Corporate FD Holders Facing Tough Times; appeal to govt

Moneylife Foundation has sent a memorandum to Arun Jaitley, highlighting how high profile companies like Helios Matheson and Jayprakash Associates have left their FD holders in a lurch

 

Tens of thousands of investors, including senior citizens, are stuck with fixed deposits in companies that are neither refunding their principal nor paying interest. Many of these investors have run from pillar to post, complaining to the company and agencies like the ministry of corporate affairs (MCA), company law board (CLB), economic offences wing (EOW) and the Securities & Exchange Board of India (SEBI). The complaints have fallen on deaf ears. One of the most egregious cases is that of Chennai-based Helios and Matheson Information Technologies Ltd (H&M). According to a status report submitted to the Madras High Court, H&M has collected Rs55.25 crore from 6,540 depositors from across the country. In January 2016, the Madras High Court ordered the liquidation of H&M and appointed an official liquidator. The hard-hitting court order noted that the company had siphoned off funds, ‘appears unreliable’ and ‘cannot be believed any further’. It has also directed an investigation by the serious frauds investigation office (SFIO). Moneylife has carried many reports related to H&M, highlighting, among other things, that, despite the company reporting good numbers, it has not been able to pay fixed deposit-holders. As per the reported numbers, the company has a track record of uninterrupted profits (60 straight quarters). At present, H&M continues to be traded on the stock exchanges without providing any comprehensive data, as required under the listing agreement of bourses, or facing any action from the regulators. 

 

Many of the companies that have defaulted on corporate deposits claim to be diversified industrial conglomerates. Stories like that of H&M, along with stories of other corporate defaults, highlight a deep rot in our regulatory and enforcement structure. They show that companies can get away with fake disclosures even as the grievance redress system of companies defaulting on fixed deposits remains either slow or non-existent. There is no fear of punitive action by the government. 

 

People who have invested in FDs, but have not yet got their money back, are facing major hardships. Many of them are senior citizens and need money for their sustenance and medical expenses. Many of them send repeated reminders to companies and complain to regulatory agencies, with little success. Some of them are homemakers who have no other source of income. This is in stark contrast to the promoters of these defaulting companies who continue to flaunt their wealth. 

 

Many people choose corporate FDs, lured by a slightly higher interest rate than available on bank FDs. Chasing high returns of company FDs can expose you to the risk of losing your principal if you don’t check the credibility and rating of the company and the instrument. It is simply not worth investing in a company FD only because the return is high. In fact, it should sound a warning bell since it means that the company is unable to raise resources from anywhere at lower rates, because its finances are weak. Some companies, from reputed groups like Jaypee and Yash Birla group have also defaulted. Companies like realty major Unitech, which was once a reputed large-cap company, have also not been able to pay their depositors. Thus, putting blind faith in a corporate group that is considered to be reputed may not work. 

 

At the request of many aggrieved seniors, Moneylife Foundation launched an online survey to collate information from investors with complaints about their FDs. Some 1,138 investors responded to our survey. They have filed a total of 1,596 complaints that have not got any redress. Unsurprisingly, H&M accounts for the largest number of complaints. Besides H&M, companies which have a large number of complaints are: Elder Pharmaceuticals, Jaypee Group, Unitech, Plethico Pharmaceuticals and Bilcare Ltd. The other companies were: Neesa Leisure, Phadnis Infrastructure, Micro Technologies, Jaypee Infratech, Yash Birla group of companies and Omnitech Infosolutions. 

 

The survey found that a majority of the aggrieved depositors choose to complain to the company itself, which is pointless. The CLB, MCA, EOW and SEBI are the regulatory agencies with whom they should seek to get their grievance redressed. 

 

The survey found that a mere 2% of the complaints made to the companies were redressed. A whopping 83% were unresolved, while others did not complain. Repeated phone calls, e-mails and sometimes even personal visits and pleading to these companies have not yielded any results. Many companies and their officers do not revert to the depositors. Some of the companies give repeated extensions for the due date of principal and interest, but they are not repaid even after the extension date elapses.  

 

The plight of many of these complainants is pitiable. A few of them are handicapped. Some of the senior citizens sent their medical bills to the company to make it aware of their state of affairs. Here is a sample of complaints from aggrieved depositors:

1. Prem Swaroop Bhatnagar from New Delhi raised a complaint with reference to deposits of H&M to EOW, Chennai, in December 2014. He raised complaints to MCA, ROC and CLB in April 2014. However, he has not received any response from them till date.
2. Parag Raje from Thane, who is handicapped, lame and bedridden, complained in May 2015 regarding non-payment of FD principal and interest relating to Elder Pharmaceuticals Ltd. 
3. Arvind Singh Rana from Delhi has not received FD interest as well as principal from Unitech Ltd. He has made several phone calls to its office and sent several e-mails. However, none of them elicited a response. He is wondering why the company is not maintaining transparency with the investors. 
4. Nutan Shrivastava, holds two FDs of Plethico Pharmaceuticals Ltd which are overdue. The company has made no attempt to reach out to the investors to inform them of the reasons for the delay, nor about when the payments will be made. She needs the money urgently, for a family exigency and needs to know when she will be paid her rightful dues.
5. Ahsa C Paradeshi has an FD with Zenith Birla (I) Ltd. She has made repeated complaints and sent several emails, undertaken endless correspondence and followed up with reminder letters and made telephone calls to the office of Zenith Birla (I) Ltd. However, no one has given any answer regarding the repayment of the FD.