Sucheta Dalal :Serious frauds office investigates SHCIL
Sucheta Dalal

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Serious frauds office investigates SHCIL  

Aug 15, 2007

Serious frauds office investigates SHCIL


By Sucheta Dalal


15 August 2007: The clean-up action at the beleaguered Stock Holding Corporation of India (SHCIL) is proceeding on two fronts – the company itself is trying to move past the many dubious activities of the previous CEO R.Jayaraman Iyer by undoing his many decisions to alienate most lucrative of aspects of its businesses into a series of private companies. (click under SHCIL for more); on the other hand the Serious Frauds Investigation Office (SFIO) will start its own probe into SHCIL on August 16, in addition to the low key and on-going investigation by the Central Bureau of Investigation (CBI).

The SFIO is attached to the Ministry of Company Affairs (MCA), which often does not see eye-to-eye with the capital market regulator. It is interesting that SFIO has launched an investigation, while the Securities and Exchange Board of India (SEBI) has done nothing more than send out some desultory queries to SHCIL, when at least three of its key business activities are regulated by it.

To recap, the turmoil at SHCIL has been over the large e-stamping contract that it has bagged in several Indian States. Ironically, electronic stamping has been touted as effort to eliminate fraud in the use and issue of stamp paper, in the wake of the multi-thousand crore fake stamp paper scam (Telgi scam).

Instead of working towards creating a scam free system, SHCIL’s former CEO embarked on a series of dubious moves to divert profits from the e-stamping contract to SHCIL Services Ltd (SSL) and its wholly owned subsidiary based in Singapore called Unitec Value solutions. Jayaraman Iyer, along with his fellow conspirator S.Ramanathan achieved this by surreptitiously diluting SHCIL’s holding in SSL (once a wholly owned subsidiary)  to a minority through the clandestine induction of two private individuals and a Singapore based entity as substantial shareholders.

The plan was thwarted when the Prime Minister’s Office (PMO) ordered the removal of Jayaraman Iyer around the middle of April and asked IDBI, one of SHCIL’s largest shareholders to take charge. The SHCIL board, which had allowed its wholly owned subsidiary to slip out of its control tried to regain lost ground. IDBI Chairman V.P.Shetty deputed Mr.R.K.Bansal, its Chief General Manager to take charge at SHCIL.

Four major actions by Mr.Bansal have been – to order a forensic audit by KPMG, which is due sometime this month; a complaint before the Company Law Board regarding the alienation of SSL, which allowed the parent to get control over its shareholding; attempt to buy back the private shareholding of some of the individual who were given shares in SSL and finally acquisition of control Unitech, the Singapore subsidiary of SSL (for more on this check the next article).

However, a clean up by SHCIL alone is not enough, because it does not provide adequate checks and balances. We learn from reliable sources that there is a serious attempt to dilute the KPMG forensic audit to let off senior SHCIL officials who where party to all the dubious contracts by the previous management. Almost all of them continue to play an active role in the current management.

Strangely, since SEBI has taken no action, only an independent investigation by SFIO or the CBI would be in a position to pin down responsibility and provide a fair report. This is especially important, because even today, there are senior officials at SHCIL who are ready to do deals to sell official documents. Even the present management under Mr.Bansal remains clueless about their influence, or the activities of some institutional shareholders of SHCIL. Moreover, IDBI itself has a new chairman in Yogesh Agarwal and he probably is not fully informed about the SHCIL scam.


-- Sucheta Dalal