Officials of one investigative agency is quite baffled with the Economic Offence Wing (EOW) of Mumbai Police on one issue. Questions are being asked why EOW skipped crucial IPC Section 420 while registering a FIR against the National Spot Exchange Ltd (NSEL).
But few investigative officers (who do not wish to disclose their agency name) are quite upset and concerned with EOW for not putting IPC Section 420 in its FIR. “Whether it is an ignorance, a mistake or an intentionally planned strategy – the consequences would be that our case would get weakened against NSEL and its schemes.”
Section 420 of the Indian Penal Code (IPC) covers offences relating to cheating and dishonestly inducing delivery of property. It also means that whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
“Why 420 was not invoked by EOW? It would have established the proceed of crime in NSEL case,” official said. He added, “It would have proven that total operation was manipulated and total transactions were misrepresented by NSEL and its management, for instance, disappearance of SGF amount. Now, not putting section 420 in FIR is like – saving skin of NSEL and its assets/schemes/products.”
Officer did not mince a word while saying, “its like proving Jignesh Shah not “Fit and Proper” to run the commodity exchanges, plan his exit route and than open the back doors for big giants to grab those controlling stakes in these exchanges.”– from India Today
Category: Observations
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Board Proposes,Promoter Disposes
The company (Gitanjali Gems), however, is trying to hold on to whatever cash it has. Recently, its board agreed on a dividend but the promoters later opposed it, defeating the resolution by voting against it.
Exchange filings show at least some institutional shareholders were not in support of the move against the dividend but Gitanjali maintains it still has the backing of its institutional shareholders.
“It is incorrect to say institutional shareholders opposed it. At the moment, in the current scenario, money in the company is more necessary than money moving out,” said promoter Mehul Choksi.-from BS
This number, 16 per cent, is liberally used by mutual funds, stockbrokers, financial planners and advisers to justify equity as a great long-term investment. I do view equity as the best option to beat inflation, but here is why the 16 per cent figure is wrong.
The Bombay Stock Exchange launched the Sensex in 1986. But it has calculated the Sensex data since April 1979 to provide a longer series, with a base index value of 100. It is on the basis of this that many analysts calculate historical returns for the Sensex. If the Sensex is quoted at 19,000, according to these data, the index has gone up 16 per cent, compounded, between 1979 and now. Only if the data are correct, that is.
For one, the Bombay Stock Exchange does not give year-wise Sensex data from 1979. The data for the Sensex that are freely available on the website of the Bombay Stock Exchange are from the year 1991 onwards. To get the data before 1991, you need to pay. According to what the Bombay Stock Exchange has generously shared with Moneylife, the Sensex rose from 124.15 as on April 3, 1979, to 991.26 as on January 2, 1991. The Sensex value as on April 3, 1979, was 124.15 and not 100, owing to the fact that the value of the index divisor has been arrived at by taking the average market capitalisation of all the 30 stocks for 1978-79. But are these numbers accurate?
From around 100 in 1979, the index moved up to around 500 in 1986 (according to data available with the Securities and Exchange Board of India), when the Sensex was actually launched. This would equate to an annual compounded growth rate of nearly 25 per cent in seven years! Is this credible? That would amount to a massive stock market bubble in the 30 top Indian stocks, almost equivalent to Nasdaq’s dot-com bubble. Does anybody remember 1979-86 as the period of a great Indian stock market bubble? If you assume that the index value of 500 in 1986 is correct, the data for the reconstituted Sensex of 1979 are suspect. Or the base data are correct and the index value of 500 is possibly wrong.
However, not only did the Sensex go up four times in seven years, it jumped to 1,193.61 on April 1, 1991, from 500 in 1986 – a rise of 139 per cent in five years. How credible is that? Remember that this was one of the worst periods for the Indian economy: the Bofors scandal, the disillusionment with Rajiv Gandhi’s government, V P Singh’s venomous raids on top Indian businessmen, his own short-lived coalition government, his regressive pro-reservation policies, and L K Advani’s Rath Yatra. It was an extremely difficult period for Indian businessmen, especially against the backdrop of galloping short-term foreign debt that culminated in near-bankruptcy for India in 1990. We had only two weeks of money for imports that year. To stave off the crisis, India had to pledge gold abroad. Now, should we believe that during this period, which was one of the most difficult periods in recent history, the Sensex was up 139 per cent, or 19 per cent, compounded?
Taking the entire period into account, the Bombay Stock Exchange would have us believe that the Sensex was up 19 per cent, compounded, annually from 124.15 as on April 3, 1979, to 1,194 in April 1991, a period of 12 years. If you believe the Bombay Stock Exchange, you will soon come across even more bizarre figures. According to the data, the Sensex moved up from around 124 in 1979 to a peak of 4,467 in April 1992, which translates into an annual compounded growth rate of 31 per cent.
One of the reasons why I strongly suspect that there are errors in these data is that the Bombay Stock Exchange does have a record of such blunders. The Bombay Stock Exchange reported that price-to-earnings (PE) figures for the Sensex were as high as 55-56 during the 1992 peak. On June 10, 1995, however, The Economic Times exposed this as wrong. In response, on June 14, 1995, the Bombay Stock Exchange dropped its PE to 42. This means an almost overnight drop in PE by as much as 25 per cent! Also, before September 1, 2003, the Sensex was calculated using the full market capitalisation of the constituents and dividing it by a number called the index divisor. And from that day onwards, the calculation method for the Sensex was changed to the “free-float market capitalisation” methodology. Under this, the level of the index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. That leaves us with another thought. Is it fair to compare Sensex data before September 2003 with the data of the present index?
So next time someone tells you that equities are a great investment option because the Sensex has gone up 16 per cent, compounded, over the long term, take it with spoonfuls of salt.-wrote Debashis Basu in BS
Subodh Kumar Agrawal is the President of the Institute of Chartered Accountants of India.He is also serves on the board of Guj Nre Coke .
Now, the auditors of the Australian Subsidiary (Guj Nre Coking Coal Ltd) is Grant Thornton.Unlike Indian auditors( see here & here), they seem to have integrity.They refused to give an opinion on the accounts for the year, citing doubts over company’s ability to survive as a ‘going concern’, and inadequate information about its ability to repay debts.
The Australian unit has reported a loss of A$112 million and faces a working capital deficit. It has breached loan covenants, owes money to creditors and has not provided any evidence to indicate that it has the ability to raise money to replace existing debts, the auditor says.
The firm owes about A$27.8 million to its ultimate parent and there are doubts whether that money can be recovered. There are similar issues over contingent liabilities, the audit firm has said. Gujarat NRE Coking Coal has to pay A$487.8 million of debts within the year.-from ET
Now what is shocking is that the true state of affairs of the Australian Subsidiary were hidden from Indian shareholders.The consolidated statements year-ended March 2013 have been prepared only on the basis of unaudited accounts of the subsidiary, which actually accounts for 63% of assets of the Kolkata-based NRE Coke.
Now as per regulatory filings made by Guj Nre Coke to Indian Stock Exchanges,
The Consolidated Audited Financial Statement of the Company for the financial year 2012-13 were reviewed by the Audit Committee at its adjourned meeting held on 30th May’2013 and the same were adopted by
the Board of Directors at its adjourned meeting held on the same date.The above Audited Consolidated Financial Statements has been prepared based on the available Management Approved Financial
Statements of all the Australian Subsidiary Companies including Gujarat NRE Coking Coal Ltd., which has also filed the same results to the Australian Securities Exchange (ASX).
Now, Indian shareholders can be forgiven for thinking that even the overseas subsidiary accounts were audited.Notice the clever wording “Management Approved Financial Statements of Australian Subsidiary Companies”
So which genius headed the Audit Committee which did this masterful coverup?Well, none other than the much respected and much loved ICAI President Subodh Kumar Agrawal !
So, repeat after me, dear readers,”Investors in Indian Equities believe the audited accounts at their own peril “!
I had earlier blogged about how Indian investors should believe audited statements at their own peril.
Now, here is another startling case of how auditors colluded with promoters to commit fraud
A fortnight ago, chatting with bankers at Chennai’s Haddows Club, Farouk Irani, a pioneer in India’s leasing business, admitted that the company he led for decades along with industrialist friend AC Muthiah, has a hole of Rs 1,000-crore in its balance sheet.
Assets worth only Rs 200 crore has been created by First Leasing Company of India, where Irani has been the managing director since 1973, out of bankfinance of more than Rs 1,200 crore.
When the team of financiers led by a senior official of State Bank of India asked Irani where the remaining funds were deployed, he could not give any ‘satisfactory reply”. Stunned bankers told the company to close accounts with all banks outside the consortium, a source familiar with the development told ET.
The person also said that there were question marks on the audited financials of First Leasing, a Chennai-based listed company. The meeting with bankers took place a few days after the Reserve Bank of India barred the company from doing any business until further orders. “We confirm an RBI audit is under way of our accounts and until the audit is complete we cannot presuppose what the numbers are,” said Irani, responding to ET’s email query. When told that there are suspicions that funds have been diverted by the company’s management to unrelated activities, Irani said, “There has been no diversion of funds. Once the RBI audit is over it will reconfirm money was not diverted for any improper purpose.
Funds have only been committed for the benefit of the company’s stakeholders which would include payment of interest to the banks, the income tax, sales tax, salaries to the staff etc.”
Sarathy & Balu was the company’s statutory auditor for the financial year 2012-13 while MK Dandeker & Co was the internal auditor. NR Sridharan, partner at Sarathy & Balu, could not be contacted despite repeated attempts.
The company has been asked by its bankers to immediately open an escrow account with SBI and, collect and submit post dated cheques given to customers to SBI for credit, besides furnishing a list of receivables and assets.
According to banking circles, the company’s troubles started during the 1980s when Mercantile Credit Corporation, a group company of MAC, founded by Muthiah’s father late MA Chidambaram, ran into trouble. (Muthiah is the chairmanemeritus of Southern Petrochemical Industries)
In 1988, First Leasing had to pay out Rs 170 crore to depositors, borrowing money at a higher rate, when MAC faced financial difficulties. The tight money condition of the 1990s worsened things and later Rs 65 crore was lost in “misguided transactions” (but this amount was recovered after a period of time). The payment of Rs 170 crore, however, was never reported to banks.
The CEO of another south-based financial services group told ET that First Leasing also lost out as it failed to change with time and bring in new financial investors like private equity houses. More recently, it has been borrowing from banks to repay dues. The members of banking consortium include SBI, IDBI,UCO, State Bank of Travancore, Syndicate, Vijaya, State bank of Patiala, ICICI, IndusInd, Axis, Bank of Maharashtra, State Bank of Mysore, HDFC, and Catholic Syrian. The combined credit limit extended by them is.`1,322 crore and the present standing is Rs 1,211 crores-from ET
So basically, the books were cooked since the 1980’s !!Also, find it amusing that veterans felt that the solution to the hole in the accounts was to bring in private equity investors !!