THE
RATAN TATA INTERVIEW — part II
‘There is a disincentive for setting things straight’
Business Standard — October
1, 2002
Excerpts
from an exclusive interview with Tata group chairman
Ratan Tata:
The group’s position on
Tata Finance is basically that the chief executive was
responsible, which of course he was. What we don’t understand
is whether you are maintaining that nobody else knew or
was involved. Does it stop at that, or is there some sense
of shared responsibility that has come from whatever is
going on?
I’m not at all hedging. But I have to say that whatever
I am saying to you is from a distance, in the sense that
I wasn’t there. I have known Dilip (Pendse) for many years
and have worked with him closely. I know many of the other
directors of Tata Finance. But I cannot say that I knew
what was happening. So whatever I’m saying to you, or
whatever I’m about to say to you is what I have gleaned
when the whole thing blew up, and not prior to that.
As I understand the situation,
Dilip was driven by the growth of the organisation and
for a period of years led that organisation quite effectively
to a very fast growth path. There is a question — and
no board member can say he was unaware of this — that
somewhere in the recent past the profits of Tata Finance
and the growth of Tata Finance came from the stock market,
and not from its core business, which is asset financing.
People like (Noshir) Soonawala
state that they brought this to the notice of the board
several times, but the board seemed to think that was
okay; it was giving the company profits and so it continued
that way. And he resigned on that basis.
On that issue?
Not on that issue. He resigned because he said that
he had a conflict of interest with Investment Corporation.
There are two or three elements,
if I could try to piece together what happened. There’s
the issue of market loss in investments, where we, as
the Tatas, take a view that if the company was in that
business and it has lost, that is fine. It’s luck. Coupled
with that, there’s an issue: was there an excessive
exposure to certain shares which the managing director
— and we’re talking with hindsight — was interested
in personally, because they close to him or because
they were close to certain brokers?
I can’t answer if the directors
were aware of this or not. But when, after April, after
this whole thing blew, sitting in this room, when somebody
said that the company made a profit of Rs 10 crore on
Global Tele in the previous year, I asked a question:
‘How much did you expose the company to, to get that
kind of profit? What is the percentage of investment
funds that you put into that company?’ And Dilip told
me that it was 25 per cent, which I said was very high.
In prudent terms, you wouldn’t put more than five per
cent in any one scrip as an investment. And then Ishaat
Hussain (he wasn't on the board of Tata Finance then)
said it wasn’t 25 per cent, it was 65 per cent of investment
funds.
In the same meeting
or later?
In the same meeting, in Dilip’s face.
How did he know this?
We formed our own investigation at that time into what
had happened. Ishaat is now the chairman of Tata Finance,
but he made that statement. I asked Soonowala and Ishaat
to go into what had happened. So, the moment you say
that the next question that comes up is: was the board
aware of that? The board should have been aware of it.
But I can’t really say what was placed before the board,
or how it was placed before the board. They say it was
for capital adequacy and all those kinds of parameters.
I don’t want to get into that because that is best answered
by somebody who was a board member. So there is the
issue of market loss, there is the issue of excessive
exposure for reasons other than pure investment, which
are somewhat related. Those relate to the issues of
the company.
Then there are issues about whether
shares were bought and sold in a backdated form to give
added money and, in fact, where those shares were sold
to the company from, which now appeared to have come
from Dilip’s own private portfolio. Those in my view
constitute taking money from the company, and that’s
criminal. Those are the issues that relate to Dilip's
activities. He has been trying to deflect us from this
issue by saying that he operated under the superintendence
of the board.
The market loss is not regretted;
it is not what we are questioning. We are questioning
the following: were the investments made by Dilip under
the scrutiny of the board? Many of the investments were
made in a subsidiary — which is very much the way (Ajit)
Kerkar worked — and therefore out of the gaze of the
main board. Were the investments that were made made
in the best interests of the company? Did Dilip have
a private portfolio that mirrored those same investments
because these three or four stocks were run up in the
market right along with Ketan Parekh — the same stocks,
at the same time. And when the market fell, did Dilip
pass on those investments to Tata Finance? In many of
those areas we believe that he had mala fide or even
criminal culpability. That is what we are pursuing.
His point is that others knew.
So what did the others
say?
The others have made their statements — that they did
not know. The first that I heard of any such thing was
when Dilip himself telephoned me in April, in Dubai,
to tell me that this letter was out and going to the
media (an anonymous letter had been sent to the media
alleging that Tata Finance had made huge losses) and,
Mr Tata, it is all rubbish and we will issue a statement
to this effect. And it was I who said, the issue would
end up on the eighth page of some newspaper. So if you
are going to do that, take a (full) page advertisement
signed by the chairman of the company making a statement
that it is not so and the Tatas will stand behind that
statement.
When I saw the latter part of
it, I rang up Soonawala and said, `Look, if we are making
that statement, I would like you, outside the board,
to go in and see whether any of these statements are
true. Because I don't want us to make this statement
that it is not true if in fact there is some truth in
it.’ And that's the investigation that led to Dilip
being brought here.
And Soonawala came back to me
in two or three days and said, ‘Look, the letter says
the magnitude of this thing is Rs 800 crore. It is not
Rs 800 crore, but there is some truth in it and it is
about Rs 20 crore.’ The Rs 20 crore became Rs 40 crore,
Rs 80 crore, Rs 120 crore and ended up being close to
Rs 500 crore over a period of time. And that first time
he said, ‘You know, I'm just not getting the information
from the company.’ Dilip, of course, was still there,
although he had resigned in February.
And then we asked Dilip to separate
himself from the company. Until that point in time,
we truly believed that the company had undergone a market-initiated
loss and that we had to do something about that. I was
really upset because it became clear that we had exposed
the company to some shares that were very close to Dilip,
and therefore I felt that he had acted imprudently but
not dishonestly, and that I would not give him a cover
for that.
Only after that did the criminal
element or the personal element come into the picture.
I'm the one who said that if it is criminal culpability,
it is extremely important to me that the message goes
to the rest of the group that we will relentlessly pursue
this to bring that person to justice.
Otherwise, it will be a very
undesirable message to anybody — whatever you do, you
can do and, under the umbrella of the group, you can
walk away.
We paid a very heavy price for
that as it has turned out. And if you ask me if I would
I do it again, the answer would be absolutely yes.
A price in terms of
public image?
Yes. I did exactly the same thing at Indian Hotels when
there were certain issues regarding FERA violations.
We paid a very heavy price, not publicly as in Tata
Finance, but from the Reserve Bank and other authorities.
The law doesn't seem to differentiate between those
who bring this to the attention of the authorities as
against those who committed the crime. It is a real
disincentive for somebody trying to set something straight.
And the Tata Finance thing is
a sad issue. Let's even assume that two or three people
knew. Did they have a personal gain? Did they shoulder
the responsibilities? Did they encourage or were partisan
to Dilip in making his personal gain? These are questions
that should be answered. There's been a deflection of
that and that is the problem with Tata Finance.
Why are you getting
the flak?
Why don't you answer that question (laughs)?
Isn't there a sense
that more people knew more than what they have acknowledged?
I'm not defending anybody. But I really don't think
so.
And this has been reinforced
with the Ferguson thing...
I had made a statement which I would like to reiterate.
You or someone whom you nominate needs to spare the
time and I will make everything available to you. I
will have our legal counsel present. You satisfy yourself
on what you have said. I don't think the media has ever
done so.
A great deal is said about tearing
up page 60 or whatever by Chaukar of an agenda — not
the minutes. It's been made out that a statutory document
has been torn, that information has been suppressed,
etc. You really need to talk to Chaukar and you really
need to see what was the context in which an agenda
item was withdrawn.
I must confess that I have no
argument against the drama of tearing up the page. But
in many of our companies we have withdrawn items on
the agenda, sometimes because the director feels it
is inappropriate or the facts are inadequate and say
that we'll bring this back to the board later. It's
not...
An illegal act?
It's not an illegal or criminal or even a devious act.
If something is on an agenda and you choose to withdraw
it, it is not a criminal act.
No, but there were
some regulatory issues involved.
I can't answer the legal issues, the lawyers and Kishore
himself has to answer what they were. My understanding
is that there was no suppression; it is an issue that
Dilip has chosen to (use to) deflect from. The period
of time which was under consideration in that document
was different from what was required. All he said was
that this needs to be on the same time frame as the
others. All this embellishment by an ex-employee who
said that this is dynamite and so on — I think the media
owes it to itself to ask itself whether it should chose
to dramatise that or to look at the facts.
Was it poor press management?
I don't think so because I don't know how we can manage
a press which chooses to focus on what it has. I would
say that Dilip has done an excellent job of convincing
the press of what he wants to convince it about.
The
Ratan Tata interview – Part I
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