Hit by post-closure adjustment claims in almost all the unlisted companies sold by the government, the divestment ministry has decided to do away with the practice itself.
Due to the clause, the government fears cases of "negative bidding", where it would actually have to shell out money for companies getting divested.
"The concept of post-closure adjustment exists only in the case of unlisted companies. In listed companies, there is greater transparency. But now we have decided to gradually do away with the clause in future deals and the bidders would have to factor in possible financial deterioration of the asset while the company stays under government control," a senior divestment ministry official said.
The provision for post closure adjustment was made because it is not possible for disinvestment to coincide with finalisation of annual accounts of the company being sold.
The bidders consider the last available balance sheet of the company and the government undertakes to compensate the new management for any losses incurred in the interregnum.
"It is possible that the post closure claim may exceed even the amount paid by the strategic partner to acquire the company. In the case of Paradeep Phosphates , the new management has claimed almost as much as it paid for the company," the official said.
Zuari Maroc Phosphates Ltd had acquired 74 per cent of the government equity in the company for Rs 151.7 crore (Rs 1.51 billion) on February 28 this year. The bid price was based on Zuari's assessment of the 2000-01 balance sheet of the company.
The new management now claims that the finances of PPL deteriorated in the 11 months that it stayed with the government. The claim is now pending before the fertiliser ministry.
Post closure claims have already been settled in favour of Hindustan Lever Ltd for Modern Foods and Choice Hospitality for Qutab hotel in the capital, formerly owned by India Tourism Development Corporation.
To its horror, the disinvestment ministry discovered that losses could have been covered up through accounting manipulations.
Hindustan Teleprinters Ltd was sold as a profit making company to HFCL, but the new management now claims that it had incurred a loss.
The divestment official, however, defended the policy for past deals saying that the bidders had factored in the post closure adjustment clause while quoting a price.
"The government would, of course, carefully examine all such claims before refunding any amount," he said, adding in the case of PPL, PriceWaterHouse Coopers had jointly been mandated to undertake a post-closure audit and prepare a closing date statement.
