Fraud Allegation: Is Deccan Chronicle another satyam?  

August 8, 2012

The company has blamed its problems on a liquidity crunch because of a sharp decline in ad spends. However, every lender is re-examining loans extended against equity shares as well as the group’s other borrowings

Sucheta Dalal

IFCI Ltd, a financial institution, is not known for quick action to protect its loans. So its winding-up petition against Deccan Chronicle Holdings Limited (DCHL), a Hyderabad-based media company which has powerful political connections with the Congress Party, has raised eyebrows. After all, investors are bound to contrast its alacrity with how lenders are dragging their feet even on encashing the security provided by the UB group for Kingfisher Airlines and on the personal guarantee of Vijay Mallya. IFCI’s winding-up petition against DCHL was triggered by its failure to redeem non-convertible debentures of just Rs25 crore. But soon after the action became public, Karvy, a registrar and depository participant (DP), filed a police complaint accusing DCHL chairman T Venkattram Reddy and vice-chairmen T Vinayak Ravi Reddy and PK Iyer Reddy, of forgery, misrepresentation and worse.

Interestingly, Mr Venkattram and Ravi Reddy are childhood friends of the Karvy group chairman C Parthasarathy.

The facts of the case, as reported by DNA newspaper, appear to be murky enough to rival Ramalinga Raju’s Satyam saga. Apparently, the promoters had pledged a significant shareholding with Future Capital to raise over Rs170 crore in two group companies. They are alleged to have forged documents to have a part of those shares released fraudulently in order to pledge them again with Religare Finvest (which informed the stock exchange on 1st August that DCHL had pledged a 14.5% stake for a loan). The company, in a statement published in its newspaper has blamed its problems on a liquidity crunch because of a sharp decrease in ad spends.  The Reddy’s are clearly at a dead-end and every lender is re-examining loans extended against equity shares (whose prices have taken a deep dive) as well as the group’s other borrowings that apparently run into a few thousand crore rupees. As always, DCHL has denied media reports accusing the promoters of fraud and the stock exchanges have posted it on their website without any attempt to verify the claim. Investors are more likely to be hurt by believing the DCHL statement put out by the bourses.