The curious case of Pawan Sachdeva: A shoe magnate, a market manipulation scam, and a run-in with Gautam Adani

In 1995, Pawan Sachdeva’s Delhi-based firm, MS Shoes East, was at the heart of an aborted public-cum-rights issue which ultimately led to the closure of the BSE for a day.

Six years later, the Times of India reported that the same Pawan Sachdeva filed a complaint over a business dispute against Gautam Adani that led to the issue of non-bailable warrants (NBWs) against the Adani group founder and chairman. Later a Delhi court cancelled the non-bailable warrants. Sachdeva presumably withdrew his complaint and the two parties reached an out-of-court compromise.

Straddling these two unconnected events was a man who once built a dynamic business exporting footwear to markets in Europe. This was a time when India had emerged as a base for low-cost manufacturing and exports of shoes. Companies like Liberty Shoes, Aero, and Leayan Global became major exporters of footwear to Russia through the 1990s. Sachdeva inherited his family business of supplying shoes to Bata but had greater ambitions. He diversified and expanded the business, exporting to quality-conscious markets in Western Europe. By 1994, he was running a 200 crore company.

Then the man, who like many other successful businessmen of the early 1990s loved flashy foreign cars, turned too cute, or too crafty, depending on which way you look at it.

MS Shoes East launched its first public issue in September 1992, followed by a rights-cum-public issue of fully convertible debentures in December 1993. The company’s shares skyrocketed from 24 apiece in 1993 to 502 by January 1995.

Encouraged by these successes and buoyant markets, MS Shoes launched another public issue in 1995 for fully convertible debentures (FCDs) to finance a twin-hotel project. The public issue duly closed after being over-subscribed. However, the Securities and Exchange Board of India (Sebi) later found irregularities in the issue and directed MS Shoes to offer subscribers the option to retain or withdraw their offers. Several subscribers withdrew, and the issue was undersubscribed.

Sebi had found the company guilty of misleading investors by failing to disclose crucial information in its advertisements and public notices, particularly about the cum-rights nature of the issue. This led investors to believe they were buying shares at a discounted price, causing a surge in demand. Most didn’t realize that post the rights, the price would fall steeply.

Later, the Central Bureau of Investigation (CBI) charged Sachdeva with entering into a criminal conspiracy with Sebi officials and merchant bankers to allow a 90-day gap between the company’s public issue and the rights issue. According to the CBI, this would have enabled Sachdeva to divert funds raised from the public issue to subscribe to the promoters’ rights entitlement. Sebi rules did not allow for a gap of more than 30 days between such issues. Sachdeva was also accused of attempting to manipulate share prices by using company funds to artificially inflate the stock price before the issue.

The MS Shoes East issue ultimately devolved, forcing underwriters to take up the unsold portion, resulting in significant financial losses. One leading broker of the time, RS Jhaveri, was declared in default after he failed to meet his commitments over large positions he had built in shares of MS Shoes East. Many investors who had subscribed to the issue also lost money when the share price crashed after the scam was exposed.

In the wake of the collapse of the issue, the BSE had to be closed for a day. Not many market manipulators have managed that feat. Sachdeva, who dreamt big since his days as a student at Delhi Public School, had wanted to build a hotel to rival The Oberoi located just across the road. Briefly, when he won the rights to construct a hotel auctioned by HUDCO, his dream seemed within reach. Had the 699 crore public and rights issue succeeded, he might have secured the funds for his ambitious project. Its failure not only soured that dream but also destroyed the successful footwear business he had built.

In 2005, the company was referred to the Board for Industrial and Financial Reconstruction.


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