JCT Ltd, the flagship company of the Thapar Group and a leading manufacturer of textile and filament yarns, has filed an appeal in a Malaysian court against its verdict asking to wind up its associate company CNLT (Far East) Bhd and prohibiting transfer of funds to JCT.
The court held JCT guilty of siphoning off funds from Malaysia and accused CNLT of breaching Malaysian laws by book manipulation. The high court in Kuala Lumpur instructed the liquidator of the now-defunct CNLT to take action against JCT for getting the refund.
CNLT was wound up in January 2009 on fraud and inability to pay debt to creditors.
JCT is now contesting the court order that made the CNLT remittance of $1.25 mn (around Rs 7.5 crore) to the former void. It filed an appeal in Malaysia on July 11. The company was served summons in February 2013 and it defended the suit in Malaysia until the latest verdict on June 14.
"We have already moved court against this order as per the prescribed procedure in Malaysia," a company spokesperson told dna in an email.
Prem Krishna Sahgal, former MD of CNLT, has also appealed against the verdict, which upheld some serious charges against him.
They include fictitious invoices and inflated revenues, overvaluation of plant and machinery and siphoning off funds to JCT. The court has asked him to cough up RM 2.9 mn (Rs 5.5 crore) to pay 83 ex-employees their salary for nine and a half months, retrenchment benefits and legal and interest costs.
Interestingly, the BSE-listed JCT has not disclosed any of these developments and transactions to the stock exchange.
CNLT (Far East) Bhd, a listed entity in Malaysia, is believed to have been bought over by Prem Krishna Sahgal, former MD of CNLT and associates under Sai Top Textiles Sdn Bhd, for RM 18.7 mn (Rs 35.5 crore). This, however, could not be independently verified by dna.
"CNLT is currently under liquidation and is administered by the official liquidator. JCT has written off this investment in its books in 2009-10," said a JCT spokesperson.
Ex-workers of CNLT and former suppliers have also approached the Institute of Chartered Accountants of India (ICAI) with a complaint of professional misconduct on Mahesh Sahai, a member of the audit committees of both CNLT and JCT, and also a director of JCT.
During the court proceedings, Prem Krishna Sahgal was fined for contempt of court for making a false declaration to the Company Commission of Malaysia about a related company in Malaysia.
Though CNLT claimed the remittance $1.25 mn was part of paying back advance against purchases ($890,000) from JCT, along with a compensation of $360,000, the court has not accepted it in its verdict.
JCT argued that Indian laws required the company to recover the advance payment in the event the offshore exporter defaulted on its commitment.
Former employees and suppliers of CNLT have submitted evidence to prove that the amount refunded was actually the loan from JCT. The court ruled it was a preferential payment and ordered its return.
Interestingly, the loan from JCT, amounting to RM 8.875 mn (Rs16.86 crore), remain intact in the books of CNLT even after the remittance, while JCT books show nil balance.
Further, it was proven in court that out of RM 8.875 mn, RM 5.5 mn (around Rs 10.6 crore) as loan from JCT was created by CNLT during its debt restructuring in 2003-04.
According to court documents, CNLT owes RM 100 mn or Rs 190 crore (in secured and unsecured lending) to a consortium of banks in Malaysia and RM 60 mn or Rs 114 crore (in unsecured lending) to creditors worldwide. The lead bank, Maybank, which had provided guarantees, was hit badly.
Former CNLT employees claim "due to fraudulent activities and siphoning off of funds" their due salary and retirement benefits were not paid by CNLT. They moved the HC in Malaysia against the directors of CNLT, with JCT Ltd India being a defendant in the suit.
JCT was holding a 15.73% stake in CNLT. The other promoters include Roneel Securities (27%) and Al-Murjan Trading (7.6%), making the total promoter stake 51%. MM Thapar, his wife, Tiny Kesang Thapar, and a chartered accountant practising in India, Mahesh Sahai, were the CNLT directors. MM Thapar was chairman of both CNLT and JCT.
JCT believes that the court judgment is wholly without jurisdiction. CNLT was a publicly listed company, regulated and governed by Malaysian laws, and JCT had no control or say in the day-to-day affairs of CNLT, said JCT.
MM Thapar and his sons, Samir and Arjun, inherited JCT Ltd, JCT Electronics, and Greaves Ltd in 2000 after a split in the family businesses among four sons of Karam Chand Thapar, the group founder.
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