You want to know why, even before a scamster like Harshad Mehta takes his final bow, a Ketan Parekh takes his place on the stage? The answer lies is the complete complicity of the authorities concerned — since they don’t ever get punished, they’re in a position, almost at will, to encourage another Harshad to come up from time to time. Take this newspaper’s expose a few days ago on how the infamous stockbroker-turned-dotconner Home Trade Limited got the all-OK from the Bombay Stock Exchange (BSE) just days before his bubble burst, and you’ll see what I mean. Or take the completely cavalier investigation into the Rs 300 crore of funds diversion by the Tayal Group — also exposed in this newspaper yesterday — and you’ll see what I mean.
The Home Trade story first. Sanjay Agarwal’s Home Trade was denied a listing on the BSE in 1999, after which it got listed on the relatively minor Pune Stock Exchange. While it did well here, and managed to rig its Rs 2-share to highs of Rs 173 last year despite having no real turnover or profits, this wasn’t good enough. For it to hit the big time, it needed a BSE listing, and it applied for one last year. The matter came up before the BSE’s Listing Committee where the sole representative of ordinary investors violently opposed it. He pointed out that the BSE Listing Department’s own research showed just how big a fraud Home Trade was.
The research department note, for instance, showed how almost all the firm’s turnover came merely trading in the shares of its own group companies, and selling them to other group companies at artificially-high prices. In one case, for instance, Home Trade sold the shares of its group firm Ways India to EDTV (which in turn is Home Trade’s founder) at Rs 19.75 a share. Two-thirds of these were then bought back by Home Trade at Rs 10 each, and then sold to un-named ‘strategic investors’ for Rs 300 each!
Similarly, the investors’ rep pointed out that during the period when Home Trade’s stock really went up in the first half of last year, almost all the trading of its shares on the Pune exchange was between the same set of brokers — a clear sign that the scrip was being rigged with fake trading being done to push up the price.
All this was brought to the notice of the Listing Committee headed by Justice D.R. Dhanuka, but the committee just steamrolled ahead. When the protests continued, the matter was resolved by referring the Home Trade issue to the BSE’s Governing Board, also headed by the same Justice Dhanuka. And, on April 19, the BSE board cleared the listing. Can you believe it? Lakhs of investors have burnt their fingers investing in dud companies, merely by assuming that since the firms were listed on the country’s stock exchanges, someone must have investigated them. Well, here’s a case of it being clearly pointed out, with back-up documents, that the company is dubious, and the premier stock exchange’s board still brazenly rushes in to back the company’s claims.
Or take the case of the Pravin Kumar Tayal group of companies that have been accused of siphoning off Rs 300 crore, and using this money to lend to a series of related companies that then used the funds to buy shares and gain control of the Bank of Rajasthan, so that Tayal could then become its chairman. All these charges were made by the Central Economic Intelligence Bureau (CEIB) which traced the flow of funds in a few cases. These were then handed over the Department of Company Affairs (DCA) for investigation.
The DCA’s inspection reports clearly showed the money had been transferred from group companies to other firms. Now, given the backdrop of the CEIB’s charges, one would think the DCA would have probed a bit further. Where did the money go from Company A after it was given to Company B? Did B in turn lend it to C who, as the CEIB alleged, lent it to Tayal associates and family members who then used this to buy shares of the Bank of Rajasthan? But no, the DCA doesn’t do any of this. It merely says that since the company has lent excessive money to group firms, these can be ‘compounded’ under the law, and so various Tayal firms pay the princely sum of Rs 58,000 as a fine to regularise the matter. Rs 58,000 and they’re home free, with no one investigating into what they did with the Rs 300 crore that clearly flowed out of several group firms.
The Reserve Bank of India, to be fair, did ask the DCA to verify the CEIB charges — after all, you can’t give a man of dubious character the control of a bank. But the DCA did its criminally-cavalier investigation, said there was no problem and closed the matter. So why’s the DCA now admitting there’s a problem and re-opening the matter? Who is to be held responsible for this?
Complicity of those in charge, such as in Home Trade’s BSE listing, is why scams keep happening
No one. There can be a BJP government at the Centre, or there can be a Congress one, or even a khichdi one, it doesn’t matter. The ‘system’ has become independent of the ruling party, and will continue to spawn different mutations of Harshad Mehta from time to time. Let’s learn to live with it.