NEW DELHI: A car is completely financed by a company. The owner has to pay a monthly installment of Rs.3125 and the company rents the car at Rs 3700 a month. It also undertakes to pay for gas and provide a driver.
Not possible?
It is possible if the company is public sector Maruti Udyog Limited (MUL) and the owner is Messrs Europ Car owned by Deepak Molloth. The deal was struck when Ajit Singh was Industry Minister.
And the contract is not just for one car or ten cars. It is valid for 95 valued at the time of delivery at Rs 1.25 crore. Since the contractor had to “refund” installments from the rent he did not have to pay a penny.
The number of irregularities in the contract and the speed with which the deal was stuck and implemented is mind boggling.
Maruti did not advertised or float tenders for the massive contract called “rent-a-car scheme”. It signed the contract with M/s Europe Car on March 131990. Seventy five of the cars were delivered on March 31 and the rest two months later.
The contractor did not even have a license to operate the rent-a-car scheme from the State Transport Authority (STA). In fact the STA initiated the note for approval of the scheme only on April 4 and the license was given on July 71990. Thus at the time of the agreement and the allotment of cars under the taxi quota the contractor did not have a license to operate the cars as taxies.
The cars were allotted out-of-tum though Maruti cars were not under the “open sale” category at that time and thousands of applicants who had deposited the earnest money since the opening of bookings were waiting in queue for allotments.
The contract for rent was signed for 18 months and there was a provision for renewal. Thus for a 80cc car costing about Rs 95000 at the prevalent prices the contractor would have paid of course through rent from Maruti about Rs 66000 by the end of the 18-month contract period. Since the current price of the car is about Rs 1.50 lakh and even a second-hand car of 1989 model can fetch over Rs 1.10 lakh the contractor stands to gain about Rs 80000 per caror Rs 76 lakh for 95 cars even if the contract is not renewed and he decided to pay the balance amount by disposing off the cars The gain could be higher because at least 30 cars were air-conditioned models which have a higher price tag now.
Maruti not only undertook to pay for petrol and provide drivers it also offered to provide office parking space electricity water and compressed air facilities free of charge to the contractor. His other risks were covered by a year-long warranty by MUL and his only investment after the delivery of cars was towards paying the insurance charges.
No doubt the cars are hypothecated to the MUL but the balance payment of a single car can yield the contractor enough money to de-hypothecate three other cars On the other hand if the contract is renewed the facility for financing of the balance payment is provided for in the agreement.
Apparently 75 of the 95 cars were allotted: on March 31, 1991 to enable the contractor to claim depreciation of about RS 25 lakh during the financial year ending on that day itself.
The contract was Signed when R.C.Bhargava the then Managing Director of MUL was facing a number of enquiries by the Vigilance department of the industries ministry and other agencies. There was a proposal even to remove him from the post Is it just a coincidence that Bhargava was promoted as the Chairman Cum-Managing Director on April 1, 1990?
Article extracted from this publication >> September 6, 1991
