Mafatlal director gets lucky after coming out of BIFR

Mumbai, 18th Nov, 2013: Weeks after coming out of BIFR, the loss-making Mafatlal Industries appears to have sold assets to their own directors for peanuts. On 31st July 2011, Mafatlal Industries Ltd. sold to director of Mafatlal Services Ltd. Mr Rajendra Likhite and his wife Anagha, a prized 1200 sq feet flat on Mount Mary Road, Bandra, for a measly Rs. 1.25 crore, with a 200 sq feet garage thrown in free. As the garage alone is reckoned to be worth Rs 25 lakh at the market rate prevailing at that time, it means that the flat was sold at Rs 8,000/- per square foot – a price that may be suitable in distant suburbs like Dahisar or downmarket areas like Kurla – but hardly the price for an 8th floor sea-view apartment in a prime location where celebs like Shah Rukh Khan, Salman Khan and Subhash Ghai reside. It is learned that comparable transactions in that posh neighbourhood and in the same building were happening at about Rs 6 cr at the time – Rs 50,000 per square foot!

Mr Likhite had occupied the company’s flat since 1995. Interestingly, the high profile auditor Deloitte Haskins & Sells turned a blind eye to the undervalued sale of this flat while auditing the balance sheet.

Legal implications of sale of Mafatlal flat

As per the Companies Act 1956, Mr. Likhite was a director of Mafatlal Industries at the time of this suspicious sale. So:

  1. The company was required to pass a board resolution for such a transaction.
  2. A shareholder can ask justification for this transaction in which the director is being rewarded indirectly, and shareholders are being fleeced of their company’s asset.
  3. For the Company, it is a dividend given to its director, which is taxable.
  4. The difference amount between actual value (reckoned at Rs 6 cr.) and the sale price (Rs 1.25 cr) would be considered as income of Mr. Likhite, which is taxable at 30% and more.
  5. Further, under section 271(1)(c)- concealment of income or inaccurate particulars attract 100% to 300% penalty.
  6. The company was required to deduct TDS on this deemed income of Mr. Likhite.

Incidentally, the company’s balance sheet for that financial year (see page 26 of link given below) says that in the previous financial year (i.e. before it sold this Kanti Apartment flat in Bandra West), it sold fixed assets worth 131.04 cr. Now that raises doubts as to how much those earlier assets were undervalued, and who the beneficiaries were, also and whether BIFR (Board for Industrial and Financial Reconstruction) was involved.

What the other side says:

Despite the clear mention of Mr Likhite’s name on the website of Registrar of Companies (See ), both the company secretary and Mr Likhite maintained that he was only an employee, and not a director. (Note: as per Section 370(1B) of The Companies Act, 1956, being a director in a group company i.e. Mafatlal Services Ltd. is tantamount to being a director in Mafatlal Industries Ltd.)

The response of Mafatlal Industries’ group’s Secretary, Mr Rasesh Shah, is as follows:
“Mr. R R. Likhite is not and was never a Director of the Company, Mafatlal Industries Limited. He is working with the Company for the past 28 years. In accordance with the terms and conditions of his service, the Company had provided him with an accommodation and he has been staying at Kanti Apartments since 1995. As regards your allegations on various legal grounds, we would like to clarify that the Company adheres to the best compliance standards and had obtained prior approval from the Board of Directors. In order to support the Board to reach the right decision, the transaction was supported with an independent valuer’s valuation report. Further, the Company has complied with all the requisite provisions of the Companies Act, 1956 as well as the provisions of the Income Tax Act, 1961 in respect of the transaction for sale of flat and the Company has also paid all the taxes legally payable on the transaction and has filed the Income Tax Return accordingly. At the time of sale of flat at Kanti Apartment, since the Company was out of BIFR, no permission of BIFR was required.”

Echoing Mr Likhite’s response, the company’s official letter went on to impute malicious intent and other motives to Mr Sulaiman Bhimani. Please read full copy of the company secretary’s response:

Email response received from Mr Rajendra Likhite can be read here:

The official spokesperson of the company’s auditor Deloitte Haskins & Sells, Ms Malika Kumar, refused to comment. The office of the Chairman of BIFR, Mr B S Meena, had also not responded to faxed and phoned queries at the time of going to press.

Sale deed for the flat and Mafatlal’s balance sheet:

Issued in public interest by

Krishnaraj Rao (9821588114,

Sulaiman Bhimani (9323642081,

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