Mismangement?

From Tehelka Magazine, Vol 7, Issue 08, Dated February 27, 2010

BUSINESS & ECONOMY scam

Another Satyam?
PISL, Andhra’s second largest IT firm, allegedly pocketed crores of rupees that belonged to the Japanese trading company Sojitz, says SHANTANU GUHA RAY


IN HYDERABAD’S Rs 32,000 crore IT market, they are calling it the second Satyam. The directors (including the independent ones) of Prithvi Information Solutions (PISL) — Andhra Pradesh’s second largest IT firm — have been issued summons by a city criminal court. The Rs 200 crore alleged fraud involves unpaid dues to a leading Japanese corporation.
PISL is headed by VV Rama Rao, a school teacher-turned-businessman with close political ties. His daughter Madhavi Vuppalapati and son Satish Kumar, who hold top positions in the company, are alumni of such prestigious institutes as the Carnegie Mellon University.
The company, listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), has allegedly diverted the amount to itself, violating various agreements that it had concluded with Japanese trading firm Sojitz Corporation in early 2008. The deal involved buying telecom equipment for the State-owned Bharat Sanchar Nigam Limited (BSNL).
Such is the open-ended crisis that in the last one year alone, as many as three auditors — Ernst & Young, PricewaterhouseCoopers India and Grant Thornton — walked out. Worse, Deutsche Bank, one of the world’s top banks, has accused the firm of making serious misrepresentations to avail credit facilities.
PISL furtively diverted payments in excess of Rs 186 crore to its own account. Now, the company is in a mess
PISL officials are not talking. “The case is sub judice,” a senior PISL official told TEHELKA. But it is reliably learnt that the Mumbai-based Securities and Exchange Board of India (SEBI), the BSE and NSE have received serious complaints from the company’s vendors. For the record, PISL is considered a preferred vendor by BSNL.
A former managing director of BSNL, Preetpal Singh, was recently appointed an independent director on the PISL board. It already has several industry veterans as independent directors.
So just what went wrong? In 2007 BSNL asked PISL to supply telecommunication equipment. PISL approached Chinese equipment manufacturer Huawei, which approached Sojitz to grant trade finance to PISL. All payments from it were to be credited directly into an escrow account, within the stipulated credit period of 270 days, from the date of equipment delivery. The account was opened with the Punjab National Bank.
“But PISL — without informing Sojitz or taking its consent — altered the payment terms and directed BSNL to credit the payments into an individual account. And BSNL agreed on the same day,” a top Department of Telecom (DoT) official told TEHELKA on condition of anonymity. “We are still ascertaining as to what prompted PISL to open another account and BSNL to agree to the change without obtaining the written consent of the other three,” the official added.
When Sojitz took up the matter with PISL, it first denied altering the payment terms. And when that didn’t work it claimed that BSNL had mistakenly sent the amount to another bank account. “Payments in excess of Rs 186 crore were illegally diverted to it,” the official added. For its part, BSNL deposited a token amount in the escrow account to deflect suspicion from the PISL.
And this isn’t all. Months after the PISL-Sojitz fracas, BSNL has shortlisted Vuppalamritha Magnetic Components Ltd (VMCL), a sister concern of PISL, for the Rs 1,000-crore WiMAX Rural Tender Project II — a wireless broadband which proposed to cover rural India.
Consider this one. According to the tender norms the four lowest bidders must share the work. But while the evaluation committee cleared the first three on November 26 last year, it raised objections in awarding the contract to VMCL. This, because it was being probed by the Directorate of Revenue Intelligence (DRI) in 2008 for alleged customs duty evasion of Rs 55 crore while importing transmission equipment for BSNL. The DRI show-cause notice — which is the equivalent of a chargesheet — blames VMCL and PISL for conceiving, devising and formulating a scheme to defraud the government.
In fact, DRI also rapped BSNL, saying some of its officials helped in hatching the conspiracy. But strangely BSNL — even after the DRI issued the first showcause notice to VMCL and PISL — decided to grant purchase orders worth Rs 480 crore to these firms. Complaints poured in not only from the committee evaluating the bidders. PR Ananthan, a senior official of the Southern Telecom Project Circle (STP) of BSNL, also asked the company’s director (consumer mobility), RK Aggarwal, to hand over the VMCL case to BSNL’s chief vigilance officer: because it had violated the integrity pact by falsely claiming that it had no criminal charges pending against it.
Pressure is now mounting on both PISL and BSNL to come clean.
WRITER’S EMAIL
shantanu@tehelka.com


From Tehelka Magazine, Vol 7, Issue 08, Dated February 27, 2010