The Central Bureau of Investigation (CBI) on Monday filed a case of cheating and corruption against Pramod Mittal and 20 others for allegedly causing a loss of about Rs2112 crore to State Trading Corp (STC). Mittal was chairman of Global Steel Holdings Ltd, while the other accused include some of the top officials of STC.
According to complaint filed by the state-run STC, Mittal committed criminal breach of trust as he failed to make payments as per terms and conditions of the agreement with STC. The STC had arranged export of raw material for new steel plants of Global Steel Philippines Inc (GSPI) in the Philippines and Bosnia and also opened line of credit for the company, the complaint alleged.
Despite irregular payments and piling up of credit, STC officials allegedly renewed line of credit to the company. The cheques given by Global Steel Holdings and its subsidiary Global Steel Philippines to STC were allegedly dishonoured resulting in loss of Rs2,112 crore to the public sector undertaking, the complaint alleged.
According to a note from the Ministry of Commerce prepared in 2010, the memorandum of understanding (MoU) entered into between Global Steel and STC delineated STC's role as a facilitator by opening LCs on various suppliers for import of pellets, lump ore, iron ore and coal to their plants in Bulgaria and Philippines. The materials were to be released to Global Steel on a cash and carry basis. But things went haywire. And to quote the note, "the developments in (Global Steel's) operations were not brought out till October, 2008". One plant (Bulgaria) went into liquidation while the value of the stocks of the Philippines plant plummeted.
Mittal and STC worked out a debt payment schedule: “Payment of entire dues to STC would be made in nine monthly instalments commencing from September 2008. Additionally, the amount outstanding to STC will be secured by way of equitable pledging of shares of Global Steel in favour of STC,” the note says.
After paying the first instalment, however, Mittal defaulted. Another blow was that Global Steel shares were not quoted and, therefore, no intrinsic value could be attached to them.
The commerce ministry raised serious doubts in its note dated 13 May 2009: "There seems to be a number of issues which have not been addressed squarely by STC. For instance, in the Philippines/ Bulgarian operations, STC sells the material and then takes it back to keep it under collateral management; why such an arrangement has been made is not clear. In both the cases, there appears to be no satisfactory answers as to why STC did not encash the performance-based guarantees and other securities when it was seen that the firm is not able to get the stocks liquidated. Similarly, there are no direct answers as to when the Bulgarian company went into liquidation. If STC had prior knowledge, why did it continue to supply the material?"
The note went on to say: “It may be noted that the CMD of the Corporation who was delegated all powers in respect of the Ispat-Bulgaria transaction apparently did not keep the board completely in the picture. Only when the situation became bad due to defaults, especially after September-October 2008, were the government and the board brought on board (sic). The board is apparently not satisfied with the position so far either by way of full facts and figures or by way of progress of recovery of dues..."
Besides Mittal, the CBI has also named Lalit Sehgal, the then chief executive of GSPI, Arvind Pandalai, the then Chairman cum Managing Director of the STC and 18 other officers of the state-run corporation.
For nearly 20 years now, Pramod Mittal has made news mainly because of his perpetually high debts, loan restructuring and, eventually, selling out his steel plant supposedly for a pittance. This, too, happened only after a two-time corporate debt restructuring (CDR) involving massive write-offs. Although the Mittals have been defaulters even in the 1990s, Pramod Mittal’s Ispat group was bank-rolled for a series of global adventures after 2003 that have all run into trouble. These include contracts and major acquisitions in Bulgaria (including a football club), Nigeria and the Philippines, which are all mired in controversy. Employees of Ispat’s Nigerian business have reportedly remained unpaid shortly after 2006 and have been left high and dry.
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