Several depositors and investors are sending letters, notices to H&M for bounced cheques, while the company is reporting ‘fabulous’ financial results and obtaining ‘fancy’ ratings
Chennai-based Helios and Matheson Information Technology (H&M), an unfancied software company, continues to default on repayment to its depositors and investors. After filing several complaints to market regulator Securities and Exchange Board of India (SEBI), BSE, National Stock Exchange (NSE), Ministry of Corporate Affairs as well as Enforcement Directorate (ED), the shareholders and depositors have now approached Finance Minister Arun Jaitley.
"Despite the proclaimed strong financials disclosed to the Stock Exchanges, the company has been, since June 2014, defaulting in the repayment of fixed deposit / interest due thereon to its depositors. This in itself is irrefutable evidence of the company fudging, manipulating its financial results disclosed to BSE and NSE, which calls for a full and thorough investigation of the situation," a letter sent by a section of H&M shareholders and depositors says.
Some depositors, whose cheques given by H&M bounced, are sending legal notices to the company directors. All the cheques given by H&M have bounced citing 'insufficient funds'. One of the depositors, who deposited Rs5 lakh each in three fixed deposit receipts (FDRs) was promised an interest of 12.12% per annum, which was to be paid every quarter. H&M issued interest warrants in advance of Rs15,150 each for the three FDRs to be drawn on HDFC Bank as quarterly interest. The company promised to pay the quarterly interest on 16th of March, June, September and December.
However, when in December 2014, the depositor submitted three cheques in HDFC Bank all three bounced citing insufficient funds. After failing to get any response from H&M and its officials, the depositor finally sent a notice under Section 138 of the Negotiable Instruments Act to the company directors.
Investors and depositors of H&M have also demanded investigation into ratings given and its subsequent withdrawal by CRISIL on the company. They alleged that by its shoddy rating on H&M, the SEBI registered rating agency CRISIL has seriously eroded investor confidence in its rating process.
In September 2014, CRISIL assigned 3/5 fundamental grade (good fundamentals) on H&M, due to steady performance of the company. However, suddenly, next month, the ratings agency, downgraded H&M to 2/5 from 3/5 citing 'moderate' fundamentals of the company. "The revision in Helios’ fundamental grade is a result of its deteriorating liquidity. Two major factors are responsible for the liquidity crisis, the company’s working capital days have increased in the last couple of quarters and it could not secure sufficient funds to honour its payment obligations on time. The company needs fresh funds to tide over the tight liquidity position. The company has been delaying the payment of principal in several public deposits matured/getting matured during FY14," CRISIL had said in its October 2014 report.
CRISIL in the report said, "The company has been delaying the payment of principal in several public deposits matured/getting matured during FY14. As per Section 74 of the new Companies Act 2013, the company is required to repay all the outstanding deposits from the public either by their respective maturity date or by 31 March 2015, whichever is earlier. Accordingly, we expect additional liability of Rs400 million to mature by 31 March 2015 (as public deposits due in FY15-17 would get advanced). The inability to raise funds to service the due liabilities plus upcoming liabilities are expected to further tighten Helios' liquidity going ahead."
According to the report from the ratings agency released in October 2014, as on third quarter of FY2014, the receivables of H&M, including debtors and unbilled, increased by Rs44.8 crore resulting in 125 days of sales outstanding (DSO) compared with 106 in second quarter in the same fiscal year. "Revenues (of H&M) increased only by Rs3 crore q-o-q in Q3FY14. This resulted in tie-up of funds in working capital leading to an elongated cash conversion cycle. The management has indicated that the receivables may remain high in the coming quarters as well," CRISIL had said.
Not just common investors deposited money in H&M to earn 1% or 2% more, there are several well-educated professionals, including bankers, who have put their hard-earned money in this Chennai-based company.
Earlier in February 2013, Moneylife had reported on how overlooking several reports about criminal case pending against H&M's chairman and managing director, the ratings agency had assigned 5/5, its highest grading on the company. According to CRISIL report, banking, finance and insurance companies (BFSI) and healthcare segment would drive future growth of IT services in India during 2013 and, H&M would get benefits from it as the company works with seven of the 20 largest global banks.
Moneylife had previously reported about the bruising battle between H&M and Rajeev Sawhney, chairman of Vmoksha Technologies Pvt Ltd and a US-based non-resident Indian (NRI). The battle started in 2005 when H&M announced a $19 million buyout of Vmoksha, co-founded by Rajeev Sawhney and Pawan Kumar (former CEO of the controversial DSQ Software), with the former putting in the money and the latter running the operations. Mr Sawhney soon realised that he had been kept in the dark about many aspects of the deal.
On 11 May 2005, both the companies signed a share purchase agreement under which V Ramachandran, chairman of H&M, was to pay $19 million for the three units, out of which $4 million was to be paid to Pawan Kumar, the then chief executive of Vmoksha and also former CEO of the controversial DSQ Software, as earn out. Although, Pawan Kumar and his family members were also stakeholders in Vmoksha, Mr Sawhney later bought out their stake as well.
Mr Ramachandran was supposed to pay $13.4 million to Mr Sawhney, after paying some amount to Tapan Garg and Madhuri Garg, son and wife of Pawan Kumar for their holding. Mr Sawhney soon realised that he had been kept in the dark about many aspects of the deal. For instance, he found that instead of receiving $19 million, a bank account had been ‘fraudulently’ opened in the State Bank of Mauritius in Vmoksha’s name and used to borrow $13.5 million, using a fake board sanction and false entries. That money was remitted to H&M ostensibly for subscription of redeemable preference shares on 28 June 2005.
Earlier in December 2011, the Supreme Court dismissed special leave petitions (SLPs) filed by H&M and Pawan Kumar, the then chief executive officer of Vmoksha Technologies. Both have challenged the Bombay High Court (HC) order, which allowed the revision application of Vmoksha’s co-founder Rajiv Sawhney against H&M. The question is when it is known to all that H&M is defaulting on repayments, why the stock exchanges, the first line of regulators and SEBI has kept quite. Why there is no action against the company and its top executives till date? Will Finance Minister Jaitley take cognisance of the complaint and make sure that the investors are at least repaid their hard earned money?
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