Sucheta Dalal :SHCIL Scam The Next Stage
Sucheta Dalal

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SHCIL Scam, The Next Stage  

Jul 15, 2007

The new management moves the Company Law Board, alleging fraud

In our previous issue, we pointed to a major scam at Stock Holding Corporation of India being perpetrated by the top management right under the nose of nominees of major financial institutions like IDBI, ICICI and, of course, regulators Securities and Exchange Board of India and Bombay Stock Exchange. After a halting process spread over many weeks, a new management, led by RK Bansal of IDBI, took charge, suspending the earlier top brass. But Bansal & Co. took a while to act and even took off on a wrong direction - giving responsibilities to employees who ought themselves to be under investigation.

But now, appropriate legal action has been initiated. The new management at SHCIL has filed a petition under Section 237 (b) of Companies Act, 1956 against SHCIL Services Ltd. (SSL) and its various directors including

R Jayaraman Iyer, chairman (also chairman and MD of SHCIL) and

S Ramanathan, CEO. SSL was launched by SHCIL to take up broking, portfolio management, etc. But about two years ago, the top brass of SHCIL and SSL colluded to sell the company first to an unknown entity called Nilanchal Capital (P) Ltd.

Subsequently, the shares allotted to Nilanchal were turned over to certain individuals. The board was in the dark, alleges the petition of the new management at SHCIL. Some shares of SSL were also allotted to Singapore-based foreign companies through the foreign direct investment (FDI) route. The management control of SSL passed into private hands. SHCIL was left only with 24% stake. All this was done with brazen disregard for corporate law and procedures. As the petition alleges, “the entire process of dilution including allotment of shares... through the FDI route was done in a fraudulent manner”. What was the official reason for making SSL a privately held company? Apparently, the scamsters argued that, being a broking company, SSL will have to abide by the rules of the exchange; the National Stock Exchange rules specify that at least 51% of a broking company must be in private hands. Apart from the fact that this was a lie, SSL is actually a member of the BSE and not NSE! And BSE authorities have generously given SSL office space because of its institutional linkages.

The petition also alleges that SSL acquired Unitec Value Solutions Pte Ltd., a Singapore-based company “to further their fraudulent and illegal activities, in order to systematically defraud the petitioner (SHCIL) and its stakeholders who are Public Financial Institutions like Banks, Insurance Companies etc.” According to the petition, SSL, under the new undisclosed private ownership was also operating “as a competitor to the petitioner  by cross-selling products, which are being marketed by the petitioner. The entire scheme was premeditated and was done by virtue of misuse and abuse of power and position of Respondent no. 2 (Jayaraman Iyer) being in the position of CMD of the Petitioner and also Respondent no 3. (S Ramanathan), holding the position of EVP and Advisor with a view to cause wrongful loss to the Petitioner and wrongful gain to the Respondent Nos. 1 to 8.”

The petition asks for some redressal from the Company Law Board. But interestingly, this is a case of fraud and cheating and shouldn’t the SCHIL top brass have a filed a criminal complaint against SSL officials with the police? Will that be the next step? Meanwhile, regulators, who rail about manipulation in public, are silent.

The petition asks for some redressal from the

 Company Law Board. But, this is a case

 of fraud and shouldn’t the SCHIL have a

 filed a criminal complaint against SSL

officials with the police?








Appeared in :

ISSUE 34 – 21 JUNE 2007 of MoneyLIFE

-- Sucheta Dalal