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BUSINESS: TATA FINANCE
FRAUD
Circle Of Deceit
TFL alleges its top executives recycled funds to
its subsidiary to inflate profits and mislead investors
The season
of finance frauds shows no sign of receding. After the stock market scam
and the UTI crisis now it is the Tata Finance Limited (TFL), one of the
most trusted non-banking finance companies which is under a cloud. In
the dock are former TFL managing director Dillip Pendse and former chairman
of TFL subsidiary Niskalp Investment and Trading Company J.E. Talaulicar.
Five senior executives were dismissed for helping Pendse cheat the investors
and fudge accounts. The Tatas also lodged a complaint with the Mumbai
Police charging Pendse and his associates of diverting over Rs 400 crores
from TFL as inter-corporate deposits (ICDs) to Niskalp that was used to
play the stock markets, which resulted in heavy losses.
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CHARGES
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# Diverted over Rs 400 crore from TFL to Niskalp through ICDs.
# Invested Rs 89 crore in highly volatile stocks through dubious
deals.
# Cheated investors of Rs 1.47 crore in March 2001 rights issue.
# Forged papers to show false profits in Niskalp balance-sheet.
# Concealed Niskalp losses by routing Rs 25 crore from TFL and
reversing it as subscription to TFL shares.
# Misled the board of directors and did not comply with RBI guidelines.
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FALL GUY: Financial whiz kid Pendse is now the villain of
the piece
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DEFENCE
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# TFL Chairman Freddie Mehta and board members were told about
the Niskalp transfers on October 21, 2000.
# The board discussed the transfers threadbare on October 30,
2000.
# Mehta painted a rosy picture at the November 22, 2000 AGM when
he knew of the heavy losses suffered.
# Niskalp's exposure of Rs 225 crore to ICE stocks was recorded
in the account books.
# It was the board which took the decisions, not any one executive.
# NOW The dry bed after builders drained the lake for cultivation
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CLEAN-UP ACT: Busy mending TFL image, Chaukar denies knowledge
of the deals
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The unusually harsh measure is just the beginning
of operation clean-up at TFL and its subsidiaries to renew the trust of
its 4.5 lakh investors. Admits Kishor Chaukar, TFL director: "The
company's reputation has been dented. We have taken legal action to take
the matter to its logical end."
But the end is nowhere in sight as more skeletons
tumble out of the TFL boardroom. It began in March with the Securities
and Exchange Board of India (SEBI) charging Talaulicar of insider trading.
He sold his personal holding of one lakh TFL shares, knowing fully well
that it would take a beating in the stock market once Niskalp's losses
become public.
SEBI suspects that Talaulicar had transferred
Rs 70 lakh from Niskalp to sub-broker JIP Investments and sought a sale
contract back-dated to September 6, 2000 when the share price was Rs 69.
The cheques for sale proceeds were dated March 30, 2001, when the price
was around Rs 35. On the same day the Niskalp rights issue opened. Following
this exposure, Talaulicar had to resign from the boards of TFL and Niskalp,
and the Tatas launched a damage-limiting exercise.
In May, more fraudulent dealings came to light
after Pendse left the company, but were perceived as "common stretching
of system" to be sorted out internally. However, when an in-house
inquiry revealed that these were serious lapses, the Tatas brought in
audit firm A.F. Ferguson. Its report, submitted in May, was an eye-opener.
Says a Tata spokesperson: "The real picture was deliberately misrepresented
by some TFL executives to misguide the management and investors."
It is estimated the bail-out for TFL may be as high as Rs 450 crore. Niskalp
had sustained heavy losses on its investment in ice stocks-Pendse had
been instrumental in increasing the exposure from Rs 230 crore in March
last year to Rs 502 crore in March 2001-but it showed a net profit of
Rs 52.7 crore and it announced a 155 per cent dividend for 1999-00. But
both the profit and dividend figures were misleading as TFL holds 95 per
cent of Niskalp's equity and the Rs 38-crore dividend pay-out was just
TFL money returned to it through a series of book entries. Pendse is alleged
to have mastered the art of circular deals. These transactions were financed
through 10-day overdrafts from Bank of India and HDFC Bank. The overdrafts
were also used to repay ICDs-mere book entries in the Niskalp and TFL
accounts in these banks.
The TFL board members plead ignorance of these
activities, but Pendse's version is different. "All the decisions
were taken with the consent of all persons concerned, including the chairman."
Seconds A.G. Gaitonde, TFL treasurer and one of the five accused: "The
board of directors was duly informed. It is ridiculous that now only a
select few are being punished." Those who were dismissed include
Milind S Desai, CEO, Corporate Finance, TFL and Tata Finance Merchant
Bankers Limited, Baroz Gazdar, company secretary, A.L. Shilotri, CEO of
Niskalp, P.B. Karyekar, Niskalp company secretary.
The Mumbai Police is yet to decide whether it
is an in-house corruption or breach of trust case, but Manoj Lohia, DCP,
Economic Offences Wing, says: "Preliminary investigations show the
prima facie case of unlawful activities." The rights and wrongs will
be decided in the court but as of now the trust has been dented.
—Sheela Raval
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