Sucheta Dalal :Revisiting 1992: The chickens come home to roost
Sucheta Dalal

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Revisiting 1992: The chickens come home to roost  

Nov 25, 2001

Wednesday, an economic daily reported that Global Trust Bank had acquired Rs 74 crore worth of property (some Rs 23,000 square meters of land) belonging to Killick Financial Services in Mumbai in enforcing a guarantee provided by it to three companies –Filtrona India, Millennium Caribonum and Lodestar Slotted Angles.


Further, that Killick Nixon, the parent company had similar debt-asset swap deals with Vyasya bank, of which one that was signed in 1999 was worth Rs 105 crore. What is so special about GTB’s effort to cut its Non-performing Assets and recover money? Simply this. That Killick Financial Services and Killick Nixon belong to T.B.Ruia, a notified party who was involved in the securities scam of 1992 and has admitted to owing large sums of money to the Custodian.


The office of the Custodian, which has been set up under the Special Courts (Trial of Offences relating to transactions in securities) Act of 1992, has the first right over the assets of all persons notified under the Act. Moreover, the liabilities of Ruia are not even under dispute. In a consent decree filed in 1995, the T.B.Ruia group has admitted to receiving over Rs 18 crore from the Bhupen Dalal Group and agreed to pay it to the custodian but has defaulted on payments. This is money that was allegedly siphoned from banks and financial institutions.


The Custodian’s office in Mumbai told me that though T.B.Ruia’s admitted liabilities exceed Rs 64 crore and that these have exceeded Rs 100 crore after interest calculation. Ruia’s activities have figured prominently in the Reserve Bank of India’s Janakiraman committee reports; yet the newspaper quotes an unnamed source saying that the land deal with GTB had RBI approval. A source from Global Trust Bank also tells us that the sale of the land was recently cleared under the Income Tax department under Section. 37(I). The very same Income Tax department which in fact tipped off the custodian about the movement of money from Ruia to the Bhupen Dalal group.


Isn’t it strange then that a notified party, which owes money to the Custodian, continues to have large unattached assets, which it uses for providing guarantees to other stock market transaction to GTB and Vyasya bank? Did all the authorities forget about the existence of the Custodian and the 1992 Act?


We also discovered that the news report has now alerted the Custodian who plans to refer the Killick Groups’ sale of property to its lawyers and take up the issue with the Special Court. What is an ironical co-incidence is that GTB’s recovery action against Killick Nixon should have coincided with a Supreme Court order dismissing an appeal filed by the Ruia-Dalal combine against enforcement of their 1995 consent decree.


This is not the only 1992 case has gained extraordinary momentum in the last few weeks. The story behind the arrest of Harshad Mehta and his brothers is becoming stranger than fiction. It all began in 1999 when Harshad and brother Ashwin hit upon the idea of claiming that 27 lakh shares of 90 odd companies valued at over Rs 250 crores were either lost or stolen from them. They filed a petition seeking that the Custodian should restore the shares to their account along with benefits accrued over the years. The Special Court headed by Justice Kapadia in turn called in the Central Bureau of Investigation (CBI), which interrogated several brokers, employees, bodyguards and relatives of the Mehta family.


In a very short time they obtained confessions revealing that Harshad Mehta and his family had themselves fraudulently transferred the shares to various relatives, associates and employees and later introduced the benami shares into the market.


The audit trail of a chunk of ACC shares is just a small part of the CBI’s finding. It says that the shares were transferred to a firm called Meghana Impex in 1992 and introduced into the market in July 1993 by a broker called Tushar Bedi. Bedi in turn had received the shares from Arun Bhaiya, a sub-broker of Ashwin Mehta. In Bedi’s books the transaction appeared as having been done with Asian Stocks and Securities, which is a company floated by the Mehtas in the name of their employees.


Further, one Kailash Gupta, who was also interrogated has admitted to having forged share transfer forms for Mehta and helped to sell his shares. With Harshad Mehta’s friends, employees, associates and bodyguards, freely providing details of their actions to the CBI, the investigation is getting more broad-based. The CBI learns that the Mehtas were introducing benami shares into the market until 1996-97. The shares of Ceat Tyres, Sesa Goa and ACC were sold through associates such as Dinesh Shah and Jyoti Shah.


Rajendra Bhantia, the former Vice President of the Bombay Stock Exchange, who is also indicated for the 1998 rigging involving Sterlite, Videocon and BPL was also called in for interrogation. Similarly Jaiprakash Industries shares routed through Pallav Sheth and Mukesh Gupta also came in for questioning.


On Friday however, Harshad’s lawyer, Mahesh Jethmalani tried to give the entire episode a new spin and a political colour. He alleged that three persons Kailash Gupta, Sameer Jani and Dinesh Shah had in fact siphoned a large chunk of money realised through the introduction of benami shares but were let of scot-free. He alleged that the three had powerful political links and had used their clout to scuttle a police investigation into the deal. He alleged in court that high profile DCP, Sanjay Pandey, was transferred because he was on the trail of the these three persons.


The upshot is that the Court has directed the CBI to follow up Jethmalani’s allegations. The moot question is, will any of this lead to a recovery of the money lost by public banks and institutions, or will it merely set off another round of allegations and counter allegations leading to long drawn litigation?

-- Sucheta Dalal