The Anubhav Plantations Scam
| Case Code: FINC009 Case Length: 11 Pages Period: 1992 - 1998 Pub Date: 2002 Teaching Note: Available |
Price: Rs.200 Organization: Anubhav Plantations Industry: Agriculture, Farming & Fishing, Financial Services Countries: India Themes: Corporate Scams, Controversies |
Abstract Case Intro 1 Excerpts
Excerpts
Planting the Dream
A commerce graduate from Chennai's Vivekananda College and a chartered accountancy course dropout, Natesan was a man who dreamt big. His ostentatious lifestyle, his cars, and his plush office in Chennai's up market Royapettah area were frequently cited by the media as examples of his lavish tastes. Natesan started his career in 1983 by launching a consultancy firm, 'Yours Faithfully Consultancy.' In 1984, he entered the construction business with three partners. Three years later, he closed this venture and set up the Anubhav Foundation. In 1992, Anubhav Plantations Ltd. (Anubhav) was floated as a public limited company. Over the years, the Anubhav umbrella expanded to include various other companies such as Anubhav Homes Ltd., Anubhav Resorts Ltd., Anubhav Finance & Investments, Anubhav Communications & Advertising (Pvt.) Ltd., Anubhav Royal Orchards & Exports, Anubhav Hire Purchase Ltd., Anubhav Green Farms & Resorts (Pvt.) Ltd., Anubhav Agro, Anubhav Security Bureau, Anubhav Interiors and Anubhav Health Club. By 1998, Anubhav had become a Rs 250 crore group which, apart from its teak-plantation schemes, was involved in the timeshare, finance, and real estate businesses.
These companies were backed by a nationwide infrastructure of 91 offices and over 1,800 employees. Natesan had plans to forward-integrate from teak into furniture and to get imported machinery to make it. However, his growth strategy was focused mainly on mobilizing funds from investors. The group had already raised vast sums of money from the public in the form of fixed deposits, teak units, and a combination of fixed deposits and teak units. Natesan was extremely secretive about the financial performance of his group. In the plantations business, Anubhav was the market leader. It operated through four companies: Anubhav Agrotech, Anubhav Green Farms & Resorts, Anubhav Plantations, and Anubhav Royal Orchards Exports...
The Plantations Wither
Anubhav's shaky financial condition could easily be seen in its books. In 1996-97, plantation income amounted to Rs 35.32 crore and net profit was Rs 38.69 lakh. The low profitability was attributed to the group's high, non-productive, expenses. In March 1997, Anubhav's current liabilities exceeded its current assets by Rs 6.40 crore. The company's paid-up equity capital was just Rs 36 lakh while its borrowings, both secured and unsecured, amounted to Rs 2.64 crore. Loans and advances amounted to Rs 25.95 crore, of which Rs 10.75 crore had been lent to Anubhav Foundations, Anubhav Green Farms & Resorts, Anubhav Resorts and Anubhav Communications. In the schedule explaining the loan provisions, it was mentioned that the funds had been used for the purchase of residential apartments (Anubhav Foundations) and farmland (Anubhav Green Farms), and to meet the expenses incurred on advertising and marketing (Anubhav Communications)...
How the Schemes Worked
Most of the plantation firms had a skewed capital structure. According to CRISIL's findings, on an average, while Rs 35 lakh was contributed from the promoter's side, the public funds raised were usually above Rs 300 crore. Most of these companies did not even have sufficient crop insurance. Also, the offer documents of these companies did not highlight the risks involved. The lack of industry regulation made it virtually impossible for the average investor to distinguish between a fly-by-night operator and a genuine player. Most of these companies were reluctant to provide information about themselves. During investigations conducted by Business India, officials at Parasrampuria Plantations refused to even talk to the magazine. However, when the magazine sent people posing as investors, the response was extremely enthusiastic. Investigations regarding the schemes being offered by various companies across the country indicated that things were definitely out of joint...
Pruning The Plantations
According to estimates, more than 4500 plantation companies had raised over Rs 25,000 crore from the public during the 1990s. The laxity of the concerned regulatory authorities was a major factor behind these scams. In the early 1990s, setting up a finance company was very simple as there was no supervisory authority for sole trading or partnership firms, nor did they fall under any regulatory framework. This gave them a competitive advantage vis-a-vis the other non-banking financial companies (NBFCs). Though there was a limit on the number of depositors these sole trading or partnership companies were allowed to have, there was no ceiling on the amount of deposits they could collect. As per the Partnership Act, a partner in one company could be a partner in numerous other partnership firms...
Reaping the Fruits of Greed
With the stock markets performing badly and banks cutting back on interest on deposits, plantation schemes appeared very attractive for investors impatient for returns and willing to take risks. An investor commented, "Why do people invest in these kinds of firms? Because people want to make more money, fast. What do we get from the nationalized banks as interest? A mere 5-7%! Whereas Anubhav was paying 21-24% interest. Why can't the government pay better interest?" Explaining why these schemes were so attractive to the public as well as the finance companies, Natesan commented, "We offer 24% for all deposits of three years and above. This is not high when compared to the interest charged on loans by banks. I borrow from banks at 18%. When I do that, I have to offer security for a similar amount...
Exhibits
Exhibit I: A SEBI Press Release on Collective Investment Schemes
Exhibit II: Anubhav - Key Financials
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