Sucheta Dalal :When investor turns investigator (8 Sep 2003)
Sucheta Dalal

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When investor turns investigator (8 Sep 2003)  

Around a month ago, I wrote about Ms M. Gupta, a Delhi-based investor who is struggling to recover a fixed deposit of Rs 45,000 made in Arihant Credit Capital Ltd, (FD numbers 114815, 114816 and 1151). Arihant’s redemption and interest cheques of 1999 had bounced and the company has since changed its name and business focus. On the face of it, Ms Gupta is no different from millions of investors who have lost substantial chunks of savings invested in company fixed deposits. The twist in her tale happened when she sent off a letter to a ‘investor-helpline’ in a daily leading to interesting results.

Several touts began to call or write to her offering to ‘recover’ her money for a fee. Some wanted 10 per cent of the principal and asked her to forget about the interest, while others were willing to charge even less. Curious at the touts’ confidence about being able to recover the money, she approached friends from the media to contact Arihant, which now calls itself ATN International Ltd and runs a thriving television channel in Kolkata.

She was in for a big surprise. Santosh Kumar Jain of ATN wrote to her saying that the company had ‘settled’ her claim in full and sent here a cheque of Rs 31,500 drawn on a Kolkata branch of Canara Bank in September 1999. He also sent her a bank statement providing proof that the cheque had been debited from the company’s account in November 1999. This was news to the investor.

Firstly, she’d not receive any cheque from the company and secondly, a cheque for Rs 31,500 did not cover her principal investment, forget about interest. So, she wrote to the company again demanding more answers. In July this year, Arihant (now ATN) wrote to her saying that she had ‘entered into a settlement’ regarding her fixed deposit and ‘agreed’ to accept a lower redemption and no interest. This is a new twist to the plethora of scams devised to dupe investors. Companies are usually brazen and simply ignore investors, or claim that they have no money to make redemption. But investors are rarely accosted by touts offering recover their money when the company does not seem to be in serious financial difficulty. Nor are they falsely told that they have accepted a lower sum in settlement. The company would give no details. Was Ms Gupta supposed to have given up her rightful dues out of love for ATN or was it fear? Was the settlement offered by the company or by the investor? And how and why was a figure of Rs 31,500 decided? She decided to track down some answers even if it mean turning into a sleuth herself. As it happened, she had an account at Canara Bank in New Delhi and wrote to the Branch Manager at the Kalkaji Branch to help her get to the bottom of ATN’s preposterous claim.

On August 25, the bank wrote to her saying that her cheque had been collected by Bank of Rajasthan’s Ghaziabad branch in November 1999. But Gupta had no account at Bank of Rajasthan, so there was no question of her depositing any money there. She called Bank of Rajasthan for details and was in for another shock. The Ghaziabad branch said that there was indeed an account there in her name, which has received the deposit and it was closed shortly after the money was credited to it. The bigger surprise was that the introducer to the account had been none other than her own LIC agent, Jaideep Mathur, who was also the person who had initially persuaded her to deposit her money with Arihant Credit Capital. She then remembered that her agent lived in Ghaziabad.

But don’t the RBI rules require the bank to maintain a photo-identity of the account holder? The bank manager assured her that there was indeed a photograph and asked her in to meet him personally with identification. She discovered that the person who had impersonated her, was an older lady who had signed here account-opening form in Hindi. The manager mentioned that LIC Agent, Mathur had introduced several account holders to the branch and promised to investigate their fate. Interestingly, Mathur continues to have his account at the same branch of Bank of Rajasthan. Before continuing with the story, one must point out that ordinary investors turning into sleuths would probably not have found the banks and the company so forthcoming with information that was over three years old. The fact that Ms Gupta is a senior executive with a leading daily probably made a big difference. What happens next? Well, Ms Gupta was advised by the bank to file a police complaint. She has also filed complaints with various regulators. But she still does not have all the answers, nor does she know who will get her money back for her.

Clearly, Bank of Rajasthan is guilty of negligence in not ascertaining the identity of the person who impersonated Ms Gupta. Around 1993, during the primary market boom, there was a thriving scam in stealing and discounting dividend warrants, redemption and interest cheques as well as third party cheques. I had myself exposed how smoothly the racket of discounting such cheques worked, by selling a third-party cheque and collecting cash at a 2 per cent discount. The subsequent furore led to the rule that banks must seek photo-identities while opening accounts.

Ms Gupta’s case shows that banks continue to be wantonly negligent in verifying details while opening accounts. But it also indicates a clear nexus between company officials and the agent. After all, there were a series of developments after the original redemption and interest cheques that were paid by Arihant had bounced. Her agent could not have intercepted all the communication from Arihant and done a deal without active collusion. Moreover, since she entered into no settlement with the company, it either has no settlement documents or has conveniently accepted forged ones from the agent. The very fact that Ms.Gupta continues to receive recovery offers from touts also suggests the possibility of a large organised racket. The question is, how many other investors have been similarly cheated due to a nexus between companies, their own agents and possibly bank officials? Will LIC initiate action against its agent who exploited investor confidence? More pertinently, will the regulators bother to nab the culprits? And even if they do, when will investors like Ms Gupta get their money back?

-- Sucheta Dalal