CHAPTER 9
DEPARTMENT OF DISINVESTMENT AND DEVELOPMENT OF NORTH EASTERN REGION
North Eastern Regional Agricultural Marketing Corporation Limited
9.1.1 Loss on sugar deal due to non recovery of interest
Non inclusion of interest on overdraft in the cost price of
sugar in a contract with a private party resulted in loss of Rs.68.69 lakh
to the Company.
North Eastern Regional Agricultural Marketing Corporation
limited (Company) entered (April 2000) into a joint venture with M/s Suswani
Trading Company Private Limited (STCP) for trading in sugar. In accordance with
the terms of agreement, STCP would act as a procurement and marketing agent of
the Company for sugar trade in the North Eastern States. The arrangement was
that, in consultation with the Company, STCP would procure sugar from factories
and sell it at a price fixed by the Company after consultation with STCP. The
Company would remit funds directly to the factories and incur all expenses
relating to procurement and transportation of sugar. STCP would pay a commission
to the Company at the rate of Rs.16 per bag of 100 Kgs of sugar. STCP would
realise sale proceeds by Demand draft/cheques in favour of the Company, who
would plough back the same to STCP after retaining their cost including
commission. In case, sale proceeds so realised fell short of the cost plus
commission, STCP would compensate the same to the Company.
The contract was ab-intio loss making in the sense
that the commission of Rs.16 per bag of 100 Kgs of sugar worked out to 1 per
cent of the investment of Rs.1579 thereon, whereas Company could have earned
much more if the investment made in the sugar deal had been kept even in fixed
deposit (FD) to fetch an interest of 9.5 per cent per annum.
However, in pursuance of the above agreement, trading of
1,15,936 bags of 100 kgs each of sugar was made during the year 2000-2001, for
which the Company spent Rs.18.31 crore towards its procurement cost and other
expenses and realised sale proceeds of Rs.18.27 crore only. The shortfall of
Rs.21.95 lakh (including commission of Rs.18.55 lakh) was compensated by STCP.
The Company, however, during the year 2000-2001 obtained
overdraft (OD) from the banks against their FDs to meet their working capital
requirements and paid Rs.68.69 lakh on account of interest thereon. But it
failed to include this interest in the cost and as such did not recover the same
from STCP due to which Company had to suffer a loss of Rs.68.69 lakh.
Management stated (July 2002) that:
- Rs.18.25 lakh was attributable on account of interest on
OD taken for sugar trading while the remaining amount of interest related to
OD taken for marketing of other products; and
- outgo of interest was only 2 per cent, as the OD @ 11.5
per cent was taken against FD @ 9.5 per cent.
Contention of Management is not relevant in view of the fact
that:
- had the Company not entered into this venture, funds
would have been available for marketing of other products and necessity of
availing OD against FD would not have arisen; and
- the 2 per cent outgo of interest is in addition to loss
of interest of 9.5 per cent on FD during the period of OD.
It was, therefore, a bad business decision by the Company.
The matter was referred to Ministry in July 2002; their reply
was awaited (September 2002).
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