Sucheta Dalal :Govt finally wakes up to SHCIL's dubious acts
Sucheta Dalal

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Govt finally wakes up to SHCIL's dubious acts  

Apr 16, 2007

The government has finally ordered an investigation into Stock Holding Corporation of India (SHCIL), India’s largest Depository Participant (DP) for a series of shenanigans documented by The Indian Express over the last few weeks.

SHCIL was originally set up as a potential Central Depository of shares and over 83 per cent of its shares are held by government-owned banks and insurance companies including SUTI, ICICI, IDBI, IFCI, GIC and LIC. For many years now, SHCIL has been attempting to diversify into capital market related business, often with disastrous results. In the Ketan Parekh scam of 2000, its MD was arrested and five senior employees were charge-sheeted for dubious lending to a Kolkata broker connected with the DSQ Software Group. Yet, the institution (because of the composition of its shareholding) was unaffected and allowed to carry-on without any serious reorganisation or restructuring and many charge-sheeted employees remain at its helm.

Recently, SHCIL bid for the role of Central Record-Keeping Agency for the automation project of stamp duty operations. In 2005 it had bagged the prestigious project and since then has embarked on a series of dubious dealings and spawned several secret subsidiaries. Ironically, it is the massive fake revenue stamp scandal (Telgi scam) that led to the decision to issue electronic revenue stamps.

In just over a year, SHCIL (as reported earlier) first sold off 76 per cent of the equity in its subsidiary SHCIL Services Ltd (SSL) to a clutch of private individuals and foreigners, without informing its shareholders or board of directors. It also created four domestic subsidiaries, with strange private partners and in another clandestine move, set up a subsidiary in Singapore called Unitech Value Solutions Pvt Ltd. More about that later.

Meanwhile, even as SHCIL was indulging in its series of clandestine activities, the personal friendship between the top brass of SHCIL and that of Sebi (Securities and Exchange Board of India) ensured that nobody probed any of this mischief. Indeed, a senior vigilance official of SHCIL was implicated in a passport forgery case involving Dawood Ibrahim’s mother. This too was brought to Sebi’s attention. In fact, SSL was allowed to become a broker of the Bombay Stock Exchange (BSE) without an investigation into its shareholding since it projected SHCIL as the promoter. Despite all this information being in public domain for weeks now, Sebi has not launched any investigation into SHCIL and its affiliates registered with the regulator.

Coming back to the e-stamping operation, it had a technical collaboration with a reputed Singapore company called Crimson Logic. However, for some strange reason, the fees were to be routed through Unitech Value Solutions (UVS), a SSIL subsidiary, although the parent SHCIL has bagged the contract. Interestingly, the foreign shareholders of SSL were to include Ramaswamy Ravindran (former Singapore parliamentarian) who helped seal the deal with Crimson Logic Global Pvt Ltd as a consultant. He was a director in E-Ventures Capital, but stepped down from the board and sent a legal notice to SHCIL on March 12, 2007.

SHCIL MD, Jayaraman Iyer, who is now on forced leave, spearheaded a series of financial arrangements, which diverted SHCIL funds. We learn that Ravindran had serious reservations about the involvement of one Andrew Quek of Singapore, apparently connected with DP Information Network Pvt Ltd, of Singapore who has been made a director in SSL. Quek, who originally set up DP Information Network, but filed for bankruptcy in 2001-02. Sources in Singapore say he even has a criminal conviction for corruption and holds his SSL shares through a company called E-Ventures Capital Pvt Ltd. Although SHCIL Services is a BSE broker, the details of its shareholding and directorships are not public. The chairmen of SHCIL and SSL are allegedly aware of these facts but overlooked them. Our queries to them also elicited no response.

SHCIL’s e-stamping technology agreement with Crimson Logic, a reputed Singapore company, is also interesting. Although it involves sensitive revenue project, the agreement is valid for only 5 years with no technology transfer. Worse, the actual contract is signed with Unitech Value Solutions Pvt Ltd (UVS), a clandestine SSL subsidiary, registered at Winsland House Singapore, 239519. UVS in turn has an agreement with SHCIL.

To sum up, SHCIL bags the e-stamping contract, but a Singapore-based subsidiary of its own subsidiary SSL, (effectively the grand-child of SHCIL) routes the money. SSL is a brokerage company, now 76 per cent owned by private individuals and foreigners. More importantly, SHCIL’s majority shareholders — all government institutions — are completely in the dark about these secret deals. The key to the investigation ordered by the government will be to ferret out the real beneficiaries of UVS. This company’s existence is clearly superfluous, but it is ideally placed to receive kickbacks from suppliers and manipulate SHCIL as well as SSL.

Under the technology supply agreement with SHCIL and UVS, Crimson Logic will be paid Singapore $25 million over five years at 5 million a year through UVS. But how much UVS really pay Crimson Logic for the technology? An investigation will provide the answer. Curiously, the agreement with Crimson Logic included technology to be provided for e-stamping operations in countries such as Pakistan, Bangladesh, Myanmar and Bhutan. Were these technology cost loaded on to the Indian e-stamping programme? In fact, we have specific information about large payment of Singapore $3,60,000 has already been made to the Singapore company on March 15, 2007.

Things came to a head after March 12, 2007, when Ravindran Ramaswamy, the Singapore consultant sent a legal notice to SHCIL’s CMD, Jayaraman Iyer, and wanted the legal notice shared with the finance minister, the CBI, the Economic Offences wing, Sebi chairman, RBI governor and all chairmen of all stakeholders of SHCIL. Obviously, this was not done. Our letter to

S Ramathan, chairman SLL and its compliance officer seeking a response to the legal notice got no reply. In the past SHCIL has refused to provide even simple details like its shareholding pattern. The regulator’s inaction in the SHCIL episode has also raised a lot of eyebrows at the highest levels in Delhi.

SHCIL is another example where a company owned by a set of government institutions, seems to escape all public scrutiny, as it is not subject to disclosure and governance norms of private listed companies, nor the oversight of the Central Vigilance Commission and the Comptroller and Auditor General. This is a policy issue that the government will have to pay serious attention.

-- Sucheta Dalal