Madras High Court asks SFIO to investigate, appoints official liquidator. But when will the stock exchanges and SEBI stir themselves?
On 21st January, the Madras High Court (MHC) ordered the liquidation of Helios & Matheson (H&M) and appointed an official liquidator to ensure that any realisable money is not ‘frittered away’ or siphoned off. The same order asked the serious frauds investigation office (SFIO) under the ministry of corporate affairs (MCA) to conduct an inquiry and submit its report by 18 March 2016. A Moneylife survey shows that H&M depositors are the single largest group, among over 1,000 persons, who have failed to get back their money invested in corporate fixed deposits. Unfortunately, the details in the court order dash the hopes of these 6,540 depositors ever getting any money back from the company.
Meanwhile, the regulators, bourses, MCA and most of the media continue to maintain their stunning silence about this company. Moneylife alone had reported the MHC order, at the time of going to press. All through the proceedings, H&M aggressively claimed that its financial problems were not serious, despite a series of recovery actions against it by banks and depositors. In June 2015, following a Moneylife report on the arrest of its senior management for failing to pay depositors, H&M ‘clarified’ that it was a “world-renowned IT/software solutions company” and the Tamil Nadu Protection of Depositors Act did not apply to it. However, its attempt to have the FIR (first information report) quashed through a writ petition and appeal failed.
In September 2015, H&M, in a special leave petition (SLP) to evade recovery proceedings, gave an undertaking to the Supreme Court that it would deposit Rs10 crore in four weeks and repay the balance Rs38 crore to depositors within a year. This, too, did not happen. Will H&M try the usual corporate ploy to delay liquidation by gaming the judicial processes? Probably; but it remains to be seen if the trenchant MHC order, finally, prods SFIO to conduct a detailed investigation into H&M’s finances. The Court has already documented the management’s ‘prevarication’, ‘surreptitious’ actions, ‘clandestine’ sale of assets and attempts to ‘deviate and confuse’ issues. It also noted how H&M sold two properties for Rs11 crore and Rs15 crore and, ‘in flagrant violation’ of its orders, deposited only Rs1 crore and Rs5 crore, respectively, with the Court.
What has the market watchdog done so far? The last time that the Securities & Exchange Board of India (SEBI) acted against H&M was in 2011 when it was fined a paltry Rs50 lakh for making wrong disclosures to the bourses. This was after six years of inaction and persistent complaints about H&M’s shady ways. Had the regulator been doing its job, thousands of depositors would not have been fooled into investing in its fixed deposits based on its falsely optimistic financial projections.
What SFIO now needs to investigate is whether there is any truth in H&M’s business claims at all; does it even have the assets, offices, software contracts and offices that it claims to have? Ramalinga Raju of Satyam Computers fudged his accounts in a big way, but it certainly had a running business, massive offices and thousands of top-quality employees who were being paid. Hence, it found a buyer, despite the massive fraud.
H&M, like another Chennai software company Pentamedia that went bust, seems to be hollow. The MHC order mentions that H&M’s liabilities to banks and depositors are over Rs245 crore and that the economic offences wing (EOW) of the Chennai police had frozen its accounts in 2015. The company had then claimed a turnover of Rs445 crore, a running operation and lots of employees. Yet, a cursory Internet search would reveal hundreds of angry rants and warnings from employees who have not been paid; many of them date back to 2012 or earlier. And, yet, our regulators were completely uninterested. The same regulators, of course, will wax eloquently about corporate governance, every few months.