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Tarapore panel wants probe into imprudent UTI investments

P Vaidyanathan Iyer

In a major indictment of the Unit Trust of India, the Tarapore committee, which scrutinised 19 individual investment decisions of the Trust, has said all these decisions were imprudent. The committee has recommended that a pre-investigative body should undertake a detailed audit of these investments.

The 130-page report, which has 44 specific recommendations, has found that in 18 of the 19 cases, the examination has revealed that the investment decisions were deemed to be imprudent and actually turned out to be wrong. In one case, the decision, which was deemed to be imprudent turned out to be right.

The 19 cases included a couple of Reliance group companies, Satyam Computer, DSQ Software, some more K-10 favourites and a few other companies.

The committee has said that the list of investments identified by it should be subject to detailed audit. Sources said, audit of three of the 19 companies has already been completed. The revelations of the audit should be put before an appropriate pre-investigative body for further examination.

The committee has suggested that the pre-investigative agency should check if extraneous considerations played a role in the investment decisions. If the decisions were found to be influenced by reasons other than commercial interests, action should be initiated as per the Prevention of Corruption Act, 1988.

It has also said that the character of inter-scheme transfers in the recent past has changed significantly from what was initially conceived by a sharp increase of transactions.

This causes concerns about the bonafide of the transactions and also raises doubts of window-dressing of the accounts. The committee feels that it is possible such transfers had been used to shift inter-temporal and inter-scheme profits to one set of unitholders at the cost of another set.

The committee has also pointed out that transfer of scrips when the transferee scheme was short of funds lead to the creation of negative liquidity. It suspects that services of brokers were used for inter-scheme transfers on verbal instructions. These were clearly violative of UTI's own policy as well as the Sebi guidelines.

The panel said that US-64's dividend and pricing policy was clearly faulty and had all the ingredients of a Ponzi scheme, under which the new entrants and those continuing in the scheme had to bear the burden of redemption at relatively higher prices. It, however, said that there were no extraneous considerations in the dividend policy of the Trust.

It has recommended insertion of a water-tight clause in US-64 to ensure that deviations from net asset value would not be permitted even for short periods.

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