On Wednesday, 2 December 1998, came the news that sent investors into panic. Anubhav Foundations, the much-acclaimed business group, sunk into oblivion and with it took the money of countless investors into the deep sea. What happened and how did they get into such wreckage? Let’s rewind.
C Natesan, a CA dropout, promoted Anubhav Foundations, a motley group of companies with interests in finance, real estate and timeshare. In 1991, as part of the liberalisation drive, the government opened the agricultural sector to private players.
Anubhav stepped in by venturing into teak farms. The group expanded operations and set up offices across the country. With 91 offices and approximately 1800 employees, it earned people’s trust.
The seeds of the crisis were sown when its teak division formulated several attractive schemes that offered incredible returns. Promising returns of 20 per cent to 30 per cent, the company raised money from a gullible public. By 1998, Anubhav was a Rs. 250 crore entity.
Look at the sham. The Teak Farm scheme required an investment of Rs. 6000 and gave the investor 300 sq. feet of land plus three teak trees at the end of a rainbow period of 20 years. The returns were both periodic (option A: Rs.1000 annually for 6 years, Rs.6000 after 6 years and Rs.12,000 after 12 years. option B: Rs.15,000 after 6 years) and terminal (Rs.300,000 or about 40 cubic feet of teak). Other schemes such as Good Earth Unit Scheme included ownership of land, as also 100 square ft. of land on lease for 5 years. The investor was required to sublet the land to Anubhav for bi-annual returns of Rs.500 and Rs.5000 after 5 years and 1.13 cubic metre of teak after 20 years. Reads great, isn’t it?
But note that the minimum investment amount was disproportionately higher compared to standard rates. The cost of 300 sq. ft. of an area in the 1990s was merely Rs. 240 and the cost of sapling an estimated Rs. 20. Against that the company was charging Rs. 6000. It justified the difference as being towards quality soil, fertilizers, maintenance, security, water, etc. Investors bought into the dream.
Those in the know said that the indicated agriculture yield was too good to be true. There was too much reliance on unexpected events.
Ignored wake up alarms
Several disturbing reports in the company were overlooked. The excessive reliance on borrowed funds (public funds to promoters contribution was in the ratio 1000:1) uncanny cash flows, ostentatious revenue expenditure, asset liability disparity and unreasonable dependence on unexpected events were all red flags. There were several dubious claims made by the company including sale of land over which they did not have any ownership. In some cases, the documents were photocopies and unstamped.
Soon reality came home to roost and Anubhav’s cheques started bouncing. Natesan went underground after defrauding investors in a
Rs 400 crore scam. The lack of industry regulations, liberalisation in plantation sector (Rs. 25,000 crore was raised by 4500 Plantation companies during the 1990s), sheer greed of the public for higher returns, overlooking negative alarms, all led to the fall. A reckless entrepreneur had smashed the lives of thousands.
Where did all the money go? It was diverted to other companies under the Anubhav group such as Anubhav residential apartments and Anubhav farmlands, in addition to extravagant spending of the founder.
Reaping regret today
An investigating team was appointed and Natesan was held in judicial custody for a continuous duration of 8 years. In 2007, he came out on bail. After the horse had bolted, SEBI appointed a committee to establish detailed regulations to govern the industry. It also appointed a team of CAs to audit the books of the companies.
Out of the 33,761 depositors, the claims of 32,365 were settled. Out of the Rs. 107 crore invested by small investors, approximately Rs. 100 crore has been settled. This scam was yet another example of how a gullible crowd repeatedly gets overawed by opportunities that are too good to be true. Every ten years or so a Natesan will arrive in this world.