Discounting and bill discount is quite a common practice in business world. The commercial bills should be paid within 90 to 180 days. And a company that does not want to wait for its money can ‘sell’ the bill to another company in return for instant cash. It also minus the discounting fee of around 15 percent, according to CBI.
Hundreds of crores of rupees change their owner every week and month in such transactions. And whenever a transaction takes place, there is the chance that the money can get displaced.
These related to six bills that Kinetic had discounted from two companies, Technical International Engineering of Bombay and Karimbil Industries of Bangalore. The 180-day bills were to have matured on December 31. Kinetic had expected to receive Rs 2.23 crore from the Central Bank of India.
Firodia was to be a guest of the CBI for the next few days. He even bedded down in the Bureau’s Bombay offices that night, unable to attend a nephew’s wedding in Delhi. Nobody was sure if Firodia was under arrest, and according to one senior officer, the CBI “overreacted”. Firodia himself laughs off the arrest as a “misunderstanding”.
Kinetic has been flush with funds for some time because of deposits collected from people in the queue for its mopeds. It had used this money to earn a good return by discounting 491 bills worth Rs 20 crore in the six months till December.
In defense of their stand, Kinetic spokesmen point out that the Central Bank has had over 400 cases of fraud in the last year. They had no means of knowing that a Central Bank branch manager did not have the authority to co-accept bills.
From the bank’s side, the story is somewhat different. Bank officials say they first smelt a rat around September after a broker tipped them off on the subject.
Six weeks later, the bank wrote to CBI Kinetic that “we are not liable and have assumed no liabilities or obligations on the said instruments”. Kinetic fired back with a firm riposte: “We deny that the acceptance and the accompanying documents are not genuine.
Firodia now says he will answer only in court. And whatever the truth of the matter, it will be some time before the clouds clear. Meanwhile, the affair has set off tremors in business circles.
Says one industrialist: “If the basic trust which underlies these deals is broken, where do we go?” That question is doubly relevant for Kinetic, which had initially invested large sums of surplus cash on the inter-corporate market.