HYDERABAD: Admitting that it was caught in the web of controversies, city-based Prithvi Information Systems said  on Tuesday that it was awaiting the outcome of arbitration from Japan-based Sojitz, an equipment supplier.

Prithvi Information, which targets a turnover of US $ 1 billion by 2012-13, has entered into a contract with public-sector telecom operator BSNL for the supply of telecom equipment. The company wants to source the equipment from China-based manufacturer, Huawei, through the supplier, Sojitz. The size of the deal is Rs. 226 crore. The deal with Sojitz involves  Rs. 193 crore.

While Sojitz filed a complaint of cheating, criminal breach of trust and criminal conspiracy against Prithvi Information in a city court, the Managing Director of Prithvi Information V. Satish Kumar said that faulty documentation by Sojitz resulted in an investigation by the Department of Revenue Intelligence.

The DRI issued a show-cause notice to Prithvi Information also along with Sojitz and it seized equipment worth Rs. 40 crore.  “Even as we are discussing this issue, equipment costing Rs. 40 crore is under the seizure of the DRI,” he said.

To a query whether the company was really empowered to ask BSNL to deposit the amount of Rs. 186 crore in the bank account of Prithvi, instead of an escrow account opened by the company along with Sojitz, Mr. Satish Kumar’s counsel said that the company had done so owing to the “faulty documentation” done by Sojitz.

Aside from that, he claimed that the company incurred a financial loss of Rs. 97 crore due to the episode. To renewed questioning whether Prithvi was empowered to make BSNL deposit the amount in the company's account instead of the escrow account, the company said that it was a question of interpretation of the numerous clauses in the contract agreement.

It had withheld the payment to Sojitz after settling a sum of Rs. 30 crore and another Rs. 13 crore was lying in the escrow account. Asked as to how much Prithvi could have gained in the form of interest through the deposit made by the BSNL in the former’s own account, the gain or loss wouldn’t make any difference as Sojitz too was a partner to the DRI’s arbitration and the liability would remain proportionately on both partners.

Mr. Satish Kumar asserted that the amount due to be paid to Sojitz continued to be reflected in the account books of Prithvi and that there was no misappropriation and the charges leveled by Sojitz were unfounded.

To a query on frequent change of the company’s auditors, he said that Ernst & Young was the auditing firm for the accounting year 2007-08. The company did not renew its engagement with the auditors and roped in Price Waterhouse. However, consequent upon the developments in 2009 (Satyam scandal), Prithvi “requested” Price Waterhouse to relinquish its responsibilities. Later, the work was entrusted to Walker-Chandiok which sought more time to audit the accounts. Therefore, it transferred the work to V.K. Asthana & Co of Hyderabad.

Mr. Satish Kumar alleged that not just the faulty documentation, but Sojitz resorted to wrongful classifications and also waybills. Prithvi was planning to raise funds through a rights issue for which there was enabling permission to the tune of Rs. 250 crore.

The funds raised in 2007 through foreign currency convertible bonds, for which Lehmann Brothers was the bond-holder and subsequently went bankrupt, Prithvi proposed to acquire overseas companies. It completed two acquisitions spending US $ 14 million. For the remaining fund, it approached the liquidator of Lehmann Brothers and the company could also buy back the bonds.

Forex losses, delay in payments by clients and economic recession were the reasons for the company’s bottomline hitting the rock bottom and the profit margins being affected (3.5 per cent of the topline). Prithvi proposed to shift to a special economic zone (while the objective of the IPO through which it raised Rs. 135 crore in 2005) on the city outskirts.

Mr. Satish Kumar admitted that postponing the adoption of accounts of 2008-09 beyond December 31 was in violation of the rules and the company had approached the Registrar of Companies (RoC) seeking to  condone the same.

However, Sojitz went on distributing the documents it filed with the city court against Prithvi to the media even as Prithvi claimed that the matter was sub-judice.