MCA to crack down on 3 dozen companies for failing to repay deposit-holders

The Ministry of Corporate Affairs has started an inspection into three dozen companies that took deposits from the public to the tune of thousands of crores but failed to repay them.

In the first phase of the probe, the Western Regional office has started a probe against Pratibha Industries, Valecha Engineering and Yash Birla Group.

"These companies have duped innocent people," a source in the department told Moneycontrol. "[If any wrongdoing is proved] directors of these companies will be permanently disqualified."

Besides, the MCA may also move the National Company Law Tribunal to seize assets of these companies.

Another source said there is a possibility that some of these companies may have siphoned off money, adding that MCA may also involve the Serious Fraud Investigation Office for further investigation.

Corporates borrow money from the public by coming out with fixed deposits. They typically offer interest rates higher than banks because of the higher default risk – something that makes the offer lucrative for some investors. For companies, these instruments serve as an additional source of borrowing.

The default risk, sometimes, materialises.

Alone in Valecha Engineering, more than five thousand investors’ money has been stuck in such fixed deposits, with the total repayment amount being more than Rs 50 crore. Pratibha Industries, which deals in infrastructure, which has also borrowed Rs 50 crore, has also failed to repay investors.

The third entity on the list, the Yash Birla Group, has been in the dock previously for various serious offences.

In 2014, the Mumbai Police’s Economic Offence Wing had registered a cheating case against the group’s companies around Rs 350 crore. The Income Tax Department and Enforcement Directorate are also investigating Yash Birla Group companies for various offences.