Sucheta Dalal :Stepping-stones (13 May 2002)
Sucheta Dalal

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Stepping-stones (13 May 2002)  

A Mother’s Day feature by a Mumbai daily informs us about how Chief Minister Vilas Rao Deshmukh’s son Amit is grooming himself for a political career. ‘The stepping stone, a sugar mill which he established a year ago, recently had the first successful crushing season. A co-operative bank is underway’, says the paper. Young Deshmukh says that since he likes politics, “I guess entering the co-operative movement is the right way to begin”. Sugar co-operatives and co-operative banks! Bad timing we would say, for a Chief Minister’s son to confess that it is the entry point for a high-profile political career. The nexus between politician controlled co-operative banks and Home Trade is already under a magnifying glass; and thanks to their rampant corruption these badly regulated banks may be in need of a bailout. The statement should provide a further impetus to the process of scrapping the dual regulation of co-operative banks and putting an end to special tax concessions that they enjoy.

Not yet out of the woods

Business magazines may celebrate Sanjay Lalbhai’s achievement in recording a profit in Arvind Mills, but look closely at the numbers and they tell you that even after its hefty debt of Rs 2,000 crore was pared down to Rs 1,200 crore through a massive write off, investors are unlikely to see any returns for several years. Moreover, things are not going so good for Arvind’s bankers ICICI. They face criminal charges for breach of trust filed by Commerz Bank, for the manner in which the Arvind restructuring was worked out. Last week, the Gujarat High Court dismissed a petition by ICICI’s top brass seeking to be discharged from the case. The court has however allowed them to appeal to the Supreme Court. If the Supreme Court upholds the Gujarat decision then K.V. Kamat, Lalita Gupte and S.H. Bhojani (now with a law firm) will have to appear in person and stand trial before the Gujarat Court.

Commerz Bank is fighting a dogged battle against ICICI, which was the securities trustee to their loans to Arvind Mills against the pledge of specific properties. The bankers found that ICICI had coolly entered into a sale and lease back arrangement with Arvind Mills with regard to the same properties and destroyed the security of the foreign banks’ loans. It then went ahead and rammed through a restructuring package which forcing a huge write down in the value of their lending.

Anti-investor bias?

Investor groups have always complained about how Sebi committees are stacked against them and industry representatives such as lawyers and accountants who are in a majority carry through the most anti-investor decisions. The Takeover Committee was among the most blatant in its anti-investor bias. Representatives of industry associations, stock exchanges and professional bodies on it have been replaced several times since the committee was set up in 1996. In fact the Bombay Stock Exchange had three different representatives, with two changes in the last couple of years. In contrast, when one of the two investor representatives—M.D. Limaye, could not attend a single meeting since 1996 for personal reasons, no attempt was made to replace him. Two years ago, when Sebi re-started its interaction with investor groups after a long hiatus, the association that Limaye represented stopped being accredited by Sebi and should have automatically led to his replacement. But the committee preferred just one investor representative who also filed a dissent against its recommendations.

Panel v/s Committee

Investors who are agitated with the Takeover Committee tend to use the word Takeover Panel and Takeover Committee interchangeably—a fact that probably does damage to the former. Often, when investors say that Takeover Panel members have been offering consultancy to potential acquirers on how to beat the Takeover code, they mean member of the Takeover Committee. Part of the reason is that they see the Panel as having let off 84 per cent of takeover cases without compelling them to make an open offer to retail investors. Since the Panel’s decisions are not published by Sebi (except as a brief summary), investors believe that the panel is against them and have demanded investor representation on it. In fact, the panel is probably constrained by the flexibility of the takeover regulations. For the record, the Takeover Panel comprises—Justice S.M. Jhunjunwalla (chairman), former Judge of the Bombay High Court, S.C. Bafna, former member of the Company Law Board, S.A. Dave, former chairman of Sebi and UTI, A.R. Gandhi of N.M. Raiji & Co and Kamath, Banking Ombudsman and former chairman, Bank of Maharashtra. The panel members have now requested that orders regarding their decisions should be published in full so that investors are aware of the basis of granting exemptions

-- Sucheta Dalal