Yash Birla’s fate hangs on a prayer as troubles mount

Mumbai: Strains of Ganesha Stotram, an invocation to the Hindu elephant god who is worshipped as the remover of obstacles, is Yashovardhan Birla’s phone ringtone.

The businessman, known more for his partying and gymming, may well need divine intervention to save his crumbling empire, even as he is being investigated by multiple government agencies.

In the nine months ended 31 December, the nine listed companies that are part of his group reported a 72% drop in revenue from a year ago. Losses widened to ₹ 177.5 crore from ₹ 35.3 crore a year earlier. Depositors are knocking on his door demanding repayment, disgruntled employees are demanding overdue salaries, and Birla himself is spending more time answering investigators rather than steering his group through these troubled times.

Yash Birla didn’t respond to phone calls and emails seeking comment.

Defaults on deposits

On 31 December, the economic offences wing (EOW) of the Mumbai police registered a so-called First Information Report against Birla Power Solutions Ltd and Yash Birla, among others, after receiving complaints from investors in the company’s fixed deposit (FD) scheme who have alleged that Birla Power has defaulted on payments. The company owes about ₹ 214 crore to 8,800 investors, according to the police. The Mumbai police has attached immovable properties belonging to Birla Power worth the same amount.

“Our first priority is to recover investors’ money,” said Rajvardhan Sinha, additional commissioner of police (EOW), who is leading the investigations. The police has arrested Birla Power’s former managing director P.V.R. Murthy. It has also asked Yash Birla not to leave the country without its permission.

“The company kept saying that we would receive our payments by February end since it was negotiating with the courts for freeing up its seized properties,” said Ishwarlal K. Chauhan, 66, who had invested ₹ 40,000 in Birla Power FDs in 2010. “It remains to be seen when we will get our money.”

Even before the police action, large lenders had moved the courts against Birla Power. The Bombay high court has clubbed together winding-up petitions against the company filed by four creditors—P.D. Sekhsaria Trading Co. Pvt. Ltd, Libra (Agencies) Pvt. Ltd, Wazir Financial Services Pvt. Ltd and Libra Techcon Ltd. According to the Bombay high court, Birla Power owes around ₹ 8 crore to these companies. The next hearing is scheduled for 6 March.

“The group had plans to start a power plant in Maharashtra. That’s why it raised money from investors. But the project never took off due to a lot of reasons,” said an executive in the Yash Birla group who didn’t wish to be identified.

“The investment, which was supposed to provide good returns, was never completed, and whatever investments were made turned into bad debt.”

The police is, however, trying to establish a money trail for the amount raised through deposits. According to the police, Birla Power Solutions transferred ₹ 106 crore to Birla Surya Ltd as equity; gave ₹ 16 crore to Birla Shloka Edutech Ltd for purchase of land in Oshiwara, a Mumbai suburb; provided ₹ 10 crore to Zenith Birla for margin money for letters of credit; and gave another ₹ 29.26 crore to Birla Energy Infra, Birla Cotsyn and Birla Ahuja. The police is still trying to establish how the rest of the funds raised were utilized.

To be sure, money is fungible and the company could well claim that this is not the same cash which it raised from investors.

Siphoning funds

The income tax (I-T) department and the Enforcement Directorate (ED, which looks into foreign exchange offences) have raised other questions, and alleged that funds raised by Birla Power through other means, such as the issue of local and foreign equity, have been diverted.

In January, the I-T department raided at least 20 offices of the group across the country for alleged tax evasion. A tax official familiar with the development who asked not to be identified claimed that the department “found that the promoters of Birla Power Solutions have made huge foreign investments to the tune of hundreds of crores”.

Mint couldn’t independently verify this.

The official added that the department had recovered bogus purchase and sale bills running into hundreds of crores. The bogus bills were used to inflate the turnover of the company, the official said. And the money raised through follow-on public offers (FPOs) and global depository receipts (GDRs) by Birla Power never came to the company, he added.

Birla Power Solutions raised ₹ 250 crore through two global depository receipt issues in 2010 and ₹ 22.48 crore through an FPO in 2006, according to the Capitaline database.

The tax department says it found seven foreign accounts of the group’s promoters. Merely the existence of a foreign account doesn’t imply wrongdoing.

In a related development, the ED is examining whether the promoter of the company has obtained permission from the Reserve Bank of India (RBI) for transactions related to these accounts, according to an official with the investigating agency who didn’t wish to be identified.

According to additional police commissioner Sinha, even the ₹ 30 crore advanced to Yash Birla by cousin and businessman Kumar Mangalam Birla to repay FD investors of Birla Power Solutions was not utilized for the specific purpose.

Indeed, despite his lifestyle—which one long-time Birla confidant once described as Bohemian—which is very different from their own, the extended Birla clan has stood by Yash Birla.

According to a report in Mumbai Mirror, a Yash Birla group executive, Anant Vardhan Pathak, who was arrested for possession of cocaine, said during interrogation by the police that some of the money received from Kumar Mangalam Birla was given to him.

The boy who never grew up

Yash Birla inherited his empire at the age of 23 in 1990, when his father Ashok Birla died in an air crash. Although the Birlas had carved out businesses among themselves by then, members of the extended family kept an eye on young Yash, and it was widely believed that when he came of age he would also inherit the companies run by his grand aunt Priyamvada Birla, wife of the late M.P. Birla.

Yash Birla, who lives in Mumbai’s historic Birla House in the Malabar Hill area, made news for his sense of fashion, lifestyle and appearance—just about everything other than his business.

In 2004, when Priyamvada died, she left the M.P. Birla companies to her accountant and long-time confidant R.S. Lodha. Yash Birla contested her will. The matter is before the courts.

Yash Birla’s business comprises 20 companies with the major ones being Birla Cotsyn (India) Ltd, Zenith Birla (India) Ltd and Birla Pacific Medspa Ltd. The debt on the books of the group’s listed companies had risen to ₹ 700.61 crore as on 30 September, and several of them had started defaulting. Later that year, Birla resigned as chairman of the companies, perhaps to insulate himself from any legal action.

Long-time employees said he was unable to separate his personal life from his professional one. One employee who spoke on the condition of anonymity said Birla would even hire people who had impressed him at parties or the gym.

The tax department official cited in the first instance said some of the employees may have enriched themselves at the company’s expense.

If the Birlas don’t bail him out, Yash Birla will have to find a Plan B to turn around his group’s fortunes. Employees say Birla is open to selling a minority stake to investors, but won’t cede control.

The combined market capitalization of the group’s nine listed companies has fallen by 76.3% to ₹ 103.57 crore in the past two years compared with a 10.05% increase in the BSE500 index.

For now, the challenges faced by the Yash Birla group seem overwhelming. To rescue his troubled business empire, Yash Birla may have to repay angry investors and restore his credibility in addition to seeking assistance from the divine.

“One can survive in the world by just paying interest, but Yash Birla Group has even failed to do that,” said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.

“Even God would not want to intervene at this stage.”