Over the last three months I have been unravelling every new development at the Stock Holding Corporation of India Ltd. (SHCIL), India’s largest custodian and Depository Participant with over 130 offices around the country.
SHCIL has always had the propensity to get into trouble because its structure as a quasi-government body allows it to escape close scrutiny either by its board of directors or by central agencies such as the Central Vigilance Commission or the Comptroller and Auditor General.Refer to previous stories here
3.30 p.m. June 18, 2007
Kolkata police’s surprise arrests
In a sudden and surprise action, the Kolkata police revived their investigation into the Ketan Parekh scam of 2000, where it had charge-sheeted four officials and even arrested the then Chairman B.V.Goud.
Just after noon on Monday, the Kolkata police, along with the Mumbai crime branch officials are understood to have gone to the SHCIL office at Mittal Court B-Wing, just a floor above SEBI’s (Securities and Exchange Board of India) former office at Nariman Point and arrested the two previously charge-sheeted officials – Rohington Mewawala and Lakshamanan Vishwanathan. They were later produced before the Chief Metropolitan Magistrate.
In a nutshell, the case pertains to accommodation and financing of Kolkata broker Harish Biyani by SHCIL to the tune of Rs 32.4 crore at the instance of Dinesh Dalmia by pledging shares of DSQ Industries, which had almost no liquidity.
Inside source say that despite persistent follow up by the Kolkata police with SEBI as well as the SHCIL management, this case of 2000 was curiously stalled.
On 14 December 2005, B.Rajendran from the Integrated Surveillance Department of SEBI had informed the Kolkata police that its own investigations did not reveal any nexus between SHCIL officials and the Harish Biyani Group of Kolkata (a brokerage firm) or Dinesh Dalmia (chairman of DSQ Software, indicted for stock market manipulation and other charges). SEBI has however forwarded its findings to the SHCIL board as well as IDBI to take action as deemed fit. Interestingly, the relevant portion of the report admitted to “definite gross negligence and irregularities on the part of SHCIL officials”.
Obviously, the Kolkata police were displeased and in January 2006, the Deputy Commissioner of the Detective Department had expressed its reservations in writing to the SEBI Chairman. He is believed to have pointed to contradictions in SEBI’s internal investigation and pointed out that the premature clean chit by SEBI would prejudice the investigation.After the SEBI letter, the SHCIL management also commissioned a well know Chartered Accountant to conduct an inquiry and gave a clean chit to the officials. They continued to remain in senior executive positions since then and have been actively involved in many of the issues documented recently. While the two officers were arrested and taken to court, insiders again reveal that they may already have anticipatory bail in one of the cases.
R.Jayaramn Iyer resigns from IDBI
On 15 June 2007, R.Jayaraman Iyer is understood to have resigned from IDBI as well. As we have reported here, Mr.Iyer was sent on compulsory leave on April 15, 2007 as a direct result of our sustained exposure of his shenanigans at SHCIL, his role in floating of several unauthorised companies with the pre-fix SHCILand the attempt to divert 50% of the commission payable to Crimson Logic Pte of Singapore in connection with a technology agreement for the e-stamping project for which it was selected as the Central Record Keeping Agency. Iyer, say our source, was to be removed from the board of SHCIL at the EGM scheduled for June 20.
Despite the unravelling scam at SHCIL, market sources are surprised at the silence of the capital market regulator. Sources at both organisations attribute this to the close friendship between SEBI’s top officials with Jayaraman Iyer and S Ramanathan. We learn that the SHCIL had hired the home of SEBI’s whole time director Mr.T.C.Nair at Palghat, on the Tamil Nadu-Kerala border, as its guesthouse. SHCIL’s present management, which has drawn up a list of its many guesthouses around the country, finds that this accommodation was not needed or used, since SHCIL no business in Palghat.
When asked, Mr.Nair, in a written response confirmed that SHCIL had leased his house. He said, “They have hired it for Rs.5000/ from April 14, 2006 as the house is quite nearer to their office. I have, however indicated my intention to take it back from them as I am yet to make up my mind continuing with SEBI”. On pointing out that the guesthouse had not been used, he said, “have met this guy, Jayaraman Iyer, just once. The house was taken through SHCIL's southern office through my father in law who takes care of the house. I would be too glad to get it back as I am told that they have dug too many holes on the walls to fit airconditioners. Also, I would need this house as I may go back to Palakkad (Palghat) any time.In case you need any further information regarding this issue don't hesitate to contact me”.
At SHCIL’s board meeting on June 2, which was held under police protection, the board decided to drop a proposal to set up a securities market training institution at Tripura, where it has obtained 3.5 acres of picturesque land free of cost from the State government.Why would SHCIL want to set up a securities training institute at all? And why set up one at Tripura or even the North-East, when it has hardly any investor population.SHCIl’s new management found no justification for the move and decided to give up the land that was allotted as recently as 24 March 2007.Could the fascination with Tripura be the fact that SEBI Chairman M.Damodaran and his Executive Assistant are Tripura cadre bureaucrats. It is one way to curry favour with the regulator. In a written response on this issue, Mr.Damodaran told me, “The proposed setting up of the institute was not at my instance.I have no views on either the proposed setting up of an institute or the reported decision not to do so”.