Stock Holding Corporation of India Ltd (SHCIL) has now petitioned the Company Law Board (CLB) seeking an investigation into SHCIL Services Ltd (SSL) — once its wholly owned subsidiary. In the last several weeks, we have exposed how SSL was virtually filched by SHCIL’s own chairman, right under the nose of the board of directors. The CLB petition, under section 237(b) of the Companies Act, explains how SHCIL’s shareholding was diluted through “clandestine and fraudulent” allotment of shares to outsiders. The actions are especially brazen because public financial institutions, banks and insurance companies hold 75 per cent of SHCIL, India’s largest custodian company. The petition before the CLB names R Jayaraman Iyer, its former chairman and managing director (CMD) who has been sent on compulsory leave, and S Ramanathan, SSL’s CEO, as the main respondents. The Singapore-based foreign shareholders have also been named in the petition, which outlines for the first time the dubious manner in which SSL’s shareholding was alienated.
The dilution of SHCIL’s shareholding in SSL began by allowing a private company called Nilanchal Capital to infuse Rs 15 lakh into the company. The shares allotted to Nilanchal were subsequently transferred to several individuals. This was done under the false pretext that the National Stock Exchange (NSE) required 51 per cent of the shareholding to be held by individuals when, in fact, SSL is a broker on the Bombay Stock Exchange (BSE), which has no such rule. Jayaraman and Ramanathan, through systematic “abuse of power”, used the foreign direct investment (FDI) route to allot shares to Singapore-based entities in a “clandestine and surreptitious” manner. This marginalised SHCIL’s control, but it wasn’t evident because there was no overt change in management. The petition raises some doubts about the antecedents of foreign shareholders who were “fraudulently” allotted shares — we reported this several weeks ago. SSL also acquired Unitec Value Solutions Pte, a Singapore-based company which is “being clandestinely used as a conduit for fraudulent activities”. We had earlier reported that a Singapore-based entity called E-ventures Capital Pte holds a substantial 33 per cent stake in SSL; the petition provides additional information and says that E-ventures also holds 18,86,250, 7 per cent non-cumulative convertible preference shares in SSL. Together this will give it virtual control over SSL. Interestingly, some government investigation agencies already have evidence about the suspect background of E-ventures.
When SHCIL bagged the prestigious e-stamping contract, it hired Crimson Logic, a well-known Singapore-based company, as the technology vendor. At that stage, Jayaraman Iyer “defrauded” SHCIL by splitting the contract with Crimson Logic and unnecessarily routing it through SSL and its 100 per cent subsidiary Unitec Value Solutions. So SHCIL signed an agreement with Unitech and Unitech, in turn, signed the technology agreement with Crimson Logic. SHCIL’s petition says that Crimson Logic was originally to be paid $5million, but this was doubled to $10 million while splitting the contract and a hefty royalty of 4 per cent was additionally charged on SHCIL’s net revenue. The petition calls the dealings a “clandestine conspiracy to transfer funds out of India” in foreign exchange to the benefit of a few individuals. If all this weren’t bad enough, the petition says that R Jayaraman Iyer received a monthly remuneration from SSL without informing the SHCIL board, where he was CMD. Simultaneously, he made Ramanathan (CEO of SSL) an advisor and later sr vice-president of SHCIL, ensuring complete control over both entities and obfuscating their activities. The petition openly alleges that Jayaraman and Ramanathan probably had other sources of income that need to be investigated. Finally, it charges what we have already disclosed earlier — that SHCIL’s infrastructure was being utilised by SSL with impunity and without appropriate compensation and causing losses to the parent entity. The brazenness of SHCIL’s CMD in defrauding a public sector company under his management is probably unparalleled in recent decades. The fact that Iyer and Ramanathan were extremely close to the Sebi brass arguably provided them additional credibility. KPMG has now been assigned the task of unraveling all their dubious contractual arrangements, quantifying the loss to SHCIL and checking the antecedents of all entities who were allotted SSL shares.
Chairman Ramesh Gelli’s indiscriminate loans to Ketan Parekh and his bunch of crony industrialists were large and reckless enough to destroy Global Trust Bank (GTB) during the scam of 2000. A shotgun marriage with Oriental Bank of Commerce (OBC), arranged by the regulator, salvaged depositors’ money. Last week we learnt how Ramesh Gelli’s bold but risky bet on Bangalore-based Avesthagen fetched handsome to OBC. Several years ago, Gelli gave a Rs2 crore loan to Villoo Morawala-Patell without any collateral to get her started. Later, when she got venture funding, the loan was converted into equity. Recently, Morawala-Patell bought back the shares in the still unlisted Avesthagen at a hefty Rs 475, netting Rs 14 crore for OBC.