Modern Foods: Disinvestment and After

Apart from machinery at its 14 bakeries, MFIL had 19 franchises and six ancillary units scattered across the country. Some analysts felt that the real estate alone-16 acres in Delhi, 4 acres in Kanpur and 18 acres in Mumbai - would be worth over Rs 5 billion. They felt that HLL had paid for the brand and got the fixed assets for free. The Comptroller and Auditor General of India (CAG) also criticised the government for not valuing MFIL correctly. The CAG said that the value of the plant and the machinery should have been considered, and not just dismissed as scrap. The CAG also criticised the valuer of MFIL (ANZ Grindlays Bank) for not taking into account the value of surplus land in Delhi Business Unit-I as well as the leased land of the Silchar unit in Assam...

In early 2001, MFIL was referred to the Board of Industrial and Financial Reconstruction as more than 50% of its networth had been eroded by its losses. Officials of MFIL alleged that HLL wanted MFIL to be referred to BIFR so as to get some relief from banks and financial institutions. They further contended that if HLL had used the Rs 200 million it infused into MFIL as preference share capital instead of loans, MFIL would not have become sick. However, HLL officials said that they had little choice but to go to the BIFR, because MFIL's accumulated losses had exceeded 50 percent of its peak net worth, over a four year period. According to section 23 of the Sick Industries Act (SICA) if a company's accumulated losses over four years exceed 50 percent of net worth, then it has to be declared sick and referred to BIFR...