Did Directors of Kesoram Industries Indulge in Insider Trading and Short-change Minority Shareholders?
Ankush Agrawal 13 July 2018
Updated on 1 August 2018 to add clarifiction submitted by the company to stock exchanges.
 
The directors and promoters of BK Birla group company Kesoram Industries have allegedly indulged in large-scale insider trading in the process short-changing minority shareholders hundreds of crores. The trail of such wrongdoing was recently alleged by a shareholder Janardan Kothari at the annual general meeting (AGM) of Kesoram Industries on 13 July 2018. Moneylife has reviewed the documents shared by Mr Kothari and pieced together the alleged modus operandi of this episode. The company’s stand at the AGM was that, “We will not take the question of related party and that it can be discussed separately”.
 
As of 31 March 2015, Kesoram held 27.46 lakh shares of Century Textiles. On 22 March 2016, Kesoram sold all these shares to Camden Industries for Rs141 crore in a bulk deal. In FY17-18, Kesoram invested another Rs400 crore in Cygnet Industries, its wholly owned subsidiary. Cygnet Industries used this amount to buyback 27.46 lakh shares of Century Textiles from Camden Industries in three transactions on 5th, 11th and 12 December 2017; for Rs355 crore. Thus, it is alleged that Camden Industries made a clean profit of Rs214 crore.
 
Then Cygnet Industries sold these 27.46 lakh shares of Century Textiles to Pilani Investments, a promoter entity of Kesoram, in two transactions on 7th and 14 June 2018, for Rs255 crore and in the process realised an allegedly loss of Rs100 crore.
 
In this entire round tripping, Camden Industries allegedly made a profit of Rs214 crore but Kesoram shareholders lost Rs100 crore through Cygnet Industries. Also during FY15-16, Kesoram had through a slump sale, sold its spun pipes and chemical business to Camden Industries for Rs400 crore. These businesses were again bought back by Kesoram in FY17-18 for Rs422 crore.
 
The important question that arises is who is the owner of Camden Industries? Camden Industries neither is a subsidiary of Kesoram nor it is a promoter entity of Kesoram. But so many critical sale and repurchase transactions are taking place regularly between Kesoram and Camden Industries. At the annual general meeting (see video) Mr Tridib Kumar Das (CFO of Kesoram Industries) said that, “There position is that it is not a related party”.
 
 
However, little digging throws up many interesting connections. Camden Industries was incorporated in 2015 and its registered office was on the second floor of Birla Building in Kolkata. Further, following details were found on the website of MCA and Zubacorp.com. Camden’s directors include:
 
1. Suparna Hingorani:
 
a) Director in Vidula Chemical, in which Kesoram holds 44,750 shares and has a common director with Cygnet Industries- Deepak Kumar Sharma.
b) Director in Precious Services Consultancy; which has two common directors with Cygnet Industries- Gautam Ganguli, the company secretory of Kesoram and Sharmila Nath. Precious Services Consultancy has its registered office in Birla Building.
c) Director in SNP Investment & Trading; which has a common director with Cygnet Industries- Deepak Kumar Sharma. It also has its registered office in Birla Building.
 
2. Keshav Chhetri: Also a director in Vidula Chemical.
 
3. Debashis Biswas:
 
a) Director in MSK Travels; which is a related party of Kesoram.
b) Director in Kundra Investments; which has its registered office in Birla Building.
c) Director in Centron Advisory; whose email is [email protected]
 
Incidentally, the email ID of Manav Investment and Trading, promoter entity of Kesoram is shared by Kundra Investment, Precious Consultancy and SNP Investment. Sharing the same email suggests that the four supposedly unrelated companies may be linked and related with each other. 
 
There in enough circumstantial evidence to point out, as to who is the ultimate beneficiary owner of Camden Industries. On paper, Camden’s entire equity capital is owned by its employees and directors. Moneylife found out that the entire shareholding is owned by seven persons; with six people owning 14% each and remaining 16% owned by the seventh person, just enough to satisfy the minimum number of shareholders required to form a public company.
 
The clinching evidence as discovered by Mr Kothari to finally prove that Camden, Kesoram and Manav Investment are all related is:
 
1. The board resolution dated 17 December 2015 of Camden Industries has authorised Mr Das (CFO of Kesoram Industries) and Gautam Ganguli (Company Secretary of Kesoram) to finalise and execute agreements on behalf of Camden Industries. This proves that Kesoram Industries and Camden are related because Kesoram’s key managerial personnel are authorised to act on behalf of Camden Industries.
 
2. Manav Investment through its board resolution on 7 March 2016 had provided corporate guarantee and pledged its investments to IndusInd Bank in connection with a term loan of upto Rs400 crore being availed by Camden Industries.
 
3. In the Director’s Report section of Manav Investment’s Annual Report for FY15-16, it is clearly mentioned that the company has made given a guarantee to IndusInd bank for Rs200 crore against Camden Industries.
 
4. Camden Industries in its prospectus for private placement offer on 21 March 2016 for bonds worth Rs430 crore has mentioned that the payment of obligations will be secured by the first ranking exclusive mortgage of immovable property of Kesoram Textile Mills, promoted by Kesoram Industries. The same was again stated in prospectus dated 16 March 2017 for private placement offer of bonds worth Rs340 crore.
 
5. Kesoram Textile Mills in its annual report for FY16-17 has mentioned under the heading of contingent liabilities that it has provided guarantees, securing non-convertible debentures (NCDs) of Camden Industries by mortgage of its land in Kolkata.
 
This clearly shows that Kesoram Industries, Manav Investment & Trading and Camden Industries are related parties. It is also clear that Camden Industries has made huge illegal profits at the expense of Kesoram’s minority shareholders.
 
Further, Mr Kothari has alleged that similar transactions have taken place around the same dates in shares of Hindalco, Grasim, Ultratech Cement, and Century Enka and only a detailed audit can reveal about profits made by Camden Industries at the cost of minority shareholders of Kesoram Industries.
 
“SEBI should investigate the violation of the insider trading norms by the directors and promoters of Kesoram Industries to protect the integrity of the Indian capital markets and to save the minority shareholders of Kesoram Industries. The role of Deloitte Haskins & Sells, the auditor of the company also needs to be thoroughly examined by the regulators to determine whether their supposedly ‘true and fair view’ and opinion was independent of influence of the management and promoters or was there any collusion?” Mr Kothari says.  
 
We sent an email to senior officials of Kesoram Industries seeking their comment on these issues. We will update this article with their comment as and when we receive it.
 
UPDATE:
After we wrote this article, NSE & BSE in a notification dated 16th July, had sought clarifications from the company on the allegations made by. The company submitted its response to the exchanges on 25 July 2018 (https://bit.ly/2LOfbwb), in which they mentioned the following key points:
 
1. The promoter group in last five years alone has infused around Rs665 crore in the company through right issues and preferential allotments. And thus they have not short-changed the minority shareholders.

2. Over 2012-2018, the company had suffered losses of Rs3,200 crore and had accumulated huge debt, and in order to save the company from becoming sick, the management had to monetise assets. They did this by selling their spun pipes and chemical business, and also liquidating a part of investment portfolio (Century Textiles). These transactions where carried out at prevailing market prices and in accordance with SEBI regulations.

3. Camden Industries is not a "related party" of the company in terms of provisions of the Companies Act 2013 and SEBI Regulations 2015.

4. In December 2017, the company's debt had declined and the financial position of the company had stabilised. Thus the company decided to reacquire its business divisions and investment portfolio from Camden and the same was done at prevailing market prices.
Comments
Srinivasan Rajagopalan
2 years ago
Yes. "Mintvest" inserting pamphlets saying FD @ 18 % p.a. with minimum investment of Rs 1 Lakh with Lucknow landline number and a Toll Free number. Their website does not have any company management persons details nor office address or any government institutions registration numbers. claiming have office at Annanagar & Saligramam, Chennai. Beware of "Mintvest"!!!
Manoharan Manu
3 years ago
Refund scheme plzz
Veeraiah Bandlamudi
3 years ago
Thank you MoneyLife for updating this news item. We have created WhatsApp Group for "Kesoram Industries Shareholders Forum" to track the company and actively participate as shareholders. We have currently more than 20 members. We are planning to send individual letters to Company Secretary with our requests within the next few days.

If you are interested to join WhatsApp group, please send your mobile number to 9840307892 or [email protected]

We, long term genuine shareholders, need to be active investors. We can't make our company destroy the shareholders wealth.
Veeraiah Bandlamudi
3 years ago
Company Secretary of Kesoram Industries responded to the explanation from Stock Exchanges. It emphasized on the investment by promoters via rights issues and preferential issue. They said they are interested in the company by buying shares at Rs 175/- when the market price was Rs 120. May be Mr. Janardan Kothari bought the shares in March, but, there are lot of investors waiting for this company to perform for more than 5 years. I know promoters don't need quick gains as they are invested for 100 years. But, the common investor needs some dividend and capital appreciation.

But, it didn't clearly explain why they invested in Century Textiles again when they had so much of debt.

Let us (minority shareholders) maintain WhatsApp group and keep discussing our plan of action. I am happy to manage this group. I am giving here my contact details: Please send your mobile number to 9840307892 or [email protected]
rihanahmad
3 years ago
How do we punish these defunct directors and particularly the independent dircetors considering that Board has not answered the allegations and therefore their complicity is implied. Very shameful . I have decent qty of shares and donno what i do to recover the losses. It goes without saying that something is wrong in the DNA of these Birlas .
Veeraiah Bandlamudi
Replied to rihanahmad comment 3 years ago
Let us (minority shareholders) maintain WhatsApp group and keep discussing our plan of action. I am happy to manage this group. I am giving here my contact details: Please send your mobile number to 9840307892 or [email protected]

We will make this a big group and will fight in the 100th AGM. We will also come up with other means of fighting meanwhile. Request all the shareholders send their mobile numbers to my contact details provided above.
Veeraiah Bandlamudi
3 years ago
Dear Mr. Janardan Kothari, I would like to know your thoughts on what is going to happen now. Holding major portion of my portfolio in Kesoram. Never expected Birlas cN take this company this low.
Veeraiah Bandlamudi
3 years ago
Why Kesoram board is unable to respond to exchanges on the clarifications sought ?

The Exchange has sought clarification from Kesoram Industries Ltd with respect to news article appearing on www.moneylife.in - July 13, 2018 titled "Did Directors of Kesoram Industries Indulge in Insider Trading and Short-change Minority Shareholders?".
Praveen Gorthi
3 years ago
It is interesting to know such things are happening with reputed ones. Thanks for an effort. Keep educating retail share holders..
Pradeep
3 years ago
Thank you for exposing the directors of Kesoram. Pretty disappointing how the shareholder has been treated in the AGM. Good indicator to exit the investment made in Kesoram.
Veeraiah Bandlamudi
Replied to Pradeep comment 3 years ago
How can we exit with losses. We have to fight and make them run the company in professional manner.
Veeraiah Bandlamudi
3 years ago
I am new to Money Life. I got to know because I was searching for Kesoram news. I hope BK Birla doesn't influence Money Life
Sucheta Dalal
Replied to Veeraiah Bandlamudi comment 3 years ago
Instead of hoping about what BK Birla does or does not do -- why not google a little and find out more about Moneylife ?? These kind of comments are what have killed independent journalism and disheartened otherwise idealistic journalists -- as far as readers go, everybody is suspect and it is damned if you do and damned if you don't. We are even careful about accepting so-called scoops or leads -- because even if we fail to find time to check or corroborate information (which is rarely backed up with proof), the so-called whistleblower will turn around and allege that people are compromised!
Veeraiah Bandlamudi
Replied to Sucheta Dalal comment 3 years ago
Sorry Madam, I didn't know that you are the Managing Editor of MoneyLife. Apologies for making that comment. I know you created awareness to the minority investors of Tata Companies whose money was getting invested in Tata Sons. This was 23 years back. You were correct that day. I have documented on how much minority investors lost in the last 23 years. See, now they want to make Tata Sons private. If justice doesn't happen to minority investors in such a reputed group, what can we do.

Actually my comment was intended for Mr. BK Birla. If he sees that and take some action, Kesoram investors will get benefit out of that. I have already lost 55% in Kesoram. I hope you understand my pain. I try to avoid investing in small and midcaps companies. SP Tulsian told that KM Birla owns major stake in Kesoram. We believe in big people like Tata and Birla. We are losing even then. After losing in these big groups, I also setup website called http://shareactivism.com/. But, I couldn't dare to put any content as I am not courageous person. I am feeling little bit tensed when I am writing this to you. Actually, I wanted to connect to you long time back. I got chance to connect at least this way. I can do some research work free of cost if given opportunity. My number is 98403 07892 [email protected]
Sourabh Jain
3 years ago
Thank you for giving voice to Mr. Kothari's efforts. I continue to be a proud subscriber to MF
Senthilkumar Subramanian
3 years ago
Dear money life , You are the only one who will stand with retail investors try to bring limelight as much and bring the scandalous prompters in front of the law . Kudos to MR kothari
Veeraiah Bandlamudi
3 years ago
The Exchange has sought clarification from the Company with respect to news item captioned- Did Directors of Kesoram Industries Indulge in Insider Trading and Short-change Minority Shareholders?In this regard, Exchange has advised the Company to provide clarification/confirmation on the news item in detail including the following: a) Whether such event/negotiations/article stated in published news were taking place? If so, you are advised to provide the said information along with the sequence of events in chronological order and the material impact of this article on the Company. b) Whether company is aware of any information that has not been announced to the Exchanges under regulation 30 of Listing Regulations. The response from the Company is awaited
rihanahmad
3 years ago
There is something wrong with the Birlas who lead this company . Infamous and corrupt. Fleecing poor minority shareholders who r waiting for demerger . My Tx to Mr Kothari .
ramchandran vishwanathan
3 years ago
Regulator needs to ACT
Excellent investigation by ML as usual . Kudos to Mr.Kothari for being an alert investor
Veeraiah Bandlamudi
Replied to ramchandran vishwanathan comment 3 years ago
Who is ML ?
Vaibhav Pandey
Replied to Veeraiah Bandlamudi comment 3 years ago
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