Sucheta Dalal :Lending Names To Scams (24 February 2003)
Sucheta Dalal

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Lending Names To Scams (24 February 2003)  

Vinod Baid, who is currently in jail along with Keshav Bangur on charges of cheating Bank of Rajasthan, is an extremely colourful character. His ambitions surpassed those of C R Bhansali and one could describe him as the most successful exploiter of the Initial Public Offering (IPO) mania of 1992-95.

In those few short years, Vinod Baid’s flagship company Prudential Capital Markets was once listed as India’s top investment bank in terms of the number of issues handled (CRB Capital Markets had also enjoyed this dubious distinction in that manic phase). Baid’s story is about the successful exploitation of the IPO boom to create an industrial and financial empire spanning diverse industries. He acquired companies in the sugar business (Prudential Sugars Corporation Ltd), pharmaceuticals (Prudential Pharmaceuticals Ltd), Information Technology (Prudential Infotech Ltd), spinning (Prudential Spinners Ltd), banking (Sikkim Bank) and had also planned to set up a mutual fund through the acquisition of Hyderabad based Asia Pacific Investment Trust Ltd.

Today, the Central Bureau of Investigation (CBI) has registered five cases against him (in Sikkim Bank, Prudential International, Bank of Rajasthan and a couple of cases regarding forged shares and other shady dealing in Ahmedabad and Mumbai). He also has hundreds of recovery cases filed by depositors across the country and faces criminal proceedings initiated by the Reserve Bank of India (RBI) in the Sikkim Bank case.

Vinod Baid’s success was based on two flaws in the Indian corporate system that regulators are now trying to correct through the Securities and Exchange Board of India’s (Sebi) corporate governance committee and the Naresh Chandra Committee on audit and accounting standards set up by the Department of Company Affairs (DCA).

Let us start at the beginning. Vinod Baid’s flagship company Prudential Capital Markets made its first public issue in 1994, but the saga of his vaulting business ambitions was facilitated by three key factors. First, a powerful board of so called ‘independent’ directors that lent him legitimacy; second, an incredible web of 238 odd companies that allowed him to move money any way he wanted across firms and into new businesses and third, the backing of a powerful lady politician in keeping regulators at bay and finding new business opportunities.

His board had luminaries like Field Marshal Sam H F J Maneckshaw, Air Chief Marshal N C Sure, former chief of the CBI, Vijay Karan and others including R S Chowdhary. Most of these directors resigned in 1997-98, but by then Baid had exploited their names to float new companies, raised fixed deposits through 60 branches in different states and diverted the money to fund other businesses. Today, the directors continue to be harassed by cases filed in various courts and according to R S Chowdhary, some of them have got together to try and force Baid to pay up his dues.

One has little sympathy for decorative directors who lent their names and reputation to Baid without attempting to find out about his shady business dealings. Yet, their attempts at getting him to repay depositors and creditors, mainly to end their own harassment is interesting because of their claim that he still has assets of over Rs 300 crore that have been built through funds diverted from other businesses. R S Chowdhary, a Non Resident Indian who apparently operates out of China, says that Prudential Sugars has assets of Rs 150 crore and Baid’s pharmaceutical company inaugurated a third unit in Andhra Pradesh just over a month ago. Although Baid is originally a Kolkata-based businessman, he had shifted his base to Andhra Pradesh and his recent industrial ventures are all located there.

Baid’s innovative use of investment companies is also interesting. Most of these have been traced by RBI inspectors and RBI-appointed auditors as part of their investigation into the Rs 60-odd crore diverted to his group from Sikkim Bank and have turned into non-performing assets (NPAs). The RBI is still trying to check whether all or any of Prudential group’s celebrity directors were aware of the conflict of interest when the bank sanctioned the loans.

The names of investment companies used by Vinod Baid for diverting funds are equally innovative. Most of them have the ring of reputed international companies. The name Prudential itself is perfect for creating confusion with the global financial and insurance company that has a tie up with ICICI Bank. Baid has 61 companies registered with the Prudential prefix and they cover businesses in power, paper, investment, infotech, housing finance, home finance, asset management company, tea exports, venture capital, securities, stock broking, sugar, spinning, cement, leasing etc. There are half a dozen companies each with the prefix, Asia Pacific, Mercury, AMI, Global, Prime, Pioneer, and Discovery. The range of businesses they cover include the entire gamut of financial services and even an Asia Pacific Airways. A couple of hundred companies have assorted names. But take a look at some of these names: Giltedge Suppliers, Gilt Edge Mercantile, Fleeting Deal Commercial, SIFCO, East Coast Marketing, Classic Asset Management and Magnum Enterprises. Many of these names, are bound to be confused with other groups with similar names. Most of the companies are registered in West Bengal and raise questions about the role of the Registrar of Companies (ROC) in facilitating Baid’s plans.

A detailed analysis of the diversion of funds in the Sikkim Bank investigation shows that loans were sanctioned to a Baid group company, diverted in two stages through his many companies and routed back to one of the core companies. Investigations have revealed that Ketan Parekh and his cohorts employed a similar strategy in diverting money from Global Trust Bank.

In fact, the Joint Parliamentary Committee (JPC) investigating the securities scam of 2001 has noted in its report the ingenious ways in which companies transfer funds in order to manipulate the stock market. Sebi too had made several suggestions to the JPC for preventing the proliferation of such shell companies. It has asked for restrictions on floating new companies and a revision in the rules of the ROC and other statutory bodies to introduce adequate verification of details furnished at the time of registering new companies. It also asked for an annual declaration by companies about floating subsidiaries and quarterly disclosure of their investments. The JPC said that these suggestions from the capital market regulator merit urgent attention and follow up action by the government. But there is hardly any action to suggest that these issues will be taken care of anytime soon, or that they would find mention in the first action taken report submitted to the Parliament.

-- Sucheta Dalal