CAG pulls up MMTC, STC, PEC for mismanagement, possible fraud

Government auditor CAG today pulled up three state-run trading firms - MMTC, STC and PEC - for financial mismanagement and possible fraud in trading of agro-commodities.
"Trade in agro commodities by the three central public sector enterprises (CPSEs) highlights mismanagement, possible fraud, negligence and absence of financial prudence," said a CAG report which was tabled in the Rajya Sabha.
As the entire activity of identifying supplier, buyer, storage, arranging for shipment, among others was performed by the associates which are private parties, it is a "moot point" whether these would qualify to be termed as 'trading activity, it said.
"In fact, the three CPSEs failed to assess the credit worthiness of associates and have been involved in providing finance to highly risky ventures without adequate safeguards," the report said.

Resultantly, CAG said, they suffered losses because of inadequate security against the amount financed and they were also not able to secure the pledged stock safely.
"Inordinate delays in disposal of un-lifted material and in taking decision to invoke the risk sale clause as also release of stock on the basis of PDCs (post dated cheques) indicated culpability on the part of the management," it added.

The report further said that through each company has government nominees on the board of directors, nothing came to notice to show that they had effectively protected the interest of the government by insisting on adequate safeguards.

MMTC, STC and PEC are trading companies under the commerce ministry. These companies undertake import, export and domestic trade by extending financial assistance to their business associates for a fixed trading margin.
The report said though Mehak Overseas Pvt Ltd (MOPL) was a persistent defaulter, STC extended pre-shipment credit beyond October 2010.
"Resultantly Rs 22.03 crore was added to recoverable from MOPL. Though STC was entitled to encash the PDCs in the event of default by MOPL, STC failed to encash the available PDCs on the date of default. Subsequently the PDCs were dishonoured on presentation in February 2013.
"As a result, STC could not recover outstanding dues of Rs 91.51 crore from MOPL. The associate was absconding (since July 2012)," it added.

With regard to MMTC, CAG said the company suffered losses of Rs 1.33 crore in a deal with Suchetan Export Pvt Ltd for procurement of cotton waste.
"...Delay in decision to invoke the 'risk and cost' sale clause and failure to ensure adequate financial security resulted in on-recovery of Rs 1.33 crore," it added.
Similarly, PEC suffered losses to the tune of Rs 81.73 crore in a deal with Prime Impex Ltd for import of 1 lakh tonnes of CYP.