In 1973, a thirty something Citibank officer, Faroukh Irani, teamed up with Chennai’s money bag, A C Muthiah, to found India’s first ever leasing company. Muthiah had a bigger equity stake but Irani was the business’s boss.
In 1988, the company began its walk into trouble. First, it forked out Rs 170 crore to depositors when Mercantile Credit Corporation (MCC), a Muthiah company, faced financial trouble. This was never reported to the banks. Next, there were issues with a Singapore-based subsidiary. Trouble accentuated thereafter following an over reliance on short-term funding and a wanton asset-liability mismatch. Worse still, the 1990s diversification forays into mutual funds, consumer credit profiling, etc., floundered. Two IIM dons who joined the mutual fund left, unhappy with Irani’s policy of breathing down their neck.
When the financials really went for a toss, the RBI directed the company to cease transacting any business and barred it from disposing its assets, incurring new liabilities or declaring dividends. Meanwhile, State Bank of India probed Irani of suspicious dealings with funds of the company. He apparently admitted to a Rs 1000 crore hole in the balance sheet with liabilities outstripping assets by that amount. Soon the company placed its books under both special audit and forensic audit. When the preliminary report was out, Irani refused to play ball. Along the way, the company’s statutory auditors, Sarathy and Balu, resigned after stating that audit reports issued by them regarding the financial statements of fiscal 2013 should not be relied upon. Sundaram and Srinivasan, Chartered Accountants, were appointed by the Board to conduct the special audit of the company for the last five years. The company wanted to submit revised financial statements for 2013. The Board decided to take civil and criminal action against persons whom the forensic audit may identify. Irani submitted his resignation and so did Muthiah.
While Irani accused Muthiah of forging his signatures, Muthiah says the company’s woes happened right under Irani’s nose. Irani claims that he is a whistleblower and has nothing to benefit from the malpractice, as his shareholding is less than 0.3 per cent. He further claims that the accounts have been tampered with without his knowledge.
ICICI Bank has now filed a petition for winding up of the company.