Planting the Dream: The Anubhav Plantations Scam
Posted by Muthu on July 20, 2010
On 2nd December 1998, thousands of people from places like Shimla, Trichy, Sangli and several other Indian cities and towns converged at the New Woodlands Hotel in Chennai.
All of them were investors in the collapsed Anubhav group’s teak plantation schemes, and a majority of them were on the brink of bankruptcy.
They had come to Chennai in response to a letter from an advocate inviting them to come and check all the records and the balance sheet of the company.
The investors could be seen everywhere – sitting on the pavements, standing around the building, walking up and down the roads – all of them tense and worried. The investors had sensed wrong doings at Anubhav when the cheques issued to some of them bounced in mid-1998.
Many depositors, who went to the group’s offices to collect their deposit amount after maturity, found the doors locked and lodged complaints with the police.
Later, thousands of investors demonstrated in front of the company’s headquarters in Chennai.
But the main accused, C. Natesan, Chairman, Anubhav Group (Natesan), had already gone underground. The Anubhav group of companies was eventually found to have duped investors of over Rs.400 crores.
As details about the ‘Great Plantation Scam of the 1990s’ were revealed in the media, Natesan’s modus operandi shocked those who held the Anubhav group in high regard.
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 crores 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.
Anubhav’s shaky financial condition could easily be seen in its books. In 1996-97, plantation income amounted to Rs. 35.32 crores and net profit was Rs. 38.69 lakhs.
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 crores. The company’s paid-up equity capital was just Rs. 36 lakhs while its borrowings, both secured and unsecured, amounted to Rs. 2.64 crores. Loans and advances amounted to Rs 25.95 crores, of which Rs 10.75 crores 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).
Most of the plantation firms had a skewed capital structure. According to CRISIL’s findings, on an average, while Rs.35 lakhs was contributed from the promoter’s side, the public funds raised were usually above Rs. 300 crores.
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.
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.
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. ‘
(Source: Excerpts- Free case studies- www.icmrindia.org)