February 22, 2020
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Closed Encounters

With claims and counter-claims flying high, the real story behind the scam may never come out

Closed Encounters
Jitender Gupta
Closed Encounters
On August 3 afternoon, ex-uti chairman P.S. Subramanyam and three others were remanded to judicial custody in Mumbai for four more days after the Central Bureau of Investigation (cbi) informed the court that Subramanyam had admitted to calling up top government functionaries from his cellphone, and the cbi wanted to probe this angle further.

But, as Parliament turned into a chaotic battlefield yet again over the scandal, the question uppermost on everybody's mind is: in spite of all the debates and accusations and counter-accusations, will the real story ever be made public, or even probed properly?

Even though Lok Sabha Speaker G.M.C. Balayogi announced on Friday that the jpc investigating the stockmarket scam will also look into all other uti-related allegations made by the Opposition, doubts remain. In fact, even the Opposition may not be too eager to go beyond the usual shouting matches inside the House. And intelligence officers feel that the tarnished uti boss is a man who knows too much, which may trigger off a massive cover-up operation to protect larger interests and bigger players.

Says Congress MP Kapil Sibal: "The finance minister has said he's clueless about the investigation. That means only two things—either he's telling the truth and that's hardly a positive thing, or he is desperate for a cover-up." Sinha has put the blame squarely on Subramanyam and even dragged Manmohan Singh into the mess, by zooming in on a controversial Rs 1,073-crore uti investment in Reliance Industries in 1994. But while Sinha has steadfastly maintained that he was kept in the dark by uti, sources close to Subramanyam told Outlook that the latter had written to the FM twice, on May 18 and June 30, warning that the US-64 portfolio was bleeding and redemptions may have to be frozen. "Mr Sinha had dwelt on these letters for at least an hour and then asked Subramanyam to seek the board of trustees' approval for suspending redemptions," the sources revealed. They were eventually suspended on July 2.

Shiv Sena MP Sanjay Nirupam, who created a stir with his accusations about links between the uti scandal and top government officials, told Outlook: "What I have said is just a fraction of the explosive information that I actually have. But I cannot reveal further as my statements have hurt senior leaders."

Contrast this muddle with what the investigating agencies have unearthed, and the findings look startling:

  • A large chunk of correspondence between Subramanyam and Sinha is missing from the uti files. Investigators claim this was removed by Subramanyam and handed over to an outsider 48 hours before his arrest. Here, the role of a mysterious Parsi woman, known for her proximity to top uti brass, is under the scanner.

  • Large-scale corporate redemption at the attractive price of Rs 13.85 in April and May is another moot point. Companies that indulged in huge redemptions include Bombay Dyeing (Rs 346 crore), Reliance (Rs 173 crore), Hindalco (Rs 183 crore), Telco (Rs 147 crore), Tata Power (Rs 139 crore) and Bajaj Auto (Rs 50 crore).

  • The inexplicable silence of the rbi representative on the uti board for the last two to three years has also raised eyebrows. With a watchdog brief to oversee controversial investments, his subdued role has sparked off speculation and criticism.

  • Despite denials by sebi chairman D.R. Mehta, the cbi claims to have evidence to link him with uti's investments in the controversial Lucknow-based Cyberspace Infosys.Mehta, claim cbi sources, was regularly in touch with Subramanyam to help relative Rakesh Mehta of Renaissance Securities place uti's share in Cyberspace. Repeated rejections by uti's equity research cell were overruled.

    But can the political class afford a full-fledged probe into the financial sector? Consider this. The finance ministry has decided to review all investments made by development financial institutions (dfi) in the last three months. This, sources claim, followed after Sinha was informed last week that ifci sanctioned a Rs 550 crore loan to Flex Industries, allegedly at the behest of influential Samajwadi Party leaders. The same day the ministry forced other FIs to pump an additional Rs 840 crore into the beleaguered ifci.

    Senior cpi leader Gurudas Dasgupta, for one, has grave doubts about whether any politician really wants to dig deep into the mess. After all, he says, it was a non-bjp government that scuttled cbi's probe into uti's investments in Reliance and Y.P Singh, the superintendent of police who led the investigation, was transferred. Says he: "uti was also involved in similar dealings with many big companies. The US-64 scandal only vindicates the fact that economic fundamentals of companies hardly guide uti's decision-making. Everyone knows that uti is a government-backed mutual fund where the government continues to pull strings."

    Observers feel that instead of examining only the Cyberspace deal, as it's been mandated to do, the cbi should focus on the political pressure on the fund which actually separates it from private mutual funds. After all, even Jardine Fleming invested in Cyberspace. But such an inquiry is politically impossible as the entire House would love to avoid any confrontation with reality. And, most certainly, no government would seriously investigate itself.

    Take the case of the missing papers and the transcripts of taped conversations between Subramanyam, the pmo and the finance ministry. "We've demanded that all this be placed in Parliament," says Congress MP Priyaranjan Das Munshi. But the papers are still missing. Says Manmohan Singh: "The government seems uninterested in pursuing the current probe. Remember that private placements with Reliance earned profits for uti."

    In the meantime, as redemption of US-64 restarted on August 1, uti centres saw only a trickle of people. By the second day, its total outgo was Rs 14 crore. Indeed, it has now withdrawn the special counters set up for the purpose. The average demand per person was half of the 3,000 units that uti has allowed for redemption. Says M. Damodaran, chairman: "The absence of panic among investors indicates that uti has not lost the faith and loyalty of the average investor."

    The truth, however, is that investors are playing the wait and watch game. Says Manubhai Shah of the Consumer Education and Research Centre (cerc): "People are shocked and feeling terribly let down." Consumer organisations are waiting to see how pressure from the Opposition and the Shiv Sena will eventually turn the entire affair in their favour. cerc has proposed redemption for a value of up to Rs 1 lakh akin to the cover the Reserve Bank of India provides for bank deposits in the case of a bank going bust. "uti has always been promoted as a government-backed, solid scheme that has the security of bank deposits and postal savings. So it's only fair that the redemption offered is similar," says Shah.He is also asking for unlimited redemption for charitable trusts and public utilities so that the common man doesn't further suffer indirectly. If things don't improve, some of them will definitely approach the courts.

    uti has rustled up a credit line of Rs 10,000 crore to be able to redeem the units even if there is a rush. And with fears of large-scale redemption being allayed, the US-64 prices on the stockmarket firmed up by Rs 0.50 to Rs 9.25 on August 1 and increased to Rs 9.45 the next day. But analysts point out that the money is after all a loan. And if the nav is below Rs 10, who funds the difference?

    Says Damodaran: "I wish I was a soothsayer and that soothsaying was an accurate science. However, I anticipate a steady recovery in the economy and the market." While the damage control exercise continues, and the scandal further unfolds, it would be salutary for all concerned to keep in mind the following extract from uti's mission statement: "To keep the common man in sharper focus and to encourage savings and investment habits in him, to bring to the common man the prosperity of capital markets at the minimum risk through the habit of investing in units."

    And Arijit Barman With Charubala Annuncio and Priyanka Kakodkar
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