CAG pulls up British India Corp for flawed asset sale process

Textile maker British India Corporation did not generate enough funds from asset sales due to flawed sale process and weak governance, which put "unwarranted pressure" on government to extend grant of Rs 147 crore over and above a rehabilitation scheme, CAG said today.

The total cost of the December 2002 scheme was Rs 210 crore. Of the total amount, British India Corporation (BIC) was supposed to garner Rs 124.5 crore from sale of assets including land, the government auditor said.

The government grant was Rs 49 crore and interest free loans from government was Rs 37 crore, Comptroller and Auditor General (CAG) report, which was tabled in Parliament, said.

As this scheme was not fully implemented, a modified rehabilitation scheme was approved by government in June 2011.

The report said even after nine years, the scheme was not fully implemented as the plant could not be modernised due to non-generation of enough funds from sale of BIC assets.

"As a consequence of the losses, the government had to pay Rs 147 crore beyond the terms of rehabilitation scheme as grant (Rs 72 crore) and loan (Rs 75 crore) for salary payment for the years 2004-05 to 2010-11," it said.

"... Due to a flawed sale process, lack of internal controls and weak governance, the revival scheme has not succeeded (March 2012) and, as a consequence, there was unwarranted pressure on exchequer," the CAG report said.

BIC, which owns two woollen mills one in Uttar Pradesh and another in Punjab, has huge surplus of land in Kanpur.

The CAG report said BIC's actual sale was negligible in the four years ended 2009-10 compared to projections of rehabilitation scheme due to delay in full implementation of the scheme and consequently less production.

"There was substantial operating loss in the last several years against the profit projected in the scheme mainly due to high fixed cost towards salary of employees and negligible production," it said.

During 2009-10, BIC's accumulated losses increased to Rs 248.64 crore compared to Rs 206.01 crore in 2008-09.

The CAG observed that the company failed to have proper due diligence on the valuation of the properties as well as identify the bottlenecks in sale of land.

"The reserve price was fixed on lower side on account of circle rate and value of structures and the advertisement for sale was initiated in January 2003 without obtaining necessary approvals from the state of Uttar Pradesh," the report said.

It said BIC did not maintain proper details to identify its properties and classify each as leasehold/freehold.

Besides, the CAG said there was unnecessary hurry in concluding the sales of land by getting the 'agreement to sale' registered with the buyers, ignoring legal advice and the warnings by state government. This led to a loss of Rs 109 crore to the company on account of increase in value of properties at the circle rates of 2011, the report added.

The report recommended that the company should review and remove the bottlenecks and streamline the sale process so as to derive maximum fund from the sale of surplus land.