Sucheta Dalal :Cover Up At SHCIL
Sucheta Dalal

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Cover Up At SHCIL  

April 7, 2008

Cover Up at SHCIL


There is hectic activity at the Stock Holding Corporation of India Limited (SHCIL) these days; but none of it involves any effort to nail those involved in the attempt to loot the organisation and scoot with its wholly-owned subsidiary SHCIL Services Limited (SSL), as we had highlighted in our cover story “Loot and Scoot” (MoneyLIFE 5 July 2007). The effort is probably to bury the scam. A few weeks ago, in a surprise move, R.K. Bansal, the man sent on a fire-fighting assignment to straighten things up at SHCIL after the prime minister demanded some action, was yanked back to where he came from, IDBI Bank, probably against his wishes. IDBI argued quite ingenuously for his return. Bansal was ostensibly needed because IDBI Bank desperately wanted a chartered accountant as chief financial officer (CFO) after the previous incumbent left to join the BSE. Not only Razdan's selection but his elevation to replace Bansal is also a mystery. An IDBI Bank communiqué initially announced that he would replace Bansal as the whole-time director; but in a matter of hours, a pliant SHCIL board was convinced that it must not only let Bansal go immediately, but that Razdan should be the chairman and managing director.


Clearly, no lessons have been learnt from the shenanigans of R. Jayaraman Iyer who, working with several co-conspirators, had found several ways to skim SHCIL. He had diluted SHCIL to a minority position in SSL which was set to siphon off half the fees payable to CrimsonLogic, a Singapore-based technology provider for the e-stamping operation. He had also created a set of entities with the prefix SHCIL to which he was outsourcing some of SHCIL’s core activities. Bansal did manage to get SHCIL back into the driver’s seat, but somebody fairly high up probably decided that he was being too efficient.


Business As Usual at Scam Company

new CMD, Razdan clearly believes that it is time to move on. He called in a couple of journalists to inform them that SHCIL had received a mandate for e-stamping legal documents from the Maharashtra and Delhi governments; and, with 11 other states under its belt, it hopes to get 75% of India’s e-stamping business. Are people forgetting that over Rs30,000-Rs40,000 crore of stamp paper is sold in the country annually and only a squeaky clean organisation should get the job of converting it to the electronic mode? Certainly, this business cannot go to one that is under investigation by the Serious Frauds Investigation Office (SFIO) and the CBI. Also, SHCIL hasn’t even completed an administrative clean up or acted on KPMG’s forensic audit report.


Can the government assure us that a scam will not recur when we haven’t even seen any sign that the board has turned more alert? What is the fate of SHCIL Value Solutions, SHCIL Projects, SHCIL Hannobe and G.K. Management Services and their joint venture partners who were friends of Jayaraman Iyer? Has any state government demanded an IT security audit or risk review before entrusting the highly sensitive e-stamping operations to SHCIL? IDBI chairman Yogesh Agarwal, who says it was his decision to recall Bansal and install Razdan, says that he will ensure that the guilty are punished. He also agrees that combining the post of chairman and managing director leads to a concentration of power. The irony is that the posts were always separate; and Jayaraman Iyer, who perpetrated a breath-taking fraud, was the first person to hold the combined post.


Bark, Bite, Splice and Change

SEBI chairman, M. Damodaran, likes to plan headline-grabbing sound bites at important public meetings, but that strategy is getting rather ragged. At the end of September, Damodaran told Merrill Lynch executives how he had issued a ‘show-cause notice’ to 20 large companies that had failed to meet corporate governance regulations. Calling his action a ‘crackdown’, he claimed that it was prompted by criticism that the regulator had “barked long enough, but was unwilling to bite”. To our mind, a show-cause notice to 20 un-named entities is not even a bark. It is just a little ‘woof’. After all, it is a year and a half after the extended compliance deadline has lapsed (extended by Damodaran himself in one of his first tasks as the regulator). Worse, around six months ago, HDFC chairman, Deepak Parekh, had openly challenged the regulator by pointing out that “over 40% of listed companies are in breach of Clause 49 regulations that require half their boards to consist of independent directors”. It has taken SEBI another six months after this public embarrassment to pick 20 companies for disciplinary action, but it still does not dare to name them. Is it because the biggest offenders are public sector entities and action against them would mean indicting the government? Interestingly, a show-cause notice now would ensure that the regulator does not have to bite. After all, Damodaran completes his three-year tenure in February, just five months later. But why start barking on a subject, when your canines are not looking firm?


Giddy Journalism

With the Sensex zipping up to 16,000 and beyond at record speed, the media was clearly running out of celebratory stories. After all, how many times can you write about stock movements, when everyday is a record high for the index? So one enterprising reporter got creative and dug up Madhukar, the man who left the regulatory body red-faced in 2005 and had politicians baying for his dismissal. As a whole-time director of the Securities and Exchange Board of India (SEBI) then, Madhukar got so carried away in his speech at the Bombay Stock Exchange (BSE) that he forgot all propriety and predicted that the Sensex would touch 16,000 in the calendar year. That was on 19 August 2005 when the Sensex was 7,780 and the market volatile. Two years later, when accelerated economic growth and massive global portfolio investment have propelled the Sensex past 16,000, the breathless business press is calling Madhukar a desi Nostradamus’. His prescience has been hailed by the Indian Express 19th July), The Hindu and The Economic Times, which described him as “the man who saw tomorrow” . Aren't there any editorial check-posts anymore to weed out such nonsense? If the media does not understand that a regulator can never be a cheerleader for vaulting indices, let alone make such outrageous prediction, what is the chance that they will even spot the more subtle and sophisticated plants from the corporate sector?

-Sucheta Dalal

-- Sucheta Dalal