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Subramanyam, 2 EDs raided by CBI -- Investigation into UTI investment decisions ordered

Our Bureau

NEW DELHI, July 20

IT'S now time for Act II in the ongoing Unit Trust of India (UTI) saga.

Even as the Government today announced the constitution of a three-member committee to probe dealings in US-64, including allegations of insider trading, the Central Bureau of Investigation (CBI) conducted day-long raids on the Mumbai premises of top UTI officials, including the former chairman, Mr P.S. Subramanyam.

The committee, headed by the former RBI deputy governor, Mr S.S. Tarapore, has been given three months to submit its report.

The raids on UTI officials were conducted on charges of cheating, criminal conspiracy and criminal misappropriation to the tune of Rs 32.8 crore in a case involving share transactions of a little-known company, Cyberspace Ltd.

Simultaneous raids were conducted on the offices and residence of UTI Executive Directors, Mr M.M. Kapoor and Mr S.K. Basu, and General Manager, Ms Prema Madhuprasad. The CBI also raided the premises of Mr Rakesh Mehta, a stockbroker who is believed to h ave acted as a conduit for the illegal transactions.

The case, registered on Wednesday by the Economic Offences Wing of CBI, Mumbai, has alleged that the four officials conspired under pressure of `extraneous considerations' to enter into a private placement deal during July 2000 to purchase 3,45,000 share s of Cyberspace Ltd, Mumbai, at Rs 930 a share, despite the price of the company's scrip never having crossed Rs 2 on the stock exchanges.

The promoters of Cyberspace were the Johri brothers, Arvind and Anand, who earned notoriety in the Century Consultants Ltd, Lucknow case. The brothers, who are known offenders, were arrested in May on charges of defrauding public sector banks and others to the tune of Rs 200 crore.

Briefing reporters here, the CBI spokesman, Mr S.M. Khan, said that interrogations and further action against the officials would be decided only after the end of the search operations. The raids, which commenced on nine different premises at 6 a.m., wer e still on at the time of the press briefing in the evening.

CBI investigations have revealed that Cyberspace Ltd, earlier known as Cyber Infosys Ltd, a company purportedly dealing in computer software, had come out with an issue of private placement of 1.5 million shares on preferential allotment basis at Rs 930 per share.

On June 28, 2000, the company initiated a proposal with UTI to subscribe to the shares. The proposal was forwarded by the UTI top management to its own Economic Research Cell (ERC). After evaluating the offer, the ERC recommended against subscribing to t he offer. On July 17, 2000, the four UTI officials who were raided today decided not to invest in the shares of Cyberspace.

However, in an intriguing turn of events, the same set of officials revived the file four days later, on July 21, and reversed their earlier decision without any further reference to the ERC. The deal involved the payment of Rs 32.8 crore for Rs 3,45,000 shares of the company.

The CBI has alleged that the funds were diverted into various other shell companies and were not used for the purpose declared in offer document.

Our Mumbai bureau reports: It was a black Friday at UTI and employee morale was perhaps at its lowest. The otherwise busy and bustling dealing room remained completely shut.

Mr M. Damodaran, who took over as UTI Chairman recently, was in Delhi. The next senior-most official, Mr K.G. Vassal, was not available as he was co-ordinating the probe by CBI officials, sources said.

According to sources, UTI has made investments on private placement basis in the equity shares of Cyberspace (Rs 32.8 crore), Marwa Hotel (Rs 15 crore), K. Queen (Rs 15 crore), Baron International (Rs 40 crore), Belgapudi Steel, Palace Height Hotel (Rs 1 5 crore), Ambica Agarbatti (Rs 14 crore) and Mobile Telecommunications (Rs 24 crore).

UTI has also invested about Rs 35 crore in an unrated debt paper of Dishnet DSL Ltd, insiders said.

Probe into 10-year dealings

THE committee headed by Mr S.S. Tarapore has been asked to investigate investment decisions taken by UTI in the last 10 years, with special emphasis on transactions in the US-64 window.

The panel would be required to ascertain whether the investment decisions were taken on commercial lines or on extraneous considerations. The report would have to be submitted within three months.

The probe team would include the Chairman of the National Institute of Bank Management, Mr M.G. Bhide, and the former CBI director, Mr R.K. Raghavan.

The terms of reference for the panel include:

* Looking into the level at which investment decisions were taken, as also the appropriateness and transparency with which these were executed.

* The reasons (if these were other than commercial) for the high level of dividends declared by UTI for the US-64 scheme in the past and the decision to dip into the reserves to fund the scheme

* UTI's involvement, if any, in the Calcutta Stock Exchange pay-out crisis in February-March 2001; and

* Redemptions of US-64 units in April-May 2001; and if there was any breach of confidentiality.