Chennai police have confirmed the arrest of H&M’s ex-chairman V Ramachandran, CEO & MD GK Muralikrishna, and director Sai Yerra subsequent to our report
The Economic Offences Wing (EOW) of Tamil Nadu police has reportedly arrested three directors of Helios and Matheson Information Technology (H&M) for failing to repay deposit and interest to several depositors. Those arrested by the EOW include, H&M’s former chairman V Ramachandran, the company’s chief executive and managing director GK Muralikrishna, and director Diwakar Sai Yerra. According to our sources, these people are behind the bars since 1st April as the lower court denied them a bail.
After receiving several mails and messages from depositors and shareholders of H&M about the arrests, we have been trying to get the news confirmed by authorities for the past four days. However, our emails, SMS sent to top officials of Tamil Nadu EOW remained unanswered until writing the story, and we would incorporate their views as, and when we receive it. We sent emails to Dr Prateep V Philip, Additional Director General of Police (EOW), with a copy to Superintendent of Police (EOW). We also sent SMS to Jesu Rajan, in-charge DSP, who is investigating the case, as per the information provided by the office of SP, EOW, Chennai.
H&M also not informed the stock exchange about these arrests. Its last regulatory filing talks about the company’s petition before Company Law Board (CLB) seeking more time to repay depositors and investors.
Earlier, the Madras High Court has issued a notice to (H&M), an unfancied software company, after admitting a winding up petition filed by investors and depositors. H&M has been defaulting on repayments for fixed deposit and interest dues since last several months. Chennai-based senior lawyer R Venkatavardhan had filed the winding up petition, a copy of which is available with Moneylife.
While several depositors and investors are sending letters, notices to H&M for bounced cheques, while the company continues to report good results. Earlier in January, H&M reported a 35% jump in its net profit to Rs74.12 crore for the 12 months to end September 2014, even though it was unable to pay salaries or repay fixed deposit-holders.
The complaint alleges that H&M is in such a grave cash flow crisis that most of its post-dated cheques (principal and interest) for fixed deposits have bounced due to of 'insufficient funds'. This fraud is evidently being perpetrated to prop up the valuation of the company so as to fraudulently obtain loans from the banks through pledge of shares and to present a façade of credibility to the public at large. This issue has all the makings of a major scam that is bound to affect thousands of investors, depositors and creditors including banks," the complaint reads.
Another interesting aspect in this episode is the share price movement of H&M. The company recorded its 52-week high at Rs145.50 on 7 October 2014. After that, it continued to fall till 27th March, when it hit its 52-week low of Rs38. On the same day, H&M issued a release claiming 'revenues' from a skill development programme. In addition, the company also informed the stock exchanges about its petition before the Company Law Board.
On 27th March, when H&M share price hit a 52-week low on the BSE, the company issued a statement about its skill development program. It said, "...the group's business in skill development program under the National Skill Development Corp National Skill Certification and Monetary Reward Scheme (STAR Scheme) in its first year has gone well. Second year of operations is to comment for the skill development program under the aegis NSDC. Similar programs under Ministry of Rural Development (MoRD) are also underway. This is yet another initiative by the group to create a revenue stream that is non-linear unlike the classic information technology business that is directly proportionate to the number of employees deployed."
The H&M regulatory filing on 31st March says, "the Company has filed an application before the Company Law Board, Chennai, as provided in section 74 (2) of the Companies Act 2013, seeking extension of time up to 12 months for all deposits that fell due for repayment after March 31, 2014. Necessary public notice has been published in newspapers and also intimation sent to all the depositors in this regard."
No wonder, after hitting a 52-week low at Rs38, the share price of H&M jumped 54% as on 10th April.
But is this new or is this happening for the first time? Moneylife readers know that we have been writing about H&M’s failure to pay back fixed deposits (FDs) since July 2014 when the advance cheques issued by it had bounced. But the stock exchanges, which mechanically verify news reports, apparently do not bother to read such signals or question the declarations made by H&M. However, investors began to panic and the stock price dropped 3% on 21st January (after our report was published) and another 12% (to Rs66) on 22nd January. What is rather shocking is that the share continued to hold firm even when employees are tweeting about not being paid and the notice for a winding up petition was been served on the company by unpaid depositors.