Sucheta Dalal :Insult on injury
Sucheta Dalal

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Insult on injury  

Oct 23, 2005

Infrastructure Leasing & Financial Services (IL&FS) probably has reason to be furious. First, the ignominy of being the rare large financial institution subjected to a “survey” by Income Tax officials and then the embarrassment of being linked by a TV channel to Shiv Sena leaders, Raj Thackarey and Manohar Joshi’s joint acquisition of Kohinoor Mills for a whopping Rs 421 crore. Senior Tax officials confirm to us that the “survey” of IL&FS offices had a rather unexciting basis. It was in connection with a Hyderabad-based company called Madhukar Builders, which was also searched by IT officials last Thursday. Unconfirmed reports link Madhukar Builders to the previous political regime in Andhra Pradesh. Income Tax sources say the IL&FS survey was based on “a specific request from the Hyderabad unit for a specific line of transaction”. IL&FS had signed a Memorandum of Understanding (MoU) with the company some years ago, but it does not seem to have been converted into a funding deal. For IL&FS, which is owned by a galaxy of banks and financial institutions, the income tax action will be difficult to live down. The institution’s shareholders list includes UTI, HDFC, IFC-Washington, ORIX Corporation of Japan, Credit Commercial de France (CCF), State Bank of India and the Government of Singapore. Yet, on early Thursday morning, the tax officials ordered it to shut down its servers for over an hour, causing panic among institutions that have financial dealings with it, especially connected with the stock market.

Everest yet again

The convoluted ACC deal, which saw management control pass on to international cement major Holcim, continues to make curious ripples. First, Holcim tried to sell ACC’s subsidiary Everest Industries to the Adani group, even when it wasn’t officially in the driver’s seat. Then the Adani group tried to make an open offer to Everest shareholders, which was disallowed by the Securities and Exchange Board of India (Sebi). In a recent development, ACC has sold a 50 per cent stake in Everest to Mrinalini Trust at the rate of Rs 134 per share. The sale has been followed by a quick open-offer announcement at a sweet-sounding Rs 184 per share to the public. But investors are not exactly jumping with joy. A Kolkata-based investor, J. Kothari has several pertinent questions. Who are the people behind Mrinalini? Are they part of the Seksaria/Neotia clan that controlled ACC? How was the price of Rs 134 (for a 50 per cent stake that effectively transfers management control) arrived at? Was there a valuation done? Was there competitive bidding? If not, how do investors know this is the best price they could have got? Clearly, it is time for the regulator to take a good hard look at the deal and get the company to provide all the answers before clearing the open offer.  

Loan by force

Banks are so desperate to give personal loans to their depositors that they now pre-approve unsolicited loans and send out sanction letters to them. Usually, the depositor takes the sanction letter to the bank, signs several documents, coughs up an administrative fee and collects the cheque. But a couple of banks — Stanchart and HDFC Bank in particular — went a step further. They started posting cheques to depositors even when they hadn’t sought a loan. If the cheques were encashed by the depositor, the bank began to deduct Equated Monthly Installments (EMI) as payback. This allowed them to collect a hefty 15 per cent interest or more from depositors. Those who protested were harassed by Call Centre staff to ‘return the cheques’. Isn’t this astonishing? A depositor is lumped with an unsolicited and unsought loan and then asked to “return” the cheque and provide an indemnity to the bank in order to close it out. One depositor says the bank even deducted an EMI payment although the loan cheque wasn’t encashed. It reversed the charges only after some tough talking with bank officials. HDFC Bank’s MD Aditya Puri admits that his bank had indeed emulated another bank and started mailing loan cheques, but the scheme was stopped within a couple of months.  

Matter of meetings

N.R. Narayana Murthy, Chief Mentor of Infosys, is on the board of only one listed company — NDTV. A savvy investor, studying the first report was “shocked” to find that out of seven board meetings last year, Murthy, “one of the proponents of good corporate governance did not attend even one of the meetings, nor the AGM.” We agreed with the investor that not attending board meetings would “unnecessarily spoil Mr. Murthy’s image” and decided to ask him. Murthy’s reply was typically candid: “That is right. I am guilty. I had told them that my diary gets full a year in advance. I do not cancel appointments once made. That is why I could not attend. On the other hand, this year, I have attended all the meetings”. Obviously Murthy on the board is a cache, even if he cannot attend board meetings.


-- Sucheta Dalal