the loans amounted to Rs 3,400-crore and the company reported a net loss of Rs 557 crore in Q3 FY15 on the back of Rs 87 crore in revenues.
In February, the company said in a notification to BSE that the banks have decided to withdraw their support for restructuring the credit facilities. Led by SBI, its consortium of lenders include 23 banks, like Axis Bank, Bank of Baroda and Bank of India. At the end of FY14, its net debt stood at Rs 3,036 crore, according to Bloomberg data.
It suffered losses of $180.8 million (Rs 1,087 crore) when an agreement to purchase bullion through its wholly-owned subsidiary in the UAE was cancelled in October 2013 after the RBI made changes in gold import policy.
The company suffered fresh setback in the form of a $62.35-million (Rs 375 crore) loss when it could not recover money from customers in Hong Kong for diamonds sold in FY13, and had to return the diamonds to the seller.
According to its website, the company is promoted by chairman Nilesh Parekh and MD Umesh Parekh, who have 18.36% and 21.87% stake, respectively, and is into manufacturing and exports of gold, diamond jewellery, gemstone jewellery and light-weight Italian jewellery to the US, West Asia, Europe, Hongkong, Singapore & Srilanka.
In November last year, rating agency CARE had suspended the ratings assigned to bank facilities and instruments of the company.