MSCB case: Bank’s agro dept opposed sugar mill’s sale process, proposed re-tendering

The Enforcement Directorate (ED) has found irregularities in the sale of a cooperative sugar mill by the Maharashtra State Cooperative Bank (MSCB) and suspects money laundering. The MSCB allegedly sold the mill for a low price without following due process, neglecting the consent of the previous borrower and not adhering to the provisions of the SARFAESI Act. The ED's investigation revealed that the mill was sold to Prasad Sugar and Allied Agro Products for a mere ₹12.95 crore, despite the reserve price being ₹26.32 crore. The ED has charged six individuals and two companies in the case.

Mumbai: The Enforcement Directorate (ED)’s money-laundering investigation in the Maharashtra State Cooperative Bank Limited (MSCB) case related to suspected irregularities in the sale of a cooperative sugar mill at a throw-away price has revealed that the bank’s Agro Department had allegedly opposed its sale process and proposed re-tendering, which was rejected.

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The MSCB, however, allegedly did not order re-tendering or cancellation of the sale process, whose irregularities came under the probe’s scanner.

The ED probe revealed that the MSCB had undertaken the sale of the Ahmednagar-based Ram Ganesh Gadkari Sakhar Karkhana (SSK) in the year 2007 allegedly at undervalued price and without following the due process.

No efforts allegedly were made by the MSCB whatsoever to fetch a better price for the defunct sugar mill and the 110 acres of land, and it was sold to Prasad Sugar and Allied Agro Products Ltd, for a mere ₹12.95 crore despite the reserve price being of ₹26.32 crore, despite getting written objection from the previous borrower, according to the agency.

“The consent of the previous borrower which is mandatory as per the provisions of the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002, was neglected, apart from various other irregularities,” said the ED case chargesheet submitted in a city special court on August 24.

The ED probe revealed that even though Prasad Sugar was the alleged sole bidder, in order to project the bid process as competitive, the signature of a ‘second bidder’ was also taken by MSCB officials on the tender documents.

The ‘second bidder’ had allegedly not even deposited the required earnest money deposit (EMD) amount and was suspected to be “a proxy of Prasad Sugar”, according to the agency.

Further, though the auction was conducted in the year of 2007, Prasad Sugar allegedly completed the payment of the sale amount only in 2010 against the statutory condition of completing payment within a period of 52 days at the maximum, according to the agency.

Due to alleged mismanagement the sugar mill that was set up in 1985-86 had started running into losses, the credit facilities given by the MSCB accumulated the former’s loan account turned into a non-performing asset with a total outstanding dues of ₹71.46 crore on July 31, 2005.

The MSCB’s board of directors then allegedly sold the sugar mill on May 4, 2007, under the SARFAESI Act, 2002, for ₹12.95 crores only though the sale certificate was issued on December 10, 2010.

“Objections were raised by many stakeholders, including the Agro Department of the MSCB, which had put up an office note that the sale process of Ram Ganesh Gadkari SSK to be cancelled and re-tendering process may be allowed due to non- payment of sale proceed on time by Prasad Sugars and Allied Agro Products Pvt. Ltd’’, ED’s case chargesheet said.

The MSCB’s then managing director, however, did not allegedly take any stern action and instead only directed that the issue should be discussed with Prasad Sugars and Allied Agro Products Pvt. Ltd.

His stand was allegedly finally approved by the MSCB’s then chairman, according to the ED. The ED’s chargesheet had named six accused including two firms Prasad Sugar and Allied Agro Products Limited and Takshashila Securities Private Limited.

The Agro Department had also vide its office note dated January 1, 2008, proposed that since Prasad Sugar and Allied Agro Products Pvt. Ltd had allegedly not deposited the remaining 25% of the dues till January 3, 2008, the demand draft of the amount of ₹50 lakh of Earnest Money Deposit deposited by Prasad Sugar and Allied Agro Products Pvt Ltd should be forfeited and advertisement for re-auction may be given. But its proposal was allegedly rejected, according to the ED.

The ED probe found that the MSCB allegedly did not conduct the auction of the said SSK properly and the intention was to give benefit to Prasad Sugars and Allied Agro Products Pvt Ltd.

The MSCB did not cancel the auction process in spite of the advice of re-auction and allegedly chose to allow the accused firm to grab the SSK at throwaway price, according to its chargesheet.

The probe held that re-auctioning after revaluation in the year 2010 through wide publicity and adopting proactive approach would have fetched a better price for the said SSK, the chargesheet said.

After taking possession of the entire assets of the SSK, the plant and machinery was allegedly dismantled, transported and installed at a new location in Vambori, Ahmednagar. The land and structure were thereafter allegedly sold to co-accused Takshshila Securities Private Limited in 2011.

The ED had last year provisionally attached assets worth ₹7.6 crore, including the erstwhile SSK’s 90 acres of land held in the name of Takshashila Securities Pvt. Ltd, and two pieces of non-agricultural land admeasuring 4.6 acres belonging to a co-accused.