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The curious case of Mr Tayal PDF Print E-mail
Monday, 19 May 2003 00:00
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The new charges may be fake, but he’s been accused of diverting Rs 300 crore from group firms, and paying Rs 58,000 to regularise it!

Bank of Rajasthan chairman Pravin Kumar Tayal may well be right when he says that the latest case against him, in which he was arrested last week, has been instigated by business rivals, the Bangars, who were the previous promoters of the bank.

 

For the case, at least on the basis of newspaper reports, does look weak. It is an eight-year old case of alleged non-delivery of shares by a Tayal firm, but Tayal says the party never paid the full money anyway — it is, also, surely curious why such an old case should come up now.

 

But what’s worth paying attention to, is what Tayal said to the press after he was released on bail. He said this was an attempt by the Bangars to pressure him because he was trying to recover the Rs 300 crore they owed the bank.

 

Three hundred crore! How were promoters of a bank allowed to lend such sums to themselves, and what level of scrutiny was conducted for the loans – after all, the funds in the bank were deposits of the common public? Makes you wonder, doesn’t it, if the system was so porous then, how do we know it won’t happen again?

 

The thought, by the way, doesn’t emanate from just an idle mind, it has a lot to do with Tayal’s chequered past, and the completely cavalier manner in which the country’s investigative/regulatory bodies have handled the case.

 

The Tayal affair begins in 1998, when the finance ministry’s Central Economic Intelligence Bureau (CEIB) found prima facie evidence that over Rs 300 crore had been diverted from various Tayal group firms — Shree Krishna Polyester, Shree Krishna Petroyarns, and so on.

 

Essentially, the money had been lent to group firms for no apparent reason, and these firms in turn lent the money to other firms who then bought shares of the Bank of Rajasthan — these firms then gave proxies in favour of Tayal who became the bank’s chairman. Around Rs 169 crore were even lent to various Tayal family members.

 

By way of proof, the CEIB showed annual reports of various Tayal firms, matched records of the proxy-forms with those of Tayal’s employees who never earned anywhere near enough to justify their purchases of Bank of Rajasthan shares worth lakhs of rupees, and so on.

 

At the CEIB’s insistence, the financial institutions that had lent money to Tayal firms got a special audit done of some Tayal firms. This showed the same result — that by 1997-98, Krishna Petroyarns and Krishna Polyester had lent Rs 210 crore to group firms for no good reason.

 

Group firm Ambica Chemicals, for instance, was lent Rs 160 crore by other group firms for ‘share applications’, but the shares were never even delivered to them.

 

The CEIB details, the audit report, they were all sent to, among others, the Reserve Bank of India which is in charge of banks, and the Department of Company Affairs (DCA) since the charges pertained to siphoning off of funds from companies. Guess what happened? The DCA fined Tayal the princely sum of Rs 58,000 and ended the matter right there!

 

You see, under the law, various ‘omissions’ by companies — like, say, excess investments in group firms — can be ‘compounded’, or regularised on payment of a fine.

 

So, for instance, in the case of Krishna Knitwear Technology which invested Rs 46.4 crore in buying shares of group companies, the company said it was done ‘inadvertently’ and was ‘unintentional’ and “hence we request you to kindly take a lenient view”.

 

So that’s precisely what the Department of Company Affairs did. It never bothered to see why the funds were invested, or what purpose they were put to. While such detailed investigations are not possible all the time, given the severity of the charges, surely this needed to be done?

 

The Department of Company Affairs, interestingly, decided to take this course of action despite its own officers recommending that the Tayal management be removed.

 

Indeed, the Mumbai regional directorate of the DCA even asked for permission to ask the Institute for Chartered Accountants of India to take action against the auditors who certified false accounts of three group companies, but the DCA sat on this request.

 

With the matter closed by the DCA, when I spoke to Tayal about this last year, he dismissed the charges as instigated by his business rivals, and said “the Registrar of Companies has completed the investigation and their report is complete and satisfactory.” Quite piqued, I marched to the then DCA secretary V.

 

Govindrajan’s office and quizzed him about it. What can we do, he ducked, the law allows such offences to be compounded, and prescribes very low penalties.

 

Okay, I tried a different tack, how serious is the crime if you’ve charged Rs 58,000 to compound the offences — are the violations merely technical in nature — I asked him. “Very serious”, was the reply. Imagine that. The charges are ‘very serious’, but the same man is entrusted with a bank.

 

The Reserve Bank of India, to be fair to it, did exhaust all avenues before clearing Tayal’s bank chairmanship. It wrote letters to the DCA on the CEIB charges, and when the DCA compounded the matter, the RBI went ahead and okayed the change of guard at the Bank of Rajasthan.

 

Maybe it’s time now for it to do a detailed audit of the bank. There are too many charges floating around for them to be dealt with in the casual manner of the past. The RBI owes this to the Bank of Rajasthan’s depositors.

 

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