Forget corruption go after fraud

As published in Oheraldo on 25th July 2011

Recently in an interview to Heraldo, our beloved Chief Minister said that corruption is everywhere, the tone seemed to suggest that it is a way of life and nothing could be done about it. Therefore saying that GIDC is corrupt and Alexyz famous cartoon “GID Cor(rupt)poration” should be ignored. Why single out one entity.

The problem with corruption is by nature it is secretive. The giver and receiver would like to keep the transaction under wraps. One major reason is that under the current laws, if detected both parties are liable to punishment. The other reason is that usually the consideration for favours granted is CASH which is very difficult to prove. Speaking at a function, Mr Narayan Murthy suggested making bribe giving legal, he feels that this way the giver can subsequently complain without falling into trouble as accepting bribes would still be illegal.

In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The Indian Penal Code defines fraudulent actions under Sec 25. “A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise”

Elements of fraud: Common law fraud has nine elements:

1) a representation of an existing fact;

2) its materiality;

3) its falsity;

4) the some GIDC employee’s knowledge of its falsity;

5) the some GIDC employee’s intent that it shall be acted upon by the GIDC;

6) GIDC’s ignorance of its falsity;

7) GIDC’s reliance on the truth of the representation;

8) GIDC’s right to rely upon it; and

9) consequent damages suffered by GIDC.

Even if we consider just the 35000 sq mts involved in the SK Desai/Mehul Developers Pvt Ltd/ Watson case, all the above elements are applicable. This case represents not just one fraudulent act but a series of acts. There are many other similar cases.

The other sections under the Indian Penal Code which are breached are

IPC: Section 168. Public servant unlawfully engaging in trade

The punishment for this is jail or fine or both. GIDC officials are public servants as the order to suspend one official was issued under Central Civil Services (Classification, Control & Appeal) Rules 1965. They sure do not act like that.

IPC: Section 169. Public servant unlawfully buying or bidding for property

This covers buying or bidding in the name of another and punishment includes jail, fine and confiscation of property.

The Government of Goa responded to calls for action into the affairs of GIDC by appointing a TASK FORCE to study unutilised or under utilized lands. This was mainly because the fraudsters were holding lands to transfer to parties willing to pay the unofficial premium upto Rs 3000/- per square meter.

The MD of GIDC replied to a report of a joint committee of the task force with a document wherein he has misrepresented the facts atleast in the case of Mehul Developers. While he maintains in Feb 11, that Mehul developers was under construction ( TF report is unutilized), a reply tabled in the Goa State Assembly in Mar 11, states that the Mehul plot was transferred in Nov 10.

Under the Indian Penal code "Misrepresentation" is also an offence, and I am sure that under the “Conduct of Service” rules which govern government employees there is a breach. Lying to a public committee in writing should have its penalties, the least of which should be sacking.

In summary, Mr. Chief Minister please do not waste no time and begin action under the Indian Penal Code and bring the culprits to book for fraudulent acts which have resulted in loss to the exchequer and a created a huge dent in the image of the State.

The reluctant Entreuprener: Do we need a Business Plan?

A business plan in the old days was also called project report. Today with venture capital funding jargon like business plan and elevator pitch have made an appearance. However the basics of industrial /project security remain the same.

Recently GCCI had a business plan competition. Being old fashioned I would worry about participating in such a competition. Imagine not only your competitors but also potential copy cats would be lurking in the audience. I heard a few and all could be copied by anyone. There was no technology at the heart of the project to prevent the idea from being copied.

An elevator pitch makes sense to me. Goa has power shortages so if someone wants to manufacture gensets it would be of immediate interest to an investor and he may want to hear more. Then a business plan would be needed to take the discussion forward.

Let me give you an example of how dangerous it is to have actual business plans floating around. Years ago, I applied to EDC for a term loan to finance my project. EDC officials had a preference for Boroplast another rotomoulder who also wanted to manufacture water tanks. While we wanted Rs 30 lacs, Boroplast wanted Rs 1.3 crores.

My application kept getting delayed for one reason or the other. One day the dealing hand asked me for a market study. A market study can be considered a sub set of a project report or business plan. In my opinion it is the heart of any business plan.

Making a market study was child’s play using a laptop and an excel spread sheet. I did it over the weekend. Ofcourse, I was sure that if any one used my market study to start a rotomoulding water tank manufacturing facility he would be surely lost. None of my actual thoughts were reflected in this document. My fears were proved right, I saw the dealing hand take my market study out of the EDC office. When I asked him, he said he was studying the same at home. Hehe I thought to myself he fell for it. Ultimately EDC funded Boroplast who closed in six months without paying back the money borrowed, if I am not mistaken till date. We were financed by MFSC and not only are we still around 16 years later, we have a no default track record. No prizes for guessing why EDC ends up with OTS (one time settlement) cases.

The point I am making is, every entrepreneur should be careful with his business plans. A genuine business plan should not be distributed like a free gift. Before handing over a copy to a potential investor, an entrepreneur should spend some time studying the track record of the investor. One alternative is to give a synopsis of the business plan to a potential investor, this should have numbers if any which are masked. By masked I mean if sales is say 100 in first year, then in year two, 130 would represent 30% increase. Similarly expenses could be 60 in first year (ie 60 % of sales) and 58% in the second year. These numbers reflect the real situation but do not give too much away. Also avoid spelling out strategies or details of what is the Distinctive Competitive Advantage (DCA) of your approach.

The same approach can be used for submitting your project report to a nationalized bank for funding. You never know who will read your report.

A word of caution for would be entrepreneurs, do not let the decoy business plan fool you. You must be sure that you have a reasonably good idea that will work. Do not tweak the numbers just to make profits on paper, with excel spreadsheet this is a no brainer. At the end of the day if your idea does not make money you will lose first.

In summary, while you will meet many who will either try and help or take advantage of your situation. The key is to remember that you are on your own and you must watch out for pits falls or traps, no one else will.

The Reluctant Entrepreneur: Advertising, A Boon or Bane

“The purest taste of Quality” screamed at you from giant billboards across Goa, accompanied by a picture of a few milk pouches in a fishng boat on a beach. The brand name was circled with orange drops. The pouches in the boat signified the arrival of the brand on Goan shores. Beyond that there was nothing to suggest why or what “purest” meant . It could have been an advertisment for orange juice. The large orange drops surely did not signify pure milk. A classic example of advertisment money wasted.

At the Goa Chamber seminar which included a business plan competition, four veterans discussed advertisting and more at length. One reasoned, “half the advertising budget is wasted, till date we do not know which half”. This confusion is compounded for owners of small business. They generally have no time or inclination to take decisions on advertising. This is because they are either ignorant of the long term effect or genuiely believe they are not important.

How and how much should one spend on advertising ? The answer lies between “word of mouth” to over the top. No use advertising a great mango pickle, it is much better to brand it so that when you next launch a brinjal pickle you do not have to convince the customer who had a good experience with the mango pickle all over again.

When choosing a Brand name for water tanks manufactured by us, one possible option was a name easily recognised in Goa, for eg: PALM or SEASHELL. We chose SHAKTI, recognisable Pan India. Had we not taken the long term view then, today a branding execise would have been expensive and meant we are only at square one. Smaller companies run the risk of missing out on building a brand from day one.

The other aspect of advertising is drawing attention to product features. When we launched our tank against established national players we had to get the customer to experience our product. One, relatively cheap way used, was to approach near complete constructions and show them our product. We requested them to check if any other product offered them better features.

As sales picked up and we realised where our strength lay, we put up two hoardings, which were novel and eye catching. Rather than paint the tank on the hoarding we had a real product up there on one half of the hoarding, and on the other half, we listed out the BRAND’s three key features which were based on our door to door selling feedback.

We progressed to wall paintings and finally newspaper advertisments. We did try radio but did not follow up. Not because of any issues with radio but because like all small business’s we got involved with production, finance etc and left the advertising and brand building to later. The fact that creative advertising work by professionals is not a tangible benefit most small business owners find it hard to accept the pricing for services and eventually baulk at using professional help in this critical area.

The brand building possibilities offered by the internet are huge, apart from what is now traditional website exposure to highly interactive social networking sites. This is the future space where brands will be built.

All said and done a Company that does not make its presence felt to its target customers is surely going to find the competition walk away with the customer. How much you spend is not important, what and how you communicate is.

Suggested reading: read the advertisments in the newspapers/internet and analyse a few, like was done at the start and decide if the advertisment is money well spent. Then apply this learning to your product and see if you can create a good advertisment for your product.

on your own: THE GIDC 2G SCAM: Chronology of a scam

on your own: THE GIDC 2G SCAM: Chronology of a scam

THE GIDC 2G SCAM: Chronology of a scam

Chronology of a Fraud

Part 1: S K Desai

Date	Event	Effect
31 May 2006	Letter sent by S. K Desai	application for plot, referred in allotment letter given to Mehul Developers.
16 Jun 2006	Paid 151000/-	Receipt 302
6 Jul 2006	Agenda item No 14 for 288th BOD	Differed by Board as no details given
3rd Aug 2006 284th BOD Resolution	U03 35000 sq mts allotted to S.K. Desai for warehouse project in Verna I.E	Subject to submission of PAN card and Financial sanction for plant & Machinery. No registration with DITC asked for which is mandatory as per GIDC norms
11 Aug 2006	IDC/ED/UECDU03/IV/9978	Earmarking letter issued to S K Desai valid till 9 Nov 06
3rd Aug 2006 284th BOD Resolution	Rate for land changed form 600/sq t to 750 per sq mt	Henceforth all allotments at new rate
20 Nov 2006	Request for renewal of ear marking	Reply to 11 Aug GIDC letter
15th Dec 2006	Request for renewal	Not available in file, ref in 18/12 reply
13 Jan 07	SKD submits all documents, no copies for IT/ITES project	Requests allotment
18 Jan 2007	Extension of earmarking validity	From 10.11.06 to 9.2.07. Rs 500/- to be paid
Summary: Question 1: How come S K Desai was even given a plot of 35000 sq mts without proving his financial and professional abilities. Extension of earmarking is to be done carefully as GIDC loses with earmarking since no dues are collected. Upto 18th Jan, there is no renewal of the earmarking nor any details given to justify extension. However it is clear S K Desai is trying to sell the plot to Mehul developers pvt ltd. During earmarking period GIDC does not claim lease rental nor interest on Lease premium due Question 2: Who is responsible for the financial loss to GIDC for not reverting or not issuing allotment order to S K Desai?
PART 2: Mehul Developers Pvt Ltd (Allottment or transfer)
27 July 2006	Mehul Developers Pvt Ltd	Formed as per ROC documents
23 Jan 2007	Mehul Developers applies
24th Jan 2007	SKD requests allotment letter in favour of Mehul for IT/ITES project	Says he submitted all documents t GIDC. This is a utility plot and hence change needs board approval
29th Jan 2007	Mehul board resolution	Authorisation to rep in GIDC
7th Feb 2007	Board resolution by mehul	For modifying articles to include IT/ITES. Earlier they said they have done such projects.
15 Feb 2007 294 Board Resolution	Allotment of U03 35000 sq mts to Mehul Developers Pvt Ltd (co under formation)	Agenda mentions Desai but minutes mention Mehul which was formed much earlier. Project changed from warehousing to IT/ITES. Project cost remain the same as Desai’s application.
16th Feb 2007	Lease premium of 42 lacs and lease rent of 2.7 lacs paid vide Reciept No PNJ 1282	Mehul paid vide receipt no 1282
16th Feb 2007	Rec no 1283	Rs 500/- assume this is as per GIDC letter to SKD for renewal of earmarking
19 Feb 2007 1	Allotment letter issued	In favour of Mehul. Asked for change in MOM and 500/-
23 Feb 2007	Mehul applies to DITC	Application for EM
27th Feb 2007	EM issued by DITC	For data processing software consultancy
28th Feb 2007	Mehul gives copies of PAN application and change in MOM	No clarification on finance availability
1 Mar 2007 IDC/ED/VECP/U03/IV?12960	Allotment Order Issued to Mehul Developers Pvt ltd	1) Desai’s letters are quoted. Why? 2) The lease premium is 600/sq mt 3) Mentions deposit paid, by whom Mehul or Desai 4) Lease rent attracts 15% interest for default 5) Lease premium attracts 11% compounded on balance payable 6) Installment of premium attracts 18% penalty if delayed.
Summary:Question 1: Why was Mehul’s name introduced in the minutes when the BOD passed allotment in favour of S K Desai. Question 2: Why was allotment made at Rs 600/- when rate was 750/-. Question 3: Mehul mentions expertise in IT/ITES when it is recently formed (under formation as per GIDC) yet their MOM does not mention this activity, it was added. GIDC says that under earmarking conditions plots can be transferred without payment of transfer fees and there are many cases like this. WHY SHOULD A RIGHT BE CREATED WITHOUT ANY FINACIAL LIABILITY? Anyhow this is not a transfer as it was no transfer note was prepared, it was a fresh allotment approved by the board. Even if it is a transfer since it is too an unrelated party 20% transfer charge is applicable. Question 4: Who is responsible for loss to exchchequer
PART 3: SPLITTING OF PLOTS BY MEHUL
16 Mar 2007	Mehul applies to split U03 into 8 plots	Mention that they will go for 8 separate projects and therefore need 8 plots
16th Mar 2007	FM approves sudivision	Same day as application in HO
20th Apr 2007	Approval for const plot U03-E	No dwg copy or application copy
24 July 2007 IDC/ED/VECP/U03/IV/1355	MD Palekar approves split into 8 plots U03C, U03D, U03E, U03F, U03G, U03H, U03I, U03J as partial modification of allotment order	Without verification of project reports, constitution of new companies as this attracts transfer fees etc. Strange and that too within a week, very efficient. This is not reflected in RTI reply dated 13/1/11. Copy is not available in File.
Summary: Why so much of a hurry to split the plots, why were no questions asked about ownership as that entails transfer fees Question : GIDC approved one project. If it is split into 8 projects will not the board need to be informed?
30th May 2008	GIDC asks for dues	Inst 42lacs/ lase pre 2.7 and int 18.48 and 1.67 resp. total 64.85
16th Jun 2008	Rec PNJ 357 pd by Mehul	Pd lease premium 42 lacs/17.6 lacs and lease rent 2.4 lacs. Total 62 lacs, short by 2.85 lacs
PART 4: MEHUL CLEARLY DENIES PLOT FOR BOSCH
7th Aug 2008	Copy of circular sent to Mehul	Unutilised plots banned for transfer w e f 1/10/08
8th Aug 2008	GIDC submits for lease deed registration	Signed on 24th sept 2008
29th Sept 2008	Mehul applies to trf plots	U03 H, U 03 C and U 03 B in dulicate but same inward no
29th Sept 2008	Mehul applies to trf plots	U03 D, U 03I U03 F U03 G and U 03E in dulicate but same inward no
	Mehul Application for transfer to BOSCH Statement of pending trfs put before board	This is made known in a list of pending transfers to GIDC board before “BAN on bare plot came into effect on 30 Sept 2008. Here it is also mentioned that Mehul has outstanding dues.
Summary: Mehul clearly has no intention of doing any project, a day before the ban on BARE PLOT transfers, they apply o register their intention to transfer. They have not paid any dues. Why was the plot not revoked and given to BOSCH who was looking at the time? The fact that Mehul wished to transfer to BOSCH is a clear indication. Question: Is one company’s interest more important than GOA’s interest?
PART 5: TIME PASS till buyer is found
22nd July 2010	IDC issued outstanding dues certificate	Bal prem 1.26 crores, int 34.38 lacs, 4.78 lacs, 4.80 lacs. Lease rent 5.7 lacs and int 35k. total 1.76 crores No details of calculation
9th Aug 2010	Collect original lease deed	GIDC authorized Shaikh
15th Sept 2010	GIDC gives approval for revised plan on all 8 plots	No application is on record. Two letters one ask for 21k infrastructure tax and one for 3k construction fees. Oddly address is Porvorim, no application seen for change of address
27th Sept 2010	U03E revised plan approval	No demand for fees tax? No application copy seen.
29th Oct 2010	Dues outstanding issued	Lease prem 1.26 crores Int 37.84, 5.88 6.09 lacs. Lease rent 5.7 and int 57k Less dep of 1.5 lacs which was paid by S K Desai. Total due 1.81 crores
PART 5: THE ILLEGAL TRANSFER AT LIGHTENING SPEED
19th Nov 20011	Mehul applies to transfer plot to Watson	Encloses all necessary detail of Watson (100pgs). Check the speed. It goes form dealing hand thru DyGm(A)/MD.Back to DyGm (A), Dealing hand prepares transfer order and DyGM(A) issues the same. The transfer is not put up before the GIDC Core Committee as required, nor is any mention made of a bare plot transfer, instead they mention Field manager should give a report and before report issue transfer order. The transfer notings mention a coverage of just 3136 sq mts on a plot of 35000 (15000 additional of vrushal) ie less than 10% of Mehul plot, is that not violation of guidelines?
19th Nov 2010 IDC/ED/VECP/U03/IV/3549	DGM (ADM) Borges send a letter to Mehul transferring the 8 lots plus an additional 15000 sq mts of vrushal enterprises to Watson Pharm, subject to certain conditions	Here the rate is correctly mentioned as Rs 750 sq mt and lease premium installment is correct @52.5 lacs. Lease rent is also mentioned @ Rs 3.755 per year. However the amount claimed.from Mehul towards outstanding dues seems incorrect. The letter is issued without authorization from the Board, despite meeting being held in Oct 10 and Dec 10. This letter is not in file despite inspection done at SIC orders on 15th Jun 2011. Subsequent inspection as per GIC order reveals the second file hidden intentionally by GIDC
22nd Nov 2011	Verna Field Manager issues inspection report	He says that as per approved plans, he notices construction work has started and one structure as per plan is almost complete. Task Force joint inspection report conducted later found nothing other than a freshly build guard house.
	Watson Pharm pay dues	Letter mentions 17600695/- and 5592500/- towards dues and transfer charges. Also falsely mentions acknowledgement of DITC(HPCC). DITC returned application asking for the same in proper format for HPCC. Till date no application made to HPCC.
	GIDC issues receipts 973 for 1.806 crores and 974 for 55.93 lacs	Despite getting only 1.76 crores as per Watson letter the receipt is issued for 1.81 crores. There is no mention of how the difference arrived.
	Mehul Applies for NO DUES CERTIFICATE
23rd Nov 2011	GIDC issues order for transfer IDC/ED/VECP/IV/U03/3572	Without waiting for cheques to clear order is issued. Even if you buy a new car costing a few lacs this is not possible.
25th Nov 2011	IDC/ED/VECP/U03/IV3607	No dues certificate issued
26th Nov 2011	Lease deed signed and logged for registration
Feb 11	Task Force declares U03 as unutilsed and thus due for revocation	GIDC MD never mentioned that the plot was already proposed for transfer. Borges was also present at the meetings. There is no structure on the plot as mentioned by Field Manager. This can be proved by a site visit even now.
Mar 11	Starred question in assembly states that U03 has been transferred	However the conditions listed in the illegal letter have not been fulfilled.
Till date	Despite 2G type scam	No Government Action
Summary: The haste at which this transfer was done indicates illegality as GIDC does not have a glowing record for efficiency. They have tried to cover bare plot transfer by saying that there is a construction as per plans. The TF report bares this lie as even 3 months later there was no building on the site. By paying finally apporx a crore, Mehul was able to trade in a plot worth 2.7 crores, as finally Watson paid the balance. QUESTION: Why is this illegal transfer not being reverted? Watson is a genuine party and thus can apply for the plot again as per rules and thus close a legal transaction. QUESTION: Why is GIDC protecting officers who have clearly caused a loss to the exchequer QUESTION: Why is Watson being given a total of 50000 sq mts when their plans indicate coverge of just 3136 sq mts?
Unrelated to the above case: IT department has sort details of this case
Surprise package: Vide IDC/ED/VECP/U03/IV/5019 dated 22/2/11, GIDC issued a show cause to Watson Pharm asking them to explain why the plot should not be taken back as they have not started construction with 3 mths as per allotment order. Was the pressure of the TF responsible or the fact that Watson had no Godfathers and thus explaination was demanded. There is no similar letter in the whole Mehul file despite being unutilized from the start. The Field manager has even been asked to inspect the plot in the presence of two panchas. Watson replied on 21st March 2011, despite being only 10 days to respond, and said they have started work and ordered machines. FM conducted inspection on 6th March saying construction activities had begun and no witness signatures is observed. Where is the reference to the building he saw earlier?