Sesa Goa 'weakest link' in Cairn-Vedanta deal

Vol 14, PW 23 (19 May 11) People & Policy

Investigators from India’s corporate affairs ministry headed by former oil minister Murli Deora are calling for the criminal prosecution of past and present directors of Sesa Goa - a Vedanta Resources subsidiary used by the Anil Aggarwal owned minerals and mining giant as a vehicle in its acquisition of Cairn India.

In a damning 167-page report submitted on April 29, the Serious Fraud Investigation Office (SFIO) pulls no punches, saying present Sesa Goa managing director PK Mukherjee, iron and coke director Amit Pradhan, company auditor SJ Thaly and chief marketing manager AN Joshi, “are found prima facie liable to be prosecuted under sections 408, 409, 415 and 418 of the Indian Penal Code (IPC).” Two earlier managing directors, CM Brown, who headed Sesa Goa from 2001-03, and LA Dean from 2003-05, also figure on the SFIO hit list of prosecution targets.

All are accused of, “under-invoicing (which) caused wrongful loss not only to Sesa Goa but also to the exchequer (national economy) by reducing foreign exchange earnings” and of “dishonestly and fraudulently causing huge losses to the company.” Under-invoicing is a widespread tax-avoidance practice in India where companies invoice less than the value of the goods delivered and pocket the difference in anonymous bank accounts or as cash, often abroad.

In its investigation, the SFIO alleges that Sesa Goa under invoiced iron ore exports from India by Rs809cr ($175m) from 2003-04 to 2006-07 when its parent company was Japan’s Mitsui. Critically, the SFIO says under-invoicing continued unabated after UK-based Vedanta Resource bought Sesa Goa from Mitsui-owned Finsider International in April 2007.

Between 2007-08 and 2008-09, alleges the SFIO, Sesa Goa under-invoiced exports to the tune of Rs193cr ($42m) when Vedanta was in charge. Asked to comment on the SFIO report, Sesa Goa managing director PK Mukherjee said, “I am not interested in commenting on government proceedings”, before hanging up.