UTI ignored advice from within

By Vinay Kumar

NEW DELHI, JULY 23. The CBI probe into the Unit Trust of India- Cyberspace Infosys affair is likely to throw up several uncomfortable questions on the functioning of the UTI. In the dock for the US-64 fiasco, the UTI went against the recommendation of its own ``Equity Research Cell'' to subscribe to the private placement offer of Cyberspace Infosys Limited.

The First Information Report, registered by the CBI in the case on July 18, reveals that Mr. Arvind Johari, director of Cyberspace Infosys, ``brought undue and extraneous influence on UTI executives and offered some consideration to induce them to change their earlier decision and subscribe to the shares of his company.''

Though the FIR does not elaborate on ``undue and extraneous influence'', Mr. Johari's powerful political links in Lucknow have already come to light. Well-placed sources in the CBI indicate that Mr. Johari could have struck a deal with the stockbroker, Mr. Rakesh G. Mehta, to tilt the UTI's decision in his company's favour. However, this alone could not have been the sole reason for the UTI top brass to reverse its decision and subscribe to Cyberspace shares. Sources in the agency also brushed aside criticism in the financial circles that the CBI was not ``well-versed and competent'' to probe the UTI-Cyberspace affair.

The FIR said the file for participation by the UTI in private placement of the equity of Cyberspace was revived by Ms. Prema Madhu Prasad, general manager, UTI suddenly on July 21 last year. It recommended the sale of existing share holding of Unit Trust of India in Cyberspace Infosys Ltd and subscribing to 3,45,000 shares at the rate of Rs. 930 per share in private placement.

``This was done by Ms. Prasad without any new material having come on record to justify the sudden revival of the decision taken by top brass of the UTI on July 17 last year. She put up a misleading and misconceived note recommending the sale of existing holding of 2,42,000 shares of Cyberspace Infosys Ltd. and subscribing to 3,45,000 shares at the rate of Rs. 930 per share,'' the FIR said. Her note was approved by the UTI executive directors - Mr. S.K. Basu, and Mr. M.M. Kapur, and the then UTI chairman, Mr. P.S. Subramanyam ``in undue haste on the same day, disregarding the expert professional advise of the Equity Research Cell.

The FIR claimed that Mr. Johari knew pretty well that there were no takers for his company's shares as the offer was so unattractive that another company controlled by him - Century Consultants Ltd., had to arrange for purchase of substantial quantity of such shares in the names of other group companies.

The CBI said that fund managers of the ``Department of Fund Management (Equity Systems)'' had not shown any interest in the offer as they did not consider it attractive enough for investment by the UTI. The FIR said that Rs. 32.08 crores was paid by the UTI to Cyberspace Infosys Ltd., on July 27 last even before disposing of 2,42,000 shares as proposed in the recommendation of Ms. Prasad on July 21. This was also done with the approval of the then chairman, Mr. Subramanyam, and a cheque of Rs. 32.08 crores was issued on July 27 itself and hand delivered to Mr. Johari the same day.

The funds raised through private placement were to be utilised for acquisition of various US and UK-based companies for expansion of the company's business. However, the FIR said that on July 27, 2000 an account was opened by Cyberspace Infosys Ltd. with Punjab and Sind Bank, Fort branch, Mumbai and Rs. 32.08 crores was deposited in it and dishonestly diverted to various other accounts for purposes other than for which it was solicited from subscribers of equity in private placement, including the UTI. It was alleged that the funds had been ultimately utilised by directors of Cyberspace Infosys for trading in shares of their company through various front companies with a view to hiking the prices as well as to maintain the already rigged up prices of shares of Cyberspace Infosys and the company's directors allegedly misappropriated the funds of the UTI for personal use. The company never intended to execute expansion plan as envisaged in their offer of private placement.

Immediately after the funds were released by the UTI to Cyberspace Infosys, price of the equity share of the company at the Bombay Stock Exchange started Southward Journey, indicating that the share prices prior to private placement were artificially rigged up.

Send this article to Friends by E-Mail

Section  : National
Previous : Renewed 'Save Silent Valley' call
Next     : Three officials suspended