|Column : The importance of being PK Tayal|
| Sunil Jain|
With a 30% hike in the volume of bank debt being referred to the Corporate Debt Restructuring (CDR) cell in the June quarter over the March quarter, a R2,811 crore proposal from 8 companies of the Pravin Kumar Tayal group doesn’t really stand out as exceptional. Sure, it is among the highest—VISA Steel’s R3,000 crore is higher, Indu Projects’ R2,800 crore is virtually the same but if you look at the CDR’s approved so far in the June quarter, HCC’s R3,300 crore is higher, as is Bharti Shipyard’s R2,850 crore and Hotel Leelaventure’s R4,300 crore. (Interesting aside: Of the list published by FE last Wednesday, only in one case is a private bank one of the lenders!)
What gets your eye, however, is the number of close brushes PK Tayal has had in the past, and how he’s generally emerged relatively unscathed from them. The proverbial nine lives, if you will.
2010 was a bad year for Tayal in the sense that, apart from RBI working to ensure a merger of the Bank of Rajasthan with ICICI Bank, Sebi also banned 100 entities associated with Tayal from dealing in the securities market for various fraudulent practices. In a nutshell, Sebi said the Bank of Rajasthan, which was controlled by Tayal and his group of companies, gave out wrong facts about the holdings of its promoters. Instead of the shareholdings falling to comply with RBI directives, from 44.18% in the quarter ending June 2007 to 28.61% by the December 2009 quarter, according to an RBI complaint to Sebi, they were actually rising. This was done, Sebi alleged, by the Tayal group giving funds to other companies to buy Bank of Rajasthan shares in a benami manner.
With then Sebi member KM Abraham alleging he was under pressure to go easy on Tayal, Pravin Kumar’s goose looked pretty much cooked. A little over 3 months ago, however, Sebi’s Prashant Saran gave a most amazing order absolving Tayal (http://goo.gl/L98Bf). The order agrees that Tayal has had more than a bit of a past: “there is substantive material on record to suggest that the entity was involved in similar manipulative activities in the past” and talks of “continuous non-adherence to the law and the repeated nature of violations by the entity.” That said, it goes on to suggest RBI wasn’t really serious about the complaint it had made and, in any case, given that few in the public bought or sold the Bank of Rajasthan shares Tayal was accused of manipulating by refusing to give out correct information on the shareholding pattern, “I am of the opinion that such an offence would have been considered as very serious or fatal if the wrongful disclosures would have led genuine investors into trades that would eventually expose them to much greater risk …purely from a securities market point of view, the severity of the offence could be considered not very grave.”
This, however, is not the first time Tayal has managed to convince the authorities that he was right. In 1998, the Central Economic Intelligence Bureau said it had found evidence of R300 crore having been siphoned off from various Tayal companies and lent to other firms who, for reasons that are obvious, were buying shares of the Bank of Rajasthan—it had to be done in this clandestine manner since RBI has a cap on the shareholding of individuals in banks. Having bought the shares, the firms gave proxies in favour of Tayal and he eventually became chairman of the Bank of Rajasthan. Apart from recommending Tayal be removed from the companies, the Mumbai regional directorate of the Department of Company Affairs (DCA)—which was investigating the matter after the CEIB shared its findings—asked the DCA for permission to ask the Institute for Chartered Accountants of India to take action against the auditors who certified the false accounts, but the DCA sat on it. For reasons best known to it, however, the DCA decided to do nothing about this.
Actually, that’s unfair, the DCA took what it felt was strong action, it fined Tayal’s companies a princely R58,000—it didn’t get into why the companies were giving loans to others who were buying shares of the Bank of Rajasthan or why the proxies were being assigned to Tayal; it just took the tack that the company had committed illegality by not taking the board’s permission before lending the money, that lending limits had been breached and stuff like that!
The DCA having done it’s bit and ‘compounded’ or regularised the illegality, RBI decided to play the perfect babu—it didn’t proceed on the benami share angle or the siphoning off funds and allowed Tayal to take over the Bank of Rajasthan since there was no pending investigation/charge against him. A decision it must have rued later since, over the years, it appointed an additional director on the bank’s board, a CEO, and even ordered a special audit of the bank’s books, after which the bank got merged. Though RBI did the wise thing by containing whatever problem the audit report revealed—RBI never made the report public—in order to avoid any sort of panic in the banking sector, Tayal managed to walk away with 1 ICICI Bank share for every 4.72 shares he held in the Bank of Rajasthan, directly or indirectly.
There are more close brushes, such as the one where the taxman said Tayal had inflated machinery purchase costs with fake bills of R145 crore—Tayal maintained the bills were genuine—but, eventually, Tayal managed to convince the authorities and even got a tax refund for this period.
Given Tayal’s track record, but the state the banks are in with CDR requests growing like never before, it’ll be interesting to see how they deal with the restructuring request.
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