Management Draws Flak From Dca

The "questionable" expenses pertain to costs incurred during the company's debenture issue, raising of intercorporate deposits from Peerless, and brand promotion expenses.

Shaw Wallace, when contacted, said that in order to be able to respond properly, it would have to take a detailed account of the issue. However, it stressed that it was "happy" with most of the business decisions.

The DCA report, however, abounds with examples of financial management, with which the department appears extremely unhappy. To obtain a loan of Rs 11.5 crore from the Peerless group, at an interest rate of 21 per cent, Shaw Wallace paid a Rs 1.6 crore one-time service charge to Peerless, "an unusual practice".

It also paid Rs 51.75 lakh to a private company, Raj Laminates, as brokerage, amounting to an exorbitant 4.5 per cent.

Thus, the Manu Chhabria-controlled major paid over Rs 2 crore extra for a Rs 11.5 crore loan, which is around 20 per cent of the total loan amount.

The department pointed out that the payment of Rs 51.75 lakh as brokerage fees was "quite unnecessary and not in the interest of the company".

It further states that "this is also yet another case of diversion of funds". The report added that "there is no justification for payment of such brokerage in addition to the payment of Rs 1.6 crore ... as one-time technical consulting service charge." Shaw Wallace had also paid Rs 83.49 lakh to one P L Mittal, as service charges, in connection with the liquor major's sale of its controlling block in Tezpur Tea.

Getting out of Tezpur Tea was part of the company's plans to detach itself from all non-liquor businesses.

The DCA report noted that as the share transfer was done through a registered broker, Shyam Sunder Dalmia, on payment of usual brokerage, the service charges made to Mittal was "quite unnecessary".

The DCA pointed out that as Tezpore Tea was a quoted scrip and financially sound, there was no reason for SWC to engage the services of Mittal and it could have offloaded its stake without Mittal's help.

The liquor major had made also payments of Rs 1.59 crore as "financial charge" for issuing debentures worth Rs 5 crore, at a premium of 5 per cent.

Of this, it paid Rs 17.5 lakh to Bhalotia Veneers, which negotiated the private placement, and another Rs 30 lakh to Niagara Investments.

The DCA felt that the payments made to both these were "unnecessary".

The department also found that Niagara Investments neither has any employee nor a wholetime director.

Shaw Wallace, the report states, "has failed to explain as to who rendered the service, the names of the parties who conducted the meetings," or those "who agreed to take expenditure" and also to produce any paper in connection with the rendering of such a service.

The report also notes that the service charges of Rs 158.65 lakh was more than 30 per cent of the issue amount.incs/bottom.inc"-->