PNB moves CBI against Kudos Chemie after default

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Government-owned Punjab National Bank (PNB) has filed a complaint with the Central Bureau of Investigation (CBI) against Chandigarh-based Kudos Chemie which had defaulted on a loan of ~1,300 crore. The action against the company follows investigation by agencies against IDBI Bank and UB Group officials this January for a ~900-crore loan default by Kingfisher Airlines.

PNB officials said it had informed the Reserve Bank of India (RBI) and its board of directors about the fraud. In 2016, the bank said, the directorate of revenue intelligence had initiated action against the company for violation of the Customs Act and the account became a non-performing asset in March last year. In between, the bank tried to sell the loan to an asset reconstruction company but failed. According to an ICRA rating report in July 2014, the company was placed in the default category after it failed to repay banks.

In a statement on Sunday, the Central Bureau of Investigation said it had registered a case on a complaint from PNB related to an alleged fraud. "It was further alleged that the said accused, in criminal conspiracy with each other, availed credit facilities, i.e term loans, working capital limits, etc, from Punjab National Bank, Chandigarh. It was also alleged that the said firm got discounted forged & fabricated export bills and fraudulently siphoned off the disbursed bank funds. These discounted export bills remained unpaid and thus caused wrongful loss to the bank," the CBI said. On Monday, searches were conducted at three places, including the residence and official premises of the accused at Chandigarh and Mohali, which led to seizure of incriminating documents and electronic evidences, it said.

According to ICRA, in financial year 2014, Kudos Chemie incurred inventory loss on a part-writedown of inventory of a new product, as it would not meet the desired quality specifications and required further processing. For this, the company planned to set up additional facilities. “Inventory loss and sharp increase in the interest cost during the year adversely impacted the profitability and aggravated the liquidity position, which had historically remained stretched, resulting in delays in the debt servicing,” the rating firm said while raising a red flag. When and how the loans were disbursed and sanctioned is also under investigation.

According to the company’s filings, Jitendra Singh, the managing director, held close to 47 per cent in the company. Director Gurmeet Sodhi and her family held around 43 per cent, while associate company Kudos Agrohols held the rest. Singh, 54, an IIT graduate, had floated the company in 1988 after working with Hollmuller AG.

According to company filings, a corporate debt restructuring package was approved by the joint lenders forum (JLF) led by PNB comprising State Bank of Patiala, Central Bank of India, OBC, UCO, IDBI and Corporation Bank in December 2014. Accordingly, the interest rates on term loans were cut to 10.5 per cent for a period till 2019 from the range of 13-15.5 per cent earlier.

While the banks made a sacrifice of about ~251 crore, the promoter was asked to bring in additional equity of ~63 crore (25 per cent of lender’s sacrifice). Following the restructuring, the term loans stood at ~393 crore, while the irregular portions of working capital limits and letter of credits were bundled into working capital term loans totalling about ~722 crore repayable in 32 quarterly instalments with a two-year moratorium. Further overdue bills and future interest were bundled into working capital term loans of ~336.14 crore and ~300.97 crore, respectively, according to its filings.