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Liquidate Helios & Matheson
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.
 

User

COMMENTS

Ankit Synghal

6 months ago

Will look fwd for comments

Ankit Synghal

6 months ago

Hi all, do you know if the liquidators can be contacted for considering the FD depositors for any hopeful claim! Are some details available.

lalit

10 months ago

It seems another satyam in the news.depositors have been duped by the company in collision with the so called regulators (who should be penalized towards refunding the depositors money.

Dr PS Bhatnagar

10 months ago

We understand that in cases where official liquidator is appointed by Courts after detailed deliberrations, fd investors are also cosidered as creditors for repayment of company left-overs proceds. Can any one confirm it?

Manharlal Patel

10 months ago

I have also same concern for Helios & Matheson as there is no reply from company. My FDs have been matured but there is no reply. I hereby request Sucheta Madam if she can help us in this matter

ridhdhish

10 months ago

i do have helios fds and as happened with other i did not get any answer for my complaints to the co. please let me know how i can join the fight and what further actions i need to take.

Aravind

10 months ago

Is there any realistic possibility of depositors getting back their money???

REPLY

lalit

In Reply to Aravind 10 months ago

If the liquidator or the concerned ministry takes some quick and strong action we may recover the principal amt I hope

lalit

10 months ago

Please update when r u going to publish /take up the matter related to the FDs as per the survey taken by you about months ago.

If the same is not closed put out the same again so that if any investor has missed out he too can put the details which can help to file cases.

REPLY

Sucheta Dalal

In Reply to lalit 10 months ago


The memorandum is going out tomorrow. WE have over 1000 respondents.

We will publish it once we have delivered it to the ministry!

lalit

In Reply to Sucheta Dalal 10 months ago

Thanks for the update awaiting for the report to be published.

lalit

10 months ago

Dear Sucheta Mam,
Its time to take up the matter with MCA,file cases, PIL on behalf of the investors with regard to H&M , with the intent to recover the investors amount in time bound manner.Am again insisting that all the directors should be immediately arrested and put behind bars for cheating the investors.
Also the CLB/MCA should insist on insurance to be taken by the company in future for minimum investment so that if something happen to the company investors money is safeguarded.

Hope you take up the matter urgently,

REPLY

Ashok Visvanathan

In Reply to lalit 10 months ago

No insurance company will give a policy to H & M, certainly not now. Since bank loans take priority over depositors, banks may get 10 paise in the rupee. The depositors will get nothing.

Ashok Visvanathan

10 months ago

That the exchanges and Sebi have not done anything, may not be a proper indictment. They have compliance rules and filings, that the company has to follow. As long as the company does its exchange compliance, the exchange and Sebi cant do anything.

I am interested in the responsibility and liability of the independent directors. You think they were Ok ?

Vaibhav Dhoka

10 months ago

The enforcement of judicial order must be time bound process till execution otherwise in sluggish judicial process in India has lost all hopes of recovery in fact they help fresh scammers to play role to perpetrate scam.

Are central bankers borrowing growth and profits from future generations?
By following a policy of prolonged easy money, the central bankers are artificially boosting current spending hoping that the future generations will pay for consequent, unrealistic growth that may follow now
 
Short-term thinking has always been the bane of human beings. We are obsessed with events taking place now rather than in the distant future. It is as if the DNA that helps us think and plan for the long term has gone missing. Economists probably suffer more from this ailment than do others. Who can forget John Keynes statement in the context of the depression in the global economy in 1930s that “In the long run we are all dead”?
 
Well, in the long run we may be all dead. But, we are definitely not entitled to enjoy ourselves at the expense of the future generations. Unfortunately, the easy money policy being pursued the world over, for the past eight years, post the financial crisis, has been doing exactly that. Heads of the central banks the world over probably feel that they are the masters of economic world and it is within their powers to cure any problem, the global economy may face. In the process, saner voices are being ignored, such as that of Dr Raghuram Rajan, the Governor of the Reserve Bank of India (RBI), who has repeatedly in various forums, cautioned against excessive reliance on monetary tools to get the economy back on track. Let us place the problem in the right context. 
The irrational exuberance of the early part of this century led to one of the severest financial crisis the world has ever seen. As I had mentioned in one of my earlier articles, the immediate concern when such a crisis strikes is the lack of liquidity in the system, and monetary institutions are ideally placed to provide the requisite liquidity. 
 
Eventually, there is a threat of deflation resulting from the crisis because consumers reduce their spending, leading to contraction in consumption and investment demand. There are two classic responses to improve demand. One is for the government to go on a spending spree, something that was recommended by John Keynes as a solution to the depression of the 1930s. Given that prudence has never been the distinguishing characteristic of governments, not many of them are usually in a position where they can unleash such spending, without significant loss to their credit rating.
 
The alternative is to use monetary policy to encourage people to spend and companies to invest. The US Fed, the European Central Bank (ECB), and even the Bank of Japan have significantly reduced interest rates since the crisis. When even lower interest proved largely ineffective, the central bankers relied on large-scale purchase of securities to pump money in the economy, popularly called Quantitative Easing (QE). 
 
Evidence suggests that neither lowering of interest rates nor injecting money into the system has proven to be the saviour that the monetary authorities expected. Although growth in the US is back, not many people are convinced of its sustainability. Europe and Japan are of course still mired in a low growth environment. The only saviour until now, China, has now slowed considerably, and has in fact, been the chief cause of the current meltdown in the financial markets. 
 
It would be safe to conclude that the policies being pursued over the last eight years have failed to overcome the impact of the crisis and the global economy is yet to return to the path of growth so urgently required. Historically, recovery from crisis has never taken that long.
 
Faced with such strong evidence it is natural to change course and adopt alternative policies that may prove to be more effective. Central bankers, however, have concluded that the patient needs a stronger dosage and therefore, have repeatedly increased the extent of their easy money policy. When reduction in interest did not seem to work, the ECB and now the Bank of Japan pushed interest rate into negative territory. When QE1 did not work, the US Fed implemented the QE2 and subsequently the QE3. The ECB has clearly indicated that they are not through with easing monetary policy. The emphasis has only been on ensuring that growth does not slacken over the next few quarters. 
 
Effectively however, the fundamentals of the economy have prevented the regime of easy money resulting in greater spending and investment. Liquidity alone cannot boost inflation if demand is depressed and the propensity to save is high. The prolonged policy of monetary easing has only led to inflated asset prices, stocks as well as bonds, something no one would find easy to justify. 
 
By following a policy of prolonged easy money, the central bankers are borrowing growth and profits from the future generations. In a sense, they are artificially boosting current spending hoping that the future generations will pay for consequent, unrealistic growth that may follow now. 
 
It is high time that the central bankers withdrew and let the economy take its natural course. Policies that are successful, even essential, during times of crisis, need not necessarily succeed in more normal times. They have pursued an extremely easy policy for eight long years without any success in taking the global economy on a path of consistent growth. Having succeeded in overcoming the worst possible outcome of the crisis, they should have withdrawn, letting the economy revive on its own. If that involved temporary pain, so be it. At least, the recovery would have been sustainable and that too without impacting the growth of future generations. Treatments given specifically in ICUs may not be beneficial when the patient returns to the normal hospital bed. Continuing such treatments will only ensure that the patient remains comatose over long periods. The continuation of excessively easy monetary policy has, in fact, ensured that the global economy continues to display such comatose behaviour, excessive dosage of medicines notwithstanding. 
 
No financial crisis ever takes place without borrowing and, in general, excessive borrowing. That was also true about the last crisis. The policy should therefore, have concentrated on reduction in global debt. Instead, the low interest rates and easy availability of credit encouraged borrowing on an unprecedented scale over the past few years, leading to debt levels that are higher today than at the time of the crisis. The conditions are therefore ripe for another major crisis. Our memory is still fresh with the default possibilities of many countries including Portugal Ireland, Greece and Spain, (commonly and quite appropriately referred to as the PIGS countries), all of which had to be bailed out to prevent such an eventuality. How long can the global financial institutions and community continue to bail out countries, under risk of imminent default and whether such accommodation would also be extended to emerging markets, is an interesting point to ponder. 
 
In any case, prolonged use of easy money is making monetary policy highly ineffective. When the next crisis strikes and it will strike sooner than we think, and in a segment of the economy we may not have envisaged, there will be no ammunition left in the armoury of the Central Bankers to avert the crisis. What that does to the global financial architecture and the global economy is too scary a thought to even contemplate. But, finding the culprit for such an eventuality will not be difficult. Unfortunately, by then it will be too late. 
 
(Sunil Mahajan, a financial consultant and teacher, has over three decades experience in the corporate sector, consultancy and academics.)

User

COMMENTS

Meenal Mamdani

10 months ago

Mr. Mahajan is correct in saying that not just India but other countries too should draw back from easy money to stimulate growth. India's central banker, Mr. Rajan, is right in insisting on fiscal prudence.

Unfortunately, the answer is not fiscal austerity either as that hurts those who are least able to withstand it, the poor. Keynes was right in saying that govt has a duty to stimulate the economy but it need not do it by borrowing. It must find other ways to get money out of the economy.

Progressive taxation is one answer. In India it also means widening the tax net. People seldom report their true income so we must track spending by forcing people to use debit cards for all transactions over say Rs 500. There will be a hue and cry by politicians saying that this will hurt the poor. But those who will be hurt are the ones hiding their wealth; the same wealth that goes to political parties and politicians. There are other avenues too such as divestment and forcing defaulting borrowers to sell their assets to pay back their loans, taxing agricultural income, etc.

All of these are unpopular moves that the govt will avoid as long as possible. Hope Mr. Rajan can stand firm against countervailing forces.

SHraddha

10 months ago

True. But we cannot find the culprit, because the system is so interconnected that there is no one bank/person to catch hold of. The whole network is corrupt. The only solution seems to start a parallel system to eradicate the current one, which is too far fetched!

Shraddha Kokane

10 months ago

Very apt sir, I doubt tough we can actually find the culprit. The whole scheme of networking/ lobbying is so strong and interlinked that there would be no one bank/ one person from their management to blame. The whole network is corrupt and the only option left is only to start a parallel system eradicating the current one. That is surely far-fetched.

Sachin D

10 months ago

Excellent article..the same is happening in a Big way though real estate sector by different subvention schemes..wherein FI's book future interest income at present and builder pays by charging higher amount from customer..although customer does not realizes the hit unless he is financially suave, builders get funding at subsidized home loan rate and thereby putting everything to a great risk..5 years subvention/10 years and even 15 years subvention..probably market and rating agencies need to factor in these current earning at the expense of future receivables..

Janakiraman Rajalakshmi

10 months ago

Very insightful article.

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