Sucheta Dalal :Stock Holding Corp takes note of its rot does nothing to help
Sucheta Dalal

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Stock Holding Corp takes note of its rot, does nothing to help  

Apr 30, 2007

SHCIL is India’s largest depository company and acts as custodian to the capital market transactions of all of India’s top public sector financial institutions, insurance companies and nationalised banks. On April 25, the board of directors of Stock Holding Corporation of India (SHCIL) met for the first time in Mumbai after R K Bansal, a senior official of IDBI Bank had taken charge of management as whole time director. SHCIL’s chairman and managing director (CMD) R Jayaraman Iyer was sent on compulsory leave approximately 10 days earlier.

The board was meeting to assess the implications of the many dubious activities of SHCIL’s CMD, but it cannot possibly have been unconscious of its own failure in fulfilling its fiduciary responsibility as shareholders of the company. The majority of SHCIL’s shareholding is owned by IDBI Bank, IFCI, S-UTI, GIC, New India Assurance, Oriental Insurance, National Insurance, United India Insurance and ICICI Bank. These shareholders have been woken up by reports in The Indian Express and from government agencies that SHCIL Services Ltd (SSL), once a 100 per cent subsidiary had, without their knowledge, slipped out of their control. Worse, SHCIL itself could have gone that way too.

Yet, the board meeting of April 25, ultimately turned out to be a damp squib. Although institutional shareholders seemed alarmed at SHCIL’s activities, their actual decisions were rather ineffectual. It is probably this casual attitude that allowed SHCIL to be run like a private fiefdom in the first place — that too despite its involvement in the Scam of 2000.

The board had met with the intention of recalling S Ramanathan, CEO of SSL (SSL is a brokerage entity with the Bombay Stock Exchange), only to discover that there was little it could do. An office order of April 26 subsequently said that S Ramanathan would be “relieved from the additional charge of executive vice president and advisor of SHCIL with immediate effect”.

The SHCIL board had at least 10 days for fact finding before the meeting. However, in an astonishing office order, after the board meeting, the whole time director R K Bansal (deputed by IDBI Bank) has put the two executive vice presidents — L Viswanathan and R H Mewawala, in charge of most activities. These are among the many officials charge-sheeted in the 2000 scam and worked very closely with the previous management.

All departments, including the company secretary have been asked to report to this duo despite their past record (they were even directors on three subsidiaries floated by SHCIL in the past six months). This move has shocked and demoralised those who hoped that IDBI Bank’s intervention would led to a clean up of their organisation.

Several directors at the meeting came armed with detailed information on the antics of SHCIL, SSL and the many subsidiaries they have floated over the last six months. But instead of ordering an investigation, the board contented itself with forming a three-member committee to decide who will conduct an investigation into the issues confirmed by top government agencies who had already done their sleuthing.

As for SHCIL Services Ltd (SSL), a board member tells us that they have decided to write to the company and raise their doubts about its CEO Ramanathan, although he remains fully in charge of operations. The SHCIL board, even with a 24 per cent shareholding, has not demanded an emergency meeting of SSL’s board. For one, it would have brought SSL’s anonymous private and foreign shareholders into the open.

As earlier reported, a majority of SSL’s shares are held by Vaishnav & Co of Ahmedabad (33 per cent) E-Ventures Capital of Singapore (33 per cent) and V Subramanian, a Hyderabad based individual who owns a distillery company 10 per cent).

The board’s indecisiveness is especially surprising because SSL is hugely dependent on SHCIL’s infrastructure for much of its business. Moreover, the central point in the transactions is a company called Unitech Value Solutions, which was set up as a wholly owned subsidiary of SSL registered in Singapore by the CEOs of SHCIL and SSL Services. When SHCIL bagged the prestigious E-Stamping contract from the government of India (ironically in the wake of the massive fake stamp paper scam), it created an insidious structure where payments to its technology partner CrimsonLogic Pte of Singapore would be routed through Unitech Value Solutions. Unitech Value Solutions is mainly owned by private and foreign companies without the board of SHCIL getting a whiff of what was happening.

There are many questions raised by the ineffectual actions of the SHCIL board, the foremost of them: were the institutional shareholders really ignorant of what was happening? After all, IFCI (which holds a 17 per cent stake in SHCIL) was a consultant to the government in finding alternatives to paper based stamp duty payments. The officer in charge of the project immediately became an advisor to SHCIL and SHCIL Services after they had bagged the contract.

Meanwhile Ramanathan Ravindran of Singapore, once a director of SHCIL Services, has written to SHCIL shareholders and government investigation agencies alleging that the company is fudging contracts and documents to hide the trail of its activities. The lack of commitment in investigating the various linkages between, SHCIL, SSL, Unitech Value Solutions and its shadowy new subsidiaries (SHCIL Value Infosolutions , SHCIL Projects, SHCIL Hannobe Technologies) should be a matter of concern to the government and its silent regulators, if not to the SHCIL shareholders

-- Sucheta Dalal