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Amid crackdown on non-compliant entities, Jay Shah’s firm fails to file financial statements

Even as the government cracks down on firms that have failed to file their financial statements, Kusum Finserve, run by Amit Shah’s son, Jay Shah, has missed its deadline for filing for two consecutive financial years.
05 January, 2019

At a time when the Ministry of Corporate Affairs is striking out companies and limited liability partnerships, or LLPs, for not filing financial statements, it appears that a firm run by Jay Shah, the son of the Bharatiya Janata Party’s national president, Amit Shah, has not submitted its financial records and accounts for the last two financial years. The MCA database reveals that Kusum Finserve LLP, the firm run by Jay Shah, has not filed its financial statements for the financial years 2016–17 and 2017–18.

In the recent past, the MCA has pushed full steam ahead in its bid to crack down on companies that have not filed its financial statements consecutively for a period of two years or more. In June 2018, the Ministry of Finance issued a press release stating that, as part of a drive under the supervision of the MCA, the Registrars of Companies had struck off 2.26 lakh companies from the register of companies during the financial year 2017–18, for such non-filing. As part of the MCA’s drive, the ROCs also disqualified over 3 lakh directors for non-filing of financial statements and annual returns for the preceding three financial years. The press release further states that for the second drive, which will be launched in the ongoing financial year of 2018–19, “a total of 2,25,910 companies have been further identified for being struck-off ... along with 7191 LLPs.”

While the BJP government has opened this battlefront against companies and LLPs that have been non-compliant in meeting filing norms, Kusum Finserve continues to defy statutory requirements. LLPs are required to file their statement of accounts by 30 October each year—failing to do so is an offence under the Limited Liability Partnership Act, which invites the possibility of a fine of upto Rs 5 lakh. Even as the government cracks down on firms that have violated the act, Jay Shah’s Kusum Finserve has missed its deadline for filing its statements for two consecutive financial years. It is unclear whether any action has been taken against the LLP for failing to meet the requirements under the act.

In a story published by The Caravan in August this year, I reported that, going by the few financial statements uploaded by Jay Shah’s firm Kusum Finserve, it has secured credit facilities amounting to Rs 97.35 crore as of 2016—from one private bank, another co-operative bank, and a government enterprise under the aegis of the Ministry of New and Renewable Energy. Of this, Jay Shah’s firm secured Rs 25 crore on the basis of two properties in Ahmedabad that are owned by Amit Shah. As per a mortgage deed signed between Kusum Finserve and Kalupur Commercial Co-operative Bank in May 2016, Amit Shah is shown to be “Mortgagor no. II” and the “absolute owner” of the two plots. The BJP president, as the owner, has a contingent liability vis-à-vis Kusum Finserve’s business, but a mention of this was curiously absent from his election affidavit for a Rajya Sabha seat in 2017—an electoral offence punishable with rejection of the nomination under the Representation of People’s Act.

The credit extended to Kusum Finserve had gone up by nearly 300 percent year prior to the report being published, even while its latest reported balance sheets showed a net worth of only Rs 5.83 crore. But due to the non-filing, no further insight into the current status of Kusum Finserve’s affairs is available. The firm filed an annual return for the financial year 2016–17, but the document does not include any financial details regarding its affairs. It merely states that the turnover of the LLP “exceeds 5 crores.” It did not file a statement of accounts for the financial years 2016–17 and 2017–18. A look at the updated financial statements would have ushered clarity on the current net worth of the firm and a rise in loan facilities to it, if any, by new or existing lenders.

In August, Jay Shah had claimed to The Caravan that the firm’s business “may not be relevant for any journalistic purpose as the same cannot be a subject matter of any public debate or publication.” But given the intricate link between Amit Shah’s Rajya Sabha affidavit and Kusum Finserve’s finances, and the union government’s drive against non-compliant companies and LLPs, the firm’s business undoubtedly holds significant journalistic and public relevance.

Kusum Finserve received a loan of Rs 17 crore by mortgaging a large plot of land in the Sanand Industrial Complex, measuring 15,754.83 square meters, which the Gujarat Industrial Development Corporation had leased to the firm in July 2017. Currently, a factory stands on the mortgaged land in Sanand. The GIDC is a state-owned undertaking that develops industrial estates and parks in the state of Gujarat. According to the bank documents, the factory manufactures PP, HDPE and Jumbo bags.

Without the financial statements that the firm is legally required to file, there is no clarity on the firm’s current net worth, the status of the new manufacturing facility, the status of loans availed and whether or not additional loans have been secured by the firm. The statements would also indicate if Kusum Finserve has managed to be profitable in the financial years of 2016–17 and 2017–18. Since its inception, the firm has recorded only one year of substantial profit, in 2014–15. Barring that year, it consistently displayed low levels of profitability and working capital.

I contacted the ROC of Ahmedabad, to inquire whether any action had been taken against Kusum Finserve for failing to file its annual financial statements. I also contacted Jay Shah. At the time of publishing, neither had responded.