Presented by:Jyoti Anand 005

Madhurika Bendre 008Jaideep Dahiya 018Girish jeswani 020Abhinav Saraf 041

• Tata Financial limited was incorporated in 1984, whose 63% share was with Tata family and 26% with Public.

• On May 25, 2001, about a week before former Tata Finance managing director Pendse called it a day , the Tatas discovered gaping holes in the TFL accounts.

• It had a huge inter-corporate deposit (ICD) exposure to its subsidiary Niskalp Investment & Trading Company Ltd breaching ICD limits and its capital adequacy ratio (CAR) was propped up by dubious means violating all RBI-laid prudential norms.

• The Tatas also found that not only the RBI but also SEBI had been taken for a ride as the Tata Finance rights issue document did not disclose the real state of affairs in the company. It made huge losses by playing in the stock market through Niskalp.

• Borad expressed loss of confidence in Pendse, but he refuted all these allegations. He said the board knew about everything that had been done and that he was now being made a scapegoat.

• The entire TFL board led by chairman Freddie Mehta also quit accepting "constructive moral responsibility".

• In June 2001, TFL appointed A F Ferguson & co. to conduct a full scale investigation and submit a detail report.

• The 904-page report, parts of which were leaked, was particularly critical of corporate governance in Tata Finance and its subsidiaries.

• It unearthed several questionable inter-group transactions intended to help various group companies including Tata Chemicals and Telco.

• It harped on the lack of "accountability and transparency" in various dealings. To top it all, the report was also highly critical of TFL vice-chairman Kishore Chaukar and blamed him for suppressing information.

• Essentially, the Ferguson report made one point: the suggestion to commit irregularities may have emanated from a few but many other agreed to them.

• Substantial diversion of funds from the company to its subsidiaries

• Violation of prudential norms prescribed by RBI

• Possible violation of provisions of Company acts.

• Significant deployment of funds for funding stock market operations through subsidiaries

• Allegation of insider trading in TFL shares by directors of company.

After one month of report delivery:• The audit and consultancy firm withdrew

the report and sacked its author Y M Kale and his team. It also agreed to prepare a fresh report with a new team.

• They even accused Kale of withholding crucial information provided by the former company secretary of Niskalp, Prakash B Karyekar.

• August 6, 2001 - the Tatas filed an FIR with the Economic Offences Wing of the Maharashtra government against Pendse and five other senior executives of the company

25 May 01 – BoD got to know about the financial troubles of company

31 May 01 – BoD lost faith in Pendse, same was communicated to him

June 2001 – Kale (From AFF) started working on the case

21 July 01 – Pendse revolts back 23 July 01 – AFF primary report is

submitted

April 2002 – final report by AFF submitted

July 2002 – Extracts of the report appear in media

2 August 2002 – AFF withdrew the report

8 August 2002 – Kale was sacked by AFF

Kale was associated with AFF for 3 decades Kale was a former chairman of ICAI, had

served on the committees of several regulatory agencies and government bodies

He was likely to be the successor to the current President of AFF

His report mentioned : Systemic failure at TFL

• Why did the Tatas take such a long time after the report was submitted to register their reservations?

• Why did they wait till parts appeared in the media to announce that it had actually been withdrawn?

• Similarly, why did former TFL chairman Freddie A Mehta pay a glowing tribute to Pendse at the 16th annual general meeting of TFL (on November 22, 2000) barely eight months before the Tatas filed the FIR alleging criminal conspiracy and falsification of accounts?

• Why did the group and the company's board abdicate power in his favour?

• Reputation of TFL and AFF at stake• Blame game on specific individuals questions

responsibilities of board of directors.• Partial disclosure of information to shareholders• Unauthorized fund transfer through ICD• The suggestion to commit irregularities may

have emanated from a few but many other agreed to them.

• Failure of effectiveness of appointed statutory auditor and internal audit committee before this fraud disclosure.

• Crisis Handling

• Scenario one: Pendse is the villain of the piece. He managed the system so well that the Tatas can do little about it.

• Scenario two: The Tatas manipulated Pendse. He was encouraged to gamble in the market and the Tatas supported him while the going was good. When the market crashed,Pendse found himself isolated. A systematic campaign was launched to destroy him.

• Scenario three: The TFL don't have sufficient internal checks and balances.

The disaster could have been avoided if There were efficient internal control systems

which could have predicted the disaster earlier Stricter control by the regulatory bodies (SEBI)

could have ensured restrictions on insider trading

Active participation by alert BoD could have revealed the fiasco earlier

Better communication between concerned authorities could have avoided public disgrace

Strictly adhered Whistler Blower policy was in place