Ministry tightens noose on retailers

The corporate affairs ministry is tightening the noose around retail companies a sector which has been left largely untracked due to the absence of a designated sectoral regulator.

According to government sources, distressed retail company Subhiksha Trading Services has committed multiple violations of the Companies Act, 1956, for which the penalties can be anywhere from imprisonment of up to two years to fine up to Rs 2 lakh and above.

The list of company law violations by the company is endless. These include sections 209, 292, 210, 211, 215, 193 and 628 that deal with maintaining balance sheets and profit and loss account, compiling minutes of the proceedings of the general meeting and authentication of balance sheets and profit and loss accounts by directors of the company.

The findings compiled by Registrar of Companies (RoC) Madras will be sent to minister of corporate affairs Salman Khurshid. The RoC is expected to initiate proceedings to nail the company officials. The case, however, is already pending with the Madras High Court that has imposed a stay order for one month.

Meanwhile, the corporate affairs ministry has also directed RoC to look into books of accounts of another retail giant - Vishal Retail.

"Prima-facie, we have evidence of account manipulation by the company. So we have directed RoC to look into the matter under section 209 of the Act," a government source said.

Following the closure of 1,600 retail units of Subhiksha, a petition was filed in the Madras High Court against the company. The petition was filed by one of the company's lenders Kotak Mahindra Bank (KOTAKBANK.NS : 740.95 -5.5), which wanted to recover its dues amounting to Rs 40 crore.

Subhiksha's second-largest stakeholder, ICICI (ICICIBANK.NS : 899.75 -3.9) Venture Funds Management Co Ltd, has alleged in the past that the management of the retail company had denied other stakeholders, access to the financial details of the company.

The company's debt burden is around Rs 750 crore and is seeking cash infusion of around Rs 300 crore to restart its business. The company is looking to restructure its debts in a phased manner. A text message sent to R Subramanian, managing director of Subhiksha Trading Services went unanswered.