Niira Radia likely to get clean chit from Ministry of Corporate Affairs.

15 Mar, 2014


Lobbyist Niira Radia-promoted Vaishnavi Corporate Communications and its group companies seem to have been given a clean chit by the legal division of the corporate affairs ministry over company law violations. 

ET has reviewed the conclusions of the legal unit. The Serious Frauds investigation Office (SFIO) had, after submitting a report to the ministry of corporate affairs (MCA), sought permission for prosecution over violations in related party transactions and financial disclosures.

MCA then asked its legal division for an opinion on whether related party transactions among various Vaishnavi group companies along with alleged financial misstatements constituted "falsification" under the Companies Act, 1956. 

The legal department appears to be sceptical about the merits of any possible case. "The findings of the Investigating Officer are based on 'presumptions and assumptions' whereas the fundamental principle of criminal jurisprudence is that the proposed prosecution has to 'stand upon its own legs' and must establish the culpability beyond all reasonable doubts," the legal department said in its report. 

The report went on to say that the reasoning given by the investigating officer is "not a conclusive finding but an indication of the commission of an offence under section 628". 

Violations under Section 628 of the Companies Act are punishable with up to two years of imprisonment. If the ministry accepts the report, the group could face just minor charges that would only invite monetary penalties. The report will now be forwarded to corporate affairs minister Sachin Pilot. 

The companies that were the subject of the review were Vaishnavi Advisory Services (VASL), Vaishnavi Corporate Communications, VitcomBSE 2.99 % Consulting and Neucom Consulting. It was alleged that VASL had rented four properties that it offered to other group companies. 

The amount of "professional fee" charged by VASL to its group companies was the same as the rent paid by the company. Instead of mentioning these transactions as 'rent agreements' with the group companies, VASL showed these as 'business support services agreements'. Moreover, it was alleged that VASL did not seek central government permission before entering into such contracts. 

SFIO also questioned the independence of the statutory auditors, which attracts penal clauses under the Companies Act, 1956. Taking into consideration the "cumulative effect of these violations", SFIO had recommended prosecution of the companies under Section 628 of the Act. 

The legal division found that statements of as many as 30 persons from Vaishnavi were recorded under oath but none of them were confronted with allegations related to falsification of accounts. This, according to the division, is "not sufficient to establish even the commissioning of offences".