SEBI asleep over Geodesic scam

Crazy about “corporate governance norms”, SEBI is blind about Geodesic Geodesic has defaulted in repaying its FCCB holders and loans to financial institutions. Sebi, which is trying to continuously make corporate governance norms tougher, is asleep as usual Geodesic Limited the sham internet software and service provider has run up more than Rs1,2000000000 of liabilities and defaulted on payment of its Foreign Currency Convertible Bonds (FCCB) and loans. During the June 2013, all the independent directors resigned from the post of directorship and till now the company has not appointed any independent directors on its board, offending the clause 49 of the Listing Agreement. Moreover, its accounting is a mess. Geodesic submitted its year ended June 2013 results, revised year ended June 2012 results with its September and December quarter standalone results to the exchanges altogether on 15 February 2014. This is a scam of large proportions with accounts fudging, siphoning of money and possible hawala transactions involved. and yet, no regulator - the stock exchanges, the ministry of corporate affairs and Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) is bothered. Moneylife reader and investor, Krishna Raj has filed two complaints with Securities and Exchange Board of India (SEBI) about non-disclosure of its financial results and subsidiary accounts along with non-disclosure of material information on FCCB repayment. SEBI failed to give him satisfactory reply and said that, company is taking necessary steps regarding FCCB repayment issues and company in its annual report 2011-2012 has stated that Ministry of Corporate Affairs (MCA) has granted general exemption to attach various documents in respect of subsidiaries as per section 212(8) of The Companies Act, 1956. Hence the subsidiary companies account is not attached with balance sheet. Investor may ask the company for the full annual report. Geodesic had raised funds through FCCB during the year 2008, which was due for repayment in January 2013. However the company has not been able to discharge this liability. The FCCB holders through their Trustees; Citibank London, filed a winding up petition against the company for defaulting on the dues. Recently during February 2014, the London Court has given a summary judgment and directed Geodesic to pay Citibank, a sum of US$157 million and US$14.88 million in respect of unpaid default interest upto 07 February 2014. It includes penalty of US$39,266 per day of default interest from 08 February 2014 to the date of payment. It also ordered that the company would also have to pay the cost £1,22,500 of the proceedings excluding Value Added tax (VAT). The MCA website index of charges shows ICICI bank have Rs1300000000, while Axis Bank have Rs250000000 of charge amount secured against Geodesic. The company has defaulted in repayment of loans to banks to the tune of Rs80.050000000 during the year and some have filed winding up petitions against the company. Barclays and Standard Charted demanded financial charges of Rs35.280000000 towards interest and loss on hedging contracts on a conservative basis. However, company has made counterclaims against both the above banks for excess charges on hedging contracts of Rs930000000. The company has also disputed amounts claimed by ICICI Bank and HDFC Bank against the hedging contracts. Geodesic has delayed submitting its year ended June quarter as well as September and December quarter results with the exchanges. During December quarter, company in its regulatory filing said, “The delay in announcing the audited annual results was due to the company’s sales and purchase registers being taken in custody by regulatory authorities in India for inspection. However, these books have been returned to the company during September and October 2013.” Geodesic said it is expected to announce its results by 9 January 2014 which it announced a month later on 15 February 2014. It further mentions that, “The audit and recasting of accounts of the company and foreign subsidiary took a longer time than anticipated because of the cross border regulations and accounting guidelines.” The Geodesic has done ‘sales returns’ in its accounts and make many other changes in its balance sheet and published revised year ending June 2012 results. The company said in its regulatory filing, “In April 2011, the company has developed a new version of one of their product using current technologies and coding languages with additional features to keep up with the latest changes in technology but the revised version developed certain problems with all the customers. Hence, the company restored the earlier version of the product temporarily so that the business loss to the customers was minimized. However, in spite of all its efforts the company was unable to offer a permanent solution to the problems faced by the customers. In July 2013, the company agreed to reverse all sales made to the customers of the said product from April 2011 to avoid further legal action from the customers. This has been booked as ‘sales returns’ in the respective years in which the sales had taken place. An appropriate part thereof was reversed in the revised accounts for the financial Year ended June 30, 2012 and the balance impact of the said sales returns on the financials for July 2012 to June 2013.” Geodesic results announcement said that it is facing difficulty in arranging working capital finances, delay in receivables as well as higher debts. During its December 2013 quarter, its net loss increased to Rs37.580000000 from net loss of Rs18.960000000 while its sales stood at Rs8.130000000 compared with Rs100.420000000 a year ago period. In its year ended June 2013, it made net loss of Rs43.130000000 despite sales of Rs172.770000000. Geodesic share was trading around Rs100 on BSE, during January 2011, which is now trading near Rs3. Its share prices plunged 77% in last one year from Rs12.85 to Rs3.05 as on 25 February 2014. Mr Krishnaraj alleged, “Lack of enforcement of timely disclosures of material events cripples investor interest, not to mention losses. A foreign investor when asked to consider investing in India told me, what has your regulator done to stop another Satyam? SEBI just needs to look around the level of regulation that even much smaller exchanges like Stock Exchange of Thailand (SET) enforce, to know where we stand.” Moneylife has reported numerous cases of price rigging and accounting shenanigans but the SEBI sees no evil, hears no evil.