The government has ordered a probe against steel giant Ispat Industries for alleged exposure to Rs 8,500 crore (Rs 85 billion) of public funds, erosion of net worth and high accumulated losses, highly-placed official sources said in New Delhi on Tuesday.

The investigation has been ordered under section 235 of the Companies Act (investigations into a company's affairs) and the case has been referred by the Department of Company Affairs to Serious Frauds Investigation Office, they said.

When contacted, an Ispat Industries spokesperson declined to comment on the issue whereas its executive director (finance) Anil Surekha was out of the country and also declined to comment.

SFIO, set up to look into large-scale fraud and misappropriation of funds by companies, takes up only those cases which DCA refers to it, after a nod from the finance minister.

"We have ordered an investigation under section 235 of the Companies Act against Ispat Industries and the case has been referred to the SFIO. The probe is being ordered because of the company's exposure of Rs 8,500 crore of public funds, erosion of net worth and high accumulated losses," the sources added.

Sources said while DCA ordered the probe about a week back, the order is awaiting a nod from the finance minister.

Since the SFIO was set up late last year, Ispat is the fifth case to be referred to it for thorough investigation.

Daewoo Motors, DSQ Software, Design Auto and Benonza Biotech are the other four cases already being probed by SFIO, sources said.

Daewoo Motors is being probed for financial mismanagement and net worth erosion, whereas the government is investigating DSQ Software's role in the stock market scam.

Design Auto and Benonza Biotech allegedly first allotted shares worth Rs 100 crore (Rs 1 billion) to each other and then offloaded these in the market; these shares are currently worthless.

Ispat Industries has been referred to SFIO due to the large amount of funds involved and the fact that it has eroded almost its entire net worth.

As per information available with the Bombay Stock Exchange, Mudra Ispat and Ispat Finance held about four per cent stake in the company as on December 31, 2003 whereas foreign promoters held another 47.72 per cent stake.

Indian public held about 15 per cent of Ispat Industries.