As per the provisions section 23 of SIC (Special Provision) Act, 1985, any company whose net worth has been eroded by 50 per cent or more at the end of any financial year is required to hold a meeting of the shareholders for considering such erosion.

The company, in a letter to the Bombay Stock Exchange (BSE), has said, ``The company was raided by the enforcement wing of the commercial taxes department on October 30, 1996 for verifying certain coffee purchases made from Karnataka. All the records of the company were seized. The company explained and convinced them and brought back the books and records around December 10, 1996.''

``Again on December 14, 1996 the company was raided by the Central Excise authorities alleging evasion ofduty and all the books and records were seized from the factory and the head office. Searches were conducted on the houses of all the senior management staff, including the managing director,'' the letter said.

The company again represented the matter effectively and convinced the authorities that there was no evasion of duty. But the time of all senior management staff for a period of five months was spent on this work and finally the books were returned during the the first week of May 1997. Thus the operations of the company were severally affected.

Subsequently, the excise authorities informed the banks of some variation of stock statements and stock audit was ordered by the bankers. ``Out of eight consignments of a special grade instant coffee supplied by the EEC, six consignments were delivered late because of strike in Chennai port and consequent delay in transhipment in Colombo. Due to this delay, there was a deterioration in quality and the clients initially rejected the merchandise,'' the lettersaid.

However, on company's persuasion the clients agreed to accept the consignments at a reduction of 45 per cent of the value. ``The company approached RBI and obtained the permission for disposal of these consignment at a reduction of 45 per cent of the value which resulted in a loss of Rs 230 lakh,'' it said.

``Due to the liquidity problems arising from these reasons, among others, the company could not meet its commitment for interest on term loans etc, thereby incurring liquidated damages and further interest charges. The stock audit ordered by the bankers, also brought out an irregularity in the accounts because of which working capital facilities were stopped. The liquidated damages at the rate of two per cent and monitoring charges etc added to the financial problems of the company,'' the letter said. The working capital facilities were resumed only in December 1997 and firn registered a turnover of more than Rs 20 crore in the past four months.