Sucheta Dalal :Scam at SHCIL!
Sucheta Dalal

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Scam at SHCIL!  

Jul 15, 2007

Senior employees hijack a publicly-owned institution in a daring heist as regulators and shareholders sleep!


Stock Holding Corporation of India (SHCIL) has always been viewed as a quasi-government company. Its shareholders are IDBI Bank, IFCI, SUUTI, the four government-owned insurance companies and ICICI Bank. You would expect at least minimal governance at SHCIL. Instead, its officials have been engaged in dubious deals or daylight robbery of its assets, while shareholders and regulators look the other way.

Of course, scams are not new for SHCIL. It was deeply involved in financing of a Kolkata broker during the Ketan Parekh scam in 2000 leading to the arrest of its former Chairman & Managing Director (CMD) while several senior officials were charge-sheeted. Many of these officials continue to hold senior positions at SHCIL.


Hijacking an Entire Company

The Stock Exchange, Mumbai (BSE) seems to assume that SHCIL Services Ltd (SSL), a brokerage firm, is a wholly-owned subsidiary of SHCIL. In fact, the SHCIL top brass has surreptitiously sold off 76% of the equity of SSL to private entities -- without the knowledge of SHCIL’s shareholders, which are all major financial institutions. The shareholding pattern of SHCIL remains a closely guarded secret. Our investigation shows one Vaishnav & Co of Ahmedabad now owns 33% of the shares, E-Ventures Capital Pte Ltd of Singapore (33%) and Dr V Subramanian, a Hyderabad-based distillery-owner, has 10%. A legal notice by a Singapore-based shareholder alleges that these entities are fronting for SHCIL’s top brass.


Private Fiefs

Apart from hijacking SSL, SHCIL quietly spawned four new entities with shady private shareholdings in the past six months. SCHIL Hannobe Technologies Pvt Ltd, based in Kerala, was started by SHCIL Projects Ltd and two individuals - Pradeep Kumar Karunakarn (of Kerala) and Vishwanathan Lakshmnan. Laskhmanan, a SHCIL employee, was investigated in the scam of 2000. SHCIL Projects was registered on 10th August 2006, in Chennai. SHCIL holds seven lakh shares of the company; SHCIL Services holds 2.5 lakh shares and another 2.5 lakh shares are with GK Management Services (India) Ltd. SHCIL Value Infosolutions was promoted in August 2006, in Chennai, with T Kannan Jagan and Indira Jagan of Chennai as directors. They are listed as defaulters through their privately-owned company - Value Infosolutions.


The E-stamping Scam

After the massive fake stamp scam (Telgi scam) came to light, the government decided to launch electronic stamping of revenue documents. The size of the business? Around Rs50,000 crore a year. SHCIL bagged the mandate to become the Central Record Keeping Agency. IFCI, which has a 16.9% stake in SHCIL, was a project consultant. R Jayaraman Iyer, the CMD of SHCIL, contacted CrimsonLogic PTE Ltd, a reputed government-linked company of Singapore, through a consultant Ramaswamy Ravindran. A five-year technology deal was struck. However, Ravindran, a Singapore intermediary and former director of SSL, alleges in his legal notice that Jayaraman Iyer and S Ramanathan CEO of SHCIL Services Ltd “with an ulterior motive to get a kickback from the foreign supplier with a total fraudulent intention to cause loss and to commit fraud upon the Government of India put up a middleman and requested CrimsonLogic PTE Ltd. to enter into a contract with Unitec Value Solutions PTE Ltd. (UVS)”. UVS is a shady Singapore-based subsidiary set up by SHCIL Services. Instead of a direct deal, the payment to CrimsonLogic was routed through UVS, although SHCIL no longer controls SSL.

Ravindran’s letter alleges that UVS is 80% owned and controlled by Jayaraman Iyer and S Ramanathan and their associates and friends through SHCIL Services Ltd. Why bring in UVS? Ravindran alleges that it was done to inflate the contract, expand the terms to all SAARC countries and skim off money. Who owns UVS on paper? The majority of shares are held between Padma Subramaniam and Gopika Vaishnav, and allegedly one Andrew Quek through E-Ventures, Singapore. The similarity with SSL shareholding is evident. Interestingly, Iyer and Ramanathan are playing for big stakes. Under the agreement between CrimsonLogic and UVS, the latter has the right to implement e-stamping in India and also in Myanmar, Bangladesh and Bhutan and other countries.

Ravindran, a former parliamentarian in Singapore, alleges that Iyer, Ramanathan and SHCIL, instead of, compensating him for professional services, enticed and induced him to accept directorship in SSL and also promised to allot him some shares. Since then, he has been removed from directorships, but after The Indian Express reported the scam, Ravindran says that the SHCIL brass had back-dated documents to reinstate him.

Ravindran directly alleges that both the e-stamping business and broking business would be ultimately controlled by Jayaraman Iyer and Ramanathan privately. So, right under the noses of SHCIL’s institutional owners and its first line regulator, the BSE, and market regulator SEBI, which pretends to catch scamsters to the drum roll of the media, the e-stamping business would have been controlled by privately-held UVS of Singapore and the broking business through privately-controlled SSL, even though both get 100% of their businesses due to SHCIL’s image as a quasi-government entity.


Who Regulates?

Ravindran has sent a copy of his legal notice (served through lawyers MV Kini) to all government investigation agencies, the Central Vigilance Commission, the Finance Minister and SHCIL’s institutional shareholders. The letter says, “The crime is apparent from the face of the record and people at the helm of affairs should not be allowed to go scot-free”. Yet, the BSE and SEBI have initiated no action in over six weeks.

However, after The Indian Express broke the SHCIL scam, IDBI Bank took charge and sent R Jayaraman Iyer on compulsory leave in the middle of April. We learn that the Prime Minister’s Office ordered the action. RK Bansal, a senior official of IDBI Bank, took charge as a whole-time director. On April 25, the SHCIL board met to take stock of the many dubious activities at SHCIL. Strangely, Bansal has put the two executive vice presidents - L Viswanathan and RH Mewawala, in charge of most activities. They are among the many officials charge-sheeted in the 2000 scam who had worked very closely with the previous management! All departments, including the company secretary, have been asked to report to this duo, despite their record.

Strangely, while these developments were being exposed, the crooked gang at SHCIL had a brainwave. On 6th April 2007, PVN Ramakrishna, a senior manager, was asked to detail SHCIL’s discussions with our marketing staff for the issue of two strip advertisements last year. The narration itself is bland and factual. However, apparently the SSL board was told that the expose of SHCIL’s nefarious dealings in The Indian Express by its columnist Sucheta Dalal was motivated by SHCIL’s refusal to continue advertising support for MoneyLIFE! The connection? Ms Dalal is also a consulting editor for MoneyLIFE, though without any business interest, whatsoever. Interestingly, almost simultaneously, S Ramanathan, the CEO of SSL, began to send text messages to the same MoneyLIFE executive opening a new conversation for advertisements. The presumption was that a few crumbs thrown our way would make us shut up, the way the regulatory top brass and other directors have been.

Delightfully for SHCIL, its top officials have been extremely close to the market regulator, while its e-stamping business is not under SEBI supervision. In fact, the government has not even figured out who will regulate the large automation contracts such as e-stamping, the tax governance network, etc, which have been handed out in recent years. Clearly, a regulator will be found only when there is a big scam. Remember how SEBI quickly got its regulatory teeth after the Harshad Mehta scam of 1992?


Appeared in

ISSUE 32 – 24 MAY 2007


-- Sucheta Dalal