Sucheta Dalal :SHCIL: Connections and cover-up
Sucheta Dalal

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SHCIL: Connections and cover-up  

Sep 23, 2007

The flurry of activity at the Stock Holding Corporation of India Limited (SHCIL) and its subsidiary SHCIL Services Limited (SSL) has interesting undertones that suggest that the investigation is on the verge of being wound up.
The key development is the indecent haste with which R.K.Bansal was yanked out from the post of Whole Time Director (WTD) at SHCIL. Bansal was appointed on 15 April 2007, after the Prime Minister intervened to ensure that R.Jayaraman Iyer, the former Chairman and Managing Director of SHCIL was immediately dispatched on leave. His mandate was to fire-fight on behalf of SHCIL and clean up the mess. He appointed KPMG’s forensic audit team to conduct an investigation and its report has already been submitted, but there is no sense of urgency about acting on it. He also regained control over SSL by getting SHCIL to infuse more capital into the company to dilute the foreign and individual shareholders who were given 76% of SSL’s shares for no apparent reason but their closeness to Jayaraman Iyer and his co-conspirator S.Ramanathan (CEO of SSL). Things were going fairly smoothly, and many of Bansal’s decisions were ratified at Annual General Meetings (AGM) of SSL and SHCIL, held their within days of one another, in the first week of September.
In fact, nearly six months after I began to expose the SHCIL scam and S.Ramanthan’s deep involvement in it, the SSL board finally summoned the courage to remove him (he chose to avoid the sack by resigning just ahead of the meeting).
But then, things took a different turn. All of a sudden, IDBI Bank, which has traditionally deputed its officials to head SHCIL, decided to recall Bansal to the parent organisation on an urgent basis. The reason is bizarre. The official version is that IDBI Bank desperately needed a Chartered Accountant (CA) to be the Chief Financial Officer (CFO) to replace Mr. L.P.Agarwal who left to join the Bombay Stock Exchange.
Originally, Mr.Bansal was to remain at SHCIL for a few weeks to hand over charge to the newly appointed CMD, Mr.R.C. Razdan and explain his clean-up actions. However, all that was scuttled and Bansal was reluctantly back in IDBI within a day.
Is it believable that a large bank would suffer badly for want of a Chartered Accountant at the CFO level? What if Bansal was not a Chartered Accountant? What would IDBI bank have done then? Clearly, there is more to the decision than meets the eye. Especially when we learn from SHCIL’s board members that they had argued very strongly for Bansal’s continuation and only agreed to let him go when IDBI claimed that his return was vital to the parent organisation. Interestingly, other sources in IDBI say that Bansal could easily have been allowed to continue and they are clueless why the bank made such an issue about his return.
We also learn that Mr.Razdan, the surprise appointee as CMD of SHCIL was a former Executive Assistant to the current SEBI Chairman Mr.M.Damodaran when the latter was Chairman IDBI Bank.. SHCIL’s discredited CMD, R.Jayaraman Iyer and his co-conspirator S.Ramanathan (CEO of SSL) were also close friends of Mr.Damodaran. So much so that Jayaraman Iyer is understood to have performed the religious ceremonies at the inauguration of SEBI Bhavan. He also advised the SEBI senior brass on ‘vaastu’ matters and accompanied them on religious pilgrimages. Of course, as I have mentioned several times, SEBI has been totally silent about the scam at SHCIL, even though SHCIL and SSL are regulated entities.

Bifurcation of Chairman & Managing Director’s post

Jayaraman Iyer’s actions at SHCIL provide ample evidence that entities that are promoted by a clutch of institutions without any single powerful source of accountability lead to concentration of power in the hands of the CMD, if the posts are combined. Iyer was the first CMD of SHCILand the consequences are there to see. There was hence a request from board members to revert to the earlier system when the two posts were separate and the Chairman would have an oversight function leading to some checks and balances. This is all the more imperative in SHCIL given the elaborate scam hatched by the Jayaraman Iyer-Ramanathan duo.
Why then were the posts not separated? The short answer would be that the SHCIL board is still not as effective and independent as is necessary to put the organisation back on its feet.
In SHCIL’s case, the board members say that Mr.R.C.Razdan was first slated to replace Mr.R.K.Bansal was Whole Time Director (WTD) – as per the initial office communique from IDBI Bank. In a matter of hours he was upgraded to Managing Director and then ended up being appointed as Chairman and Managing Director (CMD) through an addendum to the official communique. What did the SHCIL board do? Nothing; it meekly acquiesced. When asked this question, one board member merely bleated to us about how SHCIL has always been headed by an IDBI nominee. So what has changed after a scam of such massive proportions? Apparently nothing.

The Cover Up

The most telling part of the sham clean-up is that the same officials who were the chief lieutenants of the scamster duo remain firmly entrenched and continue to rule the roost at SHCIL. Given that the CMD is new to the organisation, they continue to pull the strings of management decisions. In fact, even Mr.Bansal relied heavily on these three individuals and argued that their cooperation was needed to get control of SSL and to carry on business.
The unwillingness to act and the many excusess trotted out for inaction are all the more shocking becuase top officials know that they would have certainly faced a vigilance inquiry if they were in government service. But in a quasi public sector undertaking where 86% of the shares are held by public sector entities, they are getting away scot-free.
SHCIL directors say that KPMG’s forensic audit report has been submitted to the management and was presented to the board. It is however not clear why no action has been initiated. Instead, an elaborate case is being made to the board on how several senior managers who collaborated with the scamster duo were blameless. SHCIL, in fact, requires a serious investigation into several management lapses.
  • For instance, why was the deal for acquiring the transaction processing and data centre at Vikhroli in 2005 for Rs 18 crore allowed to lapse? SHCIL has recently renewed the lease at eight times the cost after the Mehra family that owns the premises had asked it to vacate the premises.
  • Has anyone investigated the viability of SHCIL’s 185 branches as pure DP services? My sources say that at least 75 branches are not viable. 
  • Will anyone investigate why SHCIL had hired the apartment of SEBI’s whole time member, Mr.T.C.Nair for a guesthouse at Palghat and spent on the renovation when it had no business in that town? All that Mr.Bansal did is to scrap the guesthouse lease by releasing the premises. Is nobody accountable?
  • What is the status of the many entities with SHCIL as the prefix that were spawned during Jayaraman Iyer’s time? These include SHCIL Hannobe, SHCIL Value Solutions and the investment in G.K.Management Services. Each of these entities had friends of Iyer and Ramanathan as substantial equity partners and large chunks of SHCIL’s business was slowly being outsourced to them in a move aimed at debilitating the parent organisation.  
  • What action has been taken in connection with these entities now that SHCIL has wrested control over SSL? Sources say that the tie-ups are being quickly unravelled and the connections severed so that there is no investigation into the role of SHCIL’s senior officials who colluded with Iyer and Ramanathan. For instance, SSL has invested in G.K. Management Services India Limited (GKM), a Coimbatore-based company involved in back office operations in finance and accounting. L.Vishwanathan, a key executive of SHCIL, was a nominee director of SSL in GKM and attended their board meeting while being CFO of SHCIL. SHCIL’s HR and payroll processing database were outsourced to GKM.  

By Sucheta Dalal

-- Sucheta Dalal