Rs 2.25 cr deal that links Naveen Jindal group to Dasari Rao

NEW DELHI: A company owned by former and current directors of the Naveen Jindal Group, and then by Naveen Jindal himself, gave an unsecured loan of Rs 2.25 crore in 2008 to a nondescript trading company, which used it to buy new shares on extremely generous terms of a company owned by Dasari Narayana Rao, one of the two ministers of state for coal during the controversial allotments of coal blocks to companies for captive use.

Those allotments ran from May 2004 to November 2011. Of the 250 allotments during this period, 154 were made during the tenure of Rao, a Rajya Sabha MP from the Congress Party. In its 2012 report on coal, the Comptroller & Auditor General noted that Rao advocated the screening-committee approach —a group of bureaucrats allotting blocks via a process that involved an element of discretion — over competitive bidding on four occasions between October 2004 and April 2006.

Companies belonging to Naveen Jindal, an industrialist and a Congress MP, were the largest beneficiary among business groups. They received seven allotments, including five during Rao's tenure from May 2004 to April 2008. ET pieced together the complete transaction, involving the movement of Rs 2.25 crore across four parties, from company filings with the ministry of company affairs.


Sometime in 2008, New Delhi Exim, a Delhibased trading company with revenues of Rs 12,182, received an unsecured loan of Rs 2.25 crore from Duce Properties. Duce itself had unsecured loans of Rs 630 crore on a net worth of Rs 1.17 crore. As of September 2007, Duce had three shareholders: Anand Goel, Surinder Pal Singh and Rajeev Aggarwal. By September 2008, Sukhbir Singh had replaced Anand Goel. MCA records show at least three of these four individuals have been directors of Naveen Jindal companies at some point in time (See table: Duce's Jindal Connection). By September 2009, Duce had become Jindal Realty and its shareholding had moved to two companies that were 99.9% owned by Naveen Jindal and his wife Shallu Jindal.

Sunil Malhotra, CFO of Jindal Realty, did not answer a pointed query on why Jindal gave a loan to ND Exim, but did say this was an "interest-bearing" loan and that it was "up to the loanee company to decide what they wish to do with the money". This loan accounted for virtually the entire fund base of ND Exim at the time. As on March 31, 2009, besides the Rs 2.25-crore loan, it had only Rs 1 lakh in equity.


On 8 December 2008, ND Exim used the Rs 2.25-crore loan to buy shares of a listed company called Sowbhagya Media via a preferential issue. Sowbhagya is a Hyderabad-based company making films and TV programmes. Siri Media, a company belonging to former minister Rao, owns 59.6% in it.

ND Exim paid Sowbhagya Rs 112.5 per share, about four times its market price that day on the Bombay Stock Exchange. According to N Aruna, company secretary of Sowbhagya, the premium was fixed in accordance with the Securities and Exchange Board of India (Sebi) guidelines on share pricing. 
Sebi rules prescribe a minimum price for preferential issues, but not a maximum price.

Suresh Singhal, a director of ND Exim, says it invested in Sowbhagya because it was "in the media business and had good prospects". About the time that ND Exim was investing in it, Sowbhagya was in a performance slump. Its turnover fell to Rs 5.5 crore in 2008-09, from Rs 23 crore in 2007-08; and net profit was down to Rs 0.15 crore, from Rs 3.1 crore. Asked if he knew that the money from ND Exim came from a company with links to the Naveen Jindal Group, Rao told ET: "I am surprised how this question is relevant to me."


ND Exim sold its Sowbhagya shares sometime between July 1, 2011, and January 6, 2012. In 2011-12, ND Exim posted 'other income' of Rs 20.2 lakh — in other words, the company recovered only about one-tenth of its investment. Further, it booked a longterm capital loss of Rs 2.45 crore.


Both ND Exim and Jindal Realty say the loan has since been repaid, along with the interest accrued. ET could not verify this independently, though ND Exim's long-term borrowings fell from Rs 4.1 crore in March 2011 to .`23 lakh in March 2012. This followed three new companies belonging to one Gyan Swaroop Garg infusing equity of Rs 2.25 crore — the same amount as the Jindal loan to ND Exim and its subsequent equity investment in Sowbhagya — into ND Exim.

Garg said he was "not interested" in commenting on this transaction, which saw him pay Rs 24 a share to buy a company that had not earned a single 
rupee in revenue from operations in four years; that obtained an unsecured loan from a company with links to the Naveen Jindal Group to buy shares in a Dasari Narayana Rao company at four times market price; and that saw virtually its entire investment wiped out.