MSRTC pays for putting eggs in wrong basket

An investment decision, made by the Maharashtra State Road Transport Corporation (MSRTC) in the mid-1990s, has come back to haunt its employees.

The debt-ridden undertaking had taken Rs16 crore from its employees’ provident fund (EPF) to invest in Uttar Pradesh Co-operative Spinning Mill Federation (UPCSMF), which had floated bonds offering a high interest of 14.9 per cent. But, the firm went bust and the Reserve Bank of India (RBI) directed it to liquidate its 11 mills to pay off creditors.

However, an MSRTC source said that even after liquidation MSRTC might get back just a quarter of the amount invested—about Rs4 crore. This news has frightened over 4,000 employees scheduled to retire this year.

“MSRTC invested in UPCSMF because it was offering 2 per cent more interest than other states and the UP government had been a guarantor for Rs4 crore,” said an MSRTC senior officer. He added that employees about to retire need not worry about the misventure. “Though we are Rs1,000 crore in debt, we will pay the post-retirement dues.”

A finance department official said that government undertakings were mandated to invest provident funds in bonds of state and central public sector firms. “The UP government and the UPCSMF are responsible,” he said. “MSRTC will have to take up this issue with them to recover the full amount.”

In 2001, MSRTC had approached the Bombay High Court after UPCSMF stopped  honouring its commitments. The HC-appointed court receiver has already recovered Rs5.89 crore. UPCSMF mills are located in prime real estate areas in UP, namely Maghar, Etawah, Nagina, Bulandshaher, Mahmoodabad, Baheri, Mau Aima, Amroha, Bahdurganj, Kampil and Fatehpur.

“Since the case is with the court, we don’t know whether it would be possible to recover the entire amount,” admitted an MSRTC officer. “As the mills are strategically located, the sale of the land could fetch enough money to repay bond holders.”

Point/Counterpoint

Srikant Kandalkar (name changed), a member of the workers union said, “The investment was made only because the federation was providing two per cent extra interest on the bonds. But the corporation failed to pursue the matter rigorously even after the UPCSMF failed to honour the payments since 2000. It is important to find out if the corporation has invested huge sums of money in similar such federations. MSRTC must consult the representatives of its employees in the future before making huge investments.”

Suhas Bhalekar (name changed), a resident of Parel, who served MSRTC for 27 years, said he had faith that the undertaking would pay up all post-retirement dues. “Employees will not be deprived of their post-retirement benefits as the PF trust currently has over Rs2,700 crore. MSRTC’s intentions were good. It only wanted to maximise its investments. I do not believe that the employees will be duped.”