Auctioneer Carritt in trouble, defaults on payment obligations

Auctioneer Carritt in trouble, defaults on payment obligations
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First Published: Fri, Jan 23 2009. 10 48 PM IST
Updated: Fri, Jan 23 2009. 10 48 PM IST
Kolkata:Auctioneer Carritt Moran and Co. Pvt. Ltd has failed to pay tea producers who sold through it in the first week of January, in the first such instance in at least three decades.
Carritt—the second largest tea auctioneer in the world—was yet to fulfil payment obligations for Calcutta sale 1 as of Thursday.
“The shortfall was around Rs1 crore. That’s about 22% of Carritt’s total dues (for sale 1),” said an official of the Calcutta Tea Traders Association, or CTTA, which organizes the auctions. He spoke on condition of anonymity.
Producers have been allowed to withdraw their tea from its catalogue, said Roshni Sen, deputy chairman of Tea Board of India, the industry regulator.
“The decision was taken on request from sellers,” she said.
Lots from Carritt’s catalogue are being assigned to other brokers ahead of the next auction—Calcutta sale 4—on 27 January.
On Thursday evening, the Tea Board also ordered opening of an escrow account and asked people who have bought tea from Carritt to pay into it. This is aimed at making sure Carritt doesn’t divert money paid by buyers to service its own liabilities, Sen said.
Some people, however, might have already paid their dues to Carritt directly, and the money might have been diverted.
“So on Tuesday (27 January), when payments are to be made for (Calcutta) sale 2, Carritt might default again,” said the CTTA official.
The auctioneer, however, is expected to fulfil its payment obligations for the Siliguri and Guwahati auctions, he added.
Carritt, a 131-year-old auctioneer, has been lending to small and medium tea growers, mostly in south India, for many years.
The auctioneer had borrowed from private financiers to lend to tea producers. But many of these loans have not been repaid, and according to Carritt’s chairman P.K. Sen, the company was to receive around Rs36 crore from tea producers.
Carritt’s own liabilities are believed to be in excess of Rs50 crore, and even after setting off “all assets on its books, there’s a Rs30 crore gap,” said a tea industry official close to the Carritt management, on condition of anonymity.
Carritt’s Sen was not available to comment. Calls made to his cellphone were not answered.
Lending to tea producers was the only way to expand business during lean years, said the industry official.
“A broker typically lends against yet-to-be ready crop, and makes sure the crop is sold through it,” he explained. “Almost all brokers had got into that business, but Carritt is suffering because of bad cash management.”
Tea Board’s Sen said: “There were big management deficiencies in Carritt. We are trying our best to salvage the company, but it might have to be closed down.”
Carritt, which sells tea worth around Rs1,000 crore a year and earns 1% of that by way of commission, would never be able to pay off its liabilities with income from auctions, she added.
The Economic Times newspaper first reported in its Kolkata edition on Friday that Carritt was facing a financial crisis.
Even before Carritt collapsed, the Tea Board had asked management consultant Deloitte Touche Tohmatsu India Pvt. Ltd to examine if there were systemic risks and suggest measures to improve the tea auction system.
Deloitte is expected to submit its report in eight weeks, according to Roshni Sen.
“It is unfortunate that a company of such history and class (as Carritt) has come to this state. But I continue to have full faith in the auction system, and the measures adopted by the tea board will strengthen the system and make it more secure,” said Aditya Khaitan, managing director of McLeod Russel India Ltd, the world’s biggest tea company.
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First Published: Fri, Jan 23 2009. 10 48 PM IST