MS Shoes Fall - Pavan Sachdeva Struggling
In the MS Shoes Fall Series by Alborz Azar, he reveals another side of Pavan Sachdeva. After the completion of the HUDCO Scam series, Alborz decided it was time to shed light on the man who had spent twenty-five years defending his innocence along with exposing the many scams in India. As an English attorney, Alborz understood first-hand the trials of handling large court cases regularly in the U.K. During their thirty-minute zoom conversation Alborz agreed that Pavan had always been committed to following honest business tactics, and agreed to write about his story.
The MS Shoes Fall Series Book One uncovers the initial phase of Pavan Sachdeva’s rise to fame. As the story progresses, one thing becomes apparent: you cannot judge a book by its cover. Alborz, in the meantime, is committed to exposing the fraudulent activity that caused one man so much unjust anguish.
Pavan Sachdeva’s family moved from Pakistan when the country was divided during the independence. Following in his father’s footsteps, Pavan started as a small manufacturer of shoes in 1975 supplying to Bata. As his knowledge expanded, Pavan switched to exports and grew to an enormous company after establishing MS Shoes East Limited in 1986. MS Shoes became the largest exporter of shoes from India to Western European countries, which were hard currency areas, not to mention the boost it provided to India’s economy.
The company’s growth grew tenfold in a year and he started expanding, modernizing his industry to its full extent. In 1987 the company’s value was Rs. 3 Crores (USD 1.3 million) and reached Rs. 32 Crores (USD 12.3 million) in1992 with a profit margin of 25%, because of incentives given by the Government of India to prompt exports. MS Shoes came out with its first public issue in 1992 and thereafter was a listed company. The second public issue was fully convertible debentures (FCD) that came in 1993.
In 1994, MS Shoes arranged an understanding with the management of ITC Hotels and submitted the bids to HUDCO, Housing Urban Development Corporation. They are a public sector company fully owned by the government and controlled by the Ministry of Urban Development for all purposes.
MS Shoes successfully won the bid for a Five-Star Hotel along with a car park that HUDCO already constructed. The other properties were 363 rooms, 9 restaurants, and 25 shops constructed by HUDCO at Andrews Ganj. The award was allotted to MS Shoes for Rs. 178 Crores (USD 56.7 million). The company paid Rs.68.68 Crores (USD 21.8 million) in 1994-1995 as the first installment towards these properties, being 40 percent of the total consideration.
MS Shoes planned the public issue in September 1994 for these projects and a Yarn Project. It later shifted the collaboration agreement from ITC Hotels to Intercontinental Hotels of USA. The approvals from all government authorities for the public issue were obtained, including the Securities Exchange Board of India (SEBI) and Registrar of Companies (ROC).
The public issue, now being called an IPO, was planned for Fully Convertible Debentures (FCD) to open on 14th February 1995 for Rs. 350 Crores (USD 107.9 million) for the public @ Rs. 199 (USD six) having a face value of Rs. 10/-(USD 0.30), Rs. 78 Crores (USD 24.0 million) for non-resident Indians (NRI) @ Rs. 250 (USD 7.7) and Rs. 271 Crores (USD 83.5 million) @ Rs. 154 (USD 0.47.5) for the right issue for the existing shareholders. The earlier date of FCDs floated in 1993 were to be converted into equity on 1.4.1995 as they were eligible for issue, due to which SEBI approval once the right documentation was received after 1st April 1995, instead of within thirty days of public issue.
As MS Shoes discovered, many enemies wanted to take down the company. The ITC Hotel’s, Taj Hotel’s hoteliers, were jealous, including the other bidders who wanted the valuable properties, so they started sharing negative publicity. Pavan Sachdeva took the collaboration away from ITC Hotels, and Taj Hotel with the Intercontinental Hotel deal. One of their hotels was in the name of Taj Intercontinental.
The incessant attacks continued, as MS Shoes and Pavan Sachdeva disrupted the backdoor arrangement of Ansals Properties & Industries Limited, who could not get the shopping arcade at Andrews Ganj for Rs. 46 Crores (USD 14 million). It was not until later that Ansals got it for Rs. 168 Crores (USD 51.8 million). The difference in cost upset Ansals.
The negative publicity shifted to Pavan Sachdeva, although it was mostly generated by many of the hoteliers. One of them was Mr. Somesh Mehrotra, Director of VLS Finance Limited, who was not taken as one of the lead managers by Pavan Sachdeva at the behest of SBI Caps Limited, the first lead manager. Another name in the market was Mr. Ajay Kalsi, Director of Phoenix Shoes, who was allotted the Cultural Center at Andrews Ganj, but he could not get the five-star hotel land. However, the negative publicity also continued from an international broker with whom roadshows were carried out by Pavan Sachdeva in the U.K. and Europe. The international broker wanted Pavan to offload a major part of the promoter equity at a discount of Rs. 100 (USD 3.08), however, his offer was declined by Pavan Sachdeva.
At this point, the negativity continued with merchant bankers who were interested in taking the promoter equity but declined by Pavan Sachdeva. One of them was the Merchant Banking Division of one of the private banks not to be named.
The major false complaints were created by Gujarat Apar Polymers Limited directly and through Amarchand & Mangaldas & Hiralal Shroff & Co., a big solicitor company in India that hired a former Joint Director of CBI, Mr. K. Madhavan, who was famous as he was involved in the investigation of a security scam – Bofors and Bhopal Gas tragedy – and had just retired. They filed complaints with the concerned ministries and the government departments against Pavan and his companies. Mr. K. Madhavan and Ms. Pallavi Shroff, the partner of Amarchand, carried and delivered the complaints under their name personally to the concerned ministers.
As Pavan handled the complaints in writing, he explained the truth; however, transparency is not what the interested parties wanted to hear. There were complaints filed with SEBI; brokers were buying shares and making money. A negative report against SEBI was planted by Mr. Amit, naming Mr. L.C. Gupta, one of the directors of SEBI, and filing a complaint against MS Shoes, which was also used by the corporate world to file complaints before SEBI and the Finance Ministry. Some newspaper reporters were used to malign the image of Pavan Sachdeva and MS Shoes. Many brokers were involved in buying MS Shoes shares and short selling to make money. Due to default by these brokers at Bombay Stock Exchange, there was closure for three days in March. Pavan in all honesty and under desperate times came to the rescue by depositing the promoter’s shares to cover the default in the first week of March 1995 by the brokers.
Unknowingly to Pavan Sachdeva, HUDCO lured him into a trap, as he paid Rs. 68.68 Crores (USD 21.8 million). HUDCO concealed the fact that they had no title on the building constructed at Andrews Ganj. The deal was completely illegal, constructed without authorization by authorities. The government also knew that there were no building plans sanctioned, no fire approvals nor DUAC approval.
Initially, the public issue was fully subscribed in the first three days and had to be mandatorily closed on the 4th day of the opening of the issue. It was closed and publicly announced. Due to the bad publicity by the media, the subscribers withdrew their applications and on 15th March 1995; the subscription fell to 40%. As a result, the issue was devolved to the 267 underwriters who had underwritten the entire public issue.
On 4th April 1995, India Today’s reported Pavan Sachdeva denied any wrongdoing. At the behest of business rivals and underwriters on whom the issue devolved, an FIR was registered by CBI. The Anti-corruption Cell spoke out as if they were Pavan Sachdeva and must have bribed SEBI officials to open the right issue after 1st April 1995, thereby relaxing the condition of the opening of the right issue in 30 days.
CBI raided the company premises and the home of Pavan Sachdeva, arresting him on 6th April 1995. They kept him in police custody in Mumbai for 15 days when the bail was granted on 21st April 1995 by the court.
The underwriters failed to pay within 60 days and MS Shoes refunded honestly the money collected on 22nd April 1995, as per the terms of the prospectus. In the meantime, the payments due on 30th April 1995 were declined by MS Shoes to pay HUDCO, informing them of the errors, concealing various facts, but HUDCO declined to consider this.
HUDCO, without responding to the letters from MS Shoes, threatened to cancel the allotments and forfeiture of the amount paid. Mr. Raj Liberhan, Executive Director of HUDCO, made the statement in the media around 26th April 1995 that if the money is not paid by 30th April 1995, then HUDCO would have to forfeit the entire amount. There was no provision for further extension or negotiation. HUDCO further stated they were holding possession of the site.
This decision forced MS Shoes to a court hearing against HUDCO. A separate hearing was held against the 267 underwriters, who had failed to pay on the devolvement of the public issue. MS Shoes deposited Rs. 35 crores (USD 10.7 million) in 1995 in the High Court of Delhi and a Rs. 90 crores (USD 27.7 million) cheque was presented, which HUDCO declined to accept since the properties had appreciated to five times the original price given to MS Shoes. HUDCO canceled the allotments, forfeiting the amount of Rs. 68.68 Crores (USD 21.8 million), which had been fraudulently received from MS Shoes by way of concealing material facts that any prudent builder is required to disclose to the buyer. The non-payment to HUDCO was forced to be incorrectly labeled default.
The bridge loans obtained of Rs. 100 crores (USD 30.8 million) out of which MS Shoes had paid to HUDCO were secured only against the collection of the subscriptions under the public issue, and they defaulted as the public issue failed. Upon the return of the money to the subscribers, banks filed recovery proceedings against MS Shoes and Pavan Sachdeva, who auctioned various properties owned by the company, and the directors who held guarantors to the loans at throwaway prices. MS Shoes also faced petitions filed by the private lenders who were fully paid a few months later. MS Shoes lost its net worth, due to being forced to file for protection before the Board of Industrial and Financial Restructure under the Sick Industrial Act to protect the company’s unsold assets. But in complete transparency, MS Shoes and Pavan Sachdeva paid all banks and creditors with the sale of all owned properties and were finally left with no assets except a home that was legally protected under the law.
In 1997, Leela Hotels were allotted the same five-star hotel land for Rs. 218 Crores (USD 72 million), three times the value allotted to MS Shoes. Leela Hotels had possession of the property for two years till 1999, but had to be refunded by the Supreme Court with 18% interest pa till the date of award and thereafter compounded with 15% interest pa. The refund was because their building plans for the hotel could not be sanctioned because of regularization of land use and approval of revised layout plans by the authorities, including drainage plans and an unauthorized parking lot. The plans were finally approved in September 1999 as against the amounts received by HUDCO from MS Shoes in 1994 -1995 and forfeited in early 1996.
Ansals was granted various time and interest-free extensions till the building plans of the parking lot were regularized and the interest was given on the amounts paid till the date of sanction of their building plans, which caused loss to the exchequer of Rs. 13 Crore (USD 4 million). MS Shoes was never offered the same treatment as the building plans were compounded in 1998 after HUDCO had the title on 4th July 1997.
In September 1998, CBI closed the case on Suo Motu and the court accepted the closure report, but Pavan Sachdeva was ruined and MS Shoes had fallen. The incident left Pavan Sachdeva struggling to regain the monies loaned to Hudco; after they deceivingly concealing various material facts. The properties at present are worth Rs. 5000 crores (USD 654.62 million) while HUDCO has earned interest @ 14% to 18% compounded monthly on Rs. 68.68 Crores (USD 21.8 million) received in 1994-1995 from MS Shoes, besides enjoying possession of the properties as well as an increase in the market value earned by HUDCO and the government all at the cost of MS Shoes.
A corporate collapse typically involves jealousy in the corporate world resulting in disastrous growth of an up-and-coming company like MS Shoes, a major business enterprise till 1995. A corporate scandal involves alleged or actual unethical behavior by people acting within or on behalf of a corporation like Gujarat Apar Polymers Limited and their solicitors Amarchand & Mangaldas & Hiralal Shroff & Co., as well as the proud retired Joint Director Mr. K. Madhavan from CBI.
Although Pavan has been exonerated by the courts of any wrongdoing, the false charges have ruined his life in many ways. However, the media tried him before any evidence could be proven in a court case. All efforts have proven his claims of innocence against the same underwriters of the public issue, which has never been contested in his country or by any company, large or small. Considering the newly proposed information, Pavan set out on a lifelong journey to return to MS Shoes and its 51000 shareholders the monies that HUDCO received deceivingly. However, he never expected the venture to take over twenty-five years. Pavan has yet to see any reimbursement for the past monies owed to MS Shoes that HUDCO falsely received on behalf of the government.