The Unit Trust of India is the largest mutual fund in the country

created in 1964 through an act of Parliament. UTI's scheme of US-

64 was set-up specifically to channel small savings of citizens into

investments giving respectable returns/interest.

The US-64 scheme had 2 crore investors, the bulk of whom were

small savers, retired people, widows and pensioners. US-64 has

been most popular, giving returns as high as 18% in 1993 and

1994.

In 1998, the UTI crashed, and the BJP-led NDA government

organised Rs. 3,500 crore bail-outs to UTI. BJP Government

appointed P.S. Subramanyam as the new UTI chief, as he had the

backing of the PMO.

It was also said that Jayalalitha had pressurized the NDA

government for appointing Subramanyam, in lieu of her

continuing support to the Centre. Subramanyam

strengthened his relationship with corporate big-wigs with

the help of Small investor’s funds deposited with UTI,

showered favours on Government favourites, and

invested huge amounts in junk bonds.

In August 2000, after prices of software stocks had begun

to crash, Subramanyam (UTI) purchased 3.45 lac shares

of a relatively unknown company "Cyberspace Infosys

Ltd." at a huge price of Rs. 930 per share.

Cyberspace promoters, Arvind Johri and Anand Johri have RSS

connections. Initially the UTI hierarchy had opposed purchase but

subsequently, after four days, agreed to the purchase. In less than

a year's time, the share price plummeted to just Re. 1.

This investment, coupled with other shoddy investments, resulted

in staggering financial losses to the UTI and investors.  Within no

time the bigwigs redeemed their investments with UTI, amounting

to Rs. 4,000 crores.

The shameful part is that they were re-purchased at the price of

Rs. 14.20 per unit (face value Rs.10), when in fact its actual value

(net asset value) was not more than Rs. 8. As a result, UTI’s small

investors lost a sum of Rs. 1,300 crores

Former UTI chairman P S Subramanyam and two

executive directors -- M M Kapur and S K Basu -- and a

stockbroker Rakesh G Mehta, were arrested in connection

with the 'UTI scam'.

The promoter of Cyberspace Infosys, Arvind Johari was

also arrested in connection with the case.

Liberalisation of the economy immediately led to the

liberalisation of the UTI. Further liberalisation was

pushed by Chidambram, as the finance minister of

the UPA government, who, in 1997, removed all

government nominees from the board of the UTI.

Besides, the US-64 does not come under SEBI

regulations, its investment delails are kept secret and

the chairman has arbitrary powers to personally

decide an investment upto a huge Rs 40 crores.Such

‘liberalisation’ is tailor-made for frauds.

The UTI continued to purchase infamous K-10 list of Keten Parekh stock,

such as Himachal Futuristic, Zee Telefilms, Global Tele, DSQ, etc. shares even

when their market value began to crash in mid-2000, in order to prop up the

share values of these stocks.

The UTI also invested in junk bonds like Pritish Nandy communications (Rs.

1.5 crores), Jain Studios(Rs.5 crores), etc. This amounted to nothing but

handing over people’s money (investments) to the rich and powerful.

Thereby thousands of crores were siphoned off to big business and

prominent individuals, with the UTI chairman, bureaucrats and politicians

taking their cuts.

.

With knowledge that the UTI was in a state of collapse, the

Chairman organised a high profile propaganda campaign

promoting UTI .while at the same time leaking information to the

big corporates to withdraw their funds. The Chairman thereby

duped the lakhs of small investors through false propaganda.

On July 4, 2001 the board of UTI took the step of freezing the

purchase and sale of all US-64 UTI shares for six months.

Simultaneously it declared a pathetic dividend of 7% . which is

even lower than the interests of the banks and post office saving

schemes. In other words the 2 crore shareholders could not re-

invest their money elsewhere — and would have to passively see

their share price erode from Rs. 14 to Rs 8.

In the wake of these developments, Subramanyam was forced

to resign. Finance Ministry did not order a probe into what went

wrong with the investment pattern of the US-64, which resulted

in the suspension of the scheme and loss to small investors.

Imagine the plight of a retired person who

would have put a large part of his/her PF,

gratuity etc. in the US-64 scheme, considering it

the safest possible investment. Not only has the

person’s income halved overnight, he/she also

stands to lose a large part of the investment.

The entire middle class is being robbed of their

savings by the govt. sponsored mutual fund.

Both the Union government and the Unit Trust of India

(UTI) have failed to take any action against UTI officials,

as well as against corporates exposed by the Tarapore

committee way back in January 2002.

The final JPC report had recommended an enquiry of

the secondary market transactions done by UTI in shares

of 89 companies identified by the Tarapore committee.

Both the government and UTI have failed to finalize any

proceedings against the accused other than referring a few

cases to the Advisory Board on Banking, Commercial and

Financial Frauds .

Some of the companies involved in these cases include

Global Tele, DSQ Software, Essar Oil, Zee Telefilms, Essar

Steel and HFCL.

After the Tarapore committee report unearthed the deals

between UTI officials and leading corporate, UTI ordered an

audit of the investment decisions taken in 19 firms. But no

action has been taken against these companies or against

the concerned UTI officials.

.

The UTI administrator has informed the government

that with reference to civil proceedings against ex-

chairman PS Subramaniam and other former UTI

officials, "UTI is seeking an external legal specialist

and further action will be considered on their advice."

On UTI's role in the Calcutta Stock Exchange

payment crisis, the government has directed SEBI to

intervene in the matter.

Fearing a run on the institution and possible impact on the

whole market Government came out with a rescue package

and change of management in 2001.

The UTI Act was repealed and the institution was bifurcated

into two parts UTI Mutual Fund was created as a SEBI

registered fund like any other mutual fund. The assets and

liabilities were taken over directly by the Government in a

new entity called Specified Undertaking of UTI, SUUTI.

In order to distance Government from running a mutual

fund the ownership was transferred to four institutions;

namely SBI, LIC, BOB and PNB, each owning 25%.

Certain reforms like improving the salary from PSU

levels and effecting a VRS were carried out .

PROCEEDINGS

Aug 14, 2001

Arvind johari, promoter of lucknow-based cyberspace infosys ltd,

held on the charge of misappropriating unit trust of india funds to

the tune of rs 32.08 crore, on conditional bail by a special court.

the designated judge, S R mehra, released him on bail in the sum

of rs 7.5 lakh with one or two sureties of the like amount. in the

alternative, johari was allowed to furnish cash bail of rs 7.5 lakh.

The registrar of the court was directed to issue an urgent memo to

the superintendent of central prison to hand over the custody of

johari to the CBI so that he could be taken to lucknow for

production in another case pending against him.

He was restrained from visiting offices of UTI and financial

institutions such as LIC, GIC, SBI capital market and BSE.

 

johari's lawyer Mahesh jethmalani argued that his client was in

custody since july 24 and had cooperated with the investigating

agency. his custodial interrogation was not required because

documents had already been seized by the CBI.

CBI prosecutor, Gopal sharan, on the other hand, argued that

johari was the brain behind the uti scam and would tamper with

evidence if bail was granted. his role vis-a-vis co-accused and

his nexus with other persons or public financial institutions

could be unearthed even if johari was not in custody, the judge

felt. "i am therefore inclined to grant him bail on certain terms

and conditions," remarked special judge s r mehra. the judge,

however, made it clear that if johari sought bail from the

magistrate's court in lucknow he should make himself available

to the cbi in mumbai as and when required in the uti scam

case. perusing case dairies and remand application, the judge

remarked, "they show that investigation is progressive and

regular."

on august 7,

the court granted bail to co-accused, p s subramanyam

(former uti chairman), s k basu and m m kapur (suspended uti

executive directors) and broker rakesh mehta. the accused

are charged with conspiracy to cause wrongful loss to uti to

the tune of rs 32.08 crore by subscribing to 3,45,000 shares

of m/s cyberspace infosys in a private placement at an

exhorbitant price of rs 930 per share.

CBI alleged that uti officials, subramanyam, kapur and basu

had allegedly reversed their own decision taken earlier to

reject the offer of buying these shares. the agency alleged

that johari had paid rs 50 lakh bribe to these officials through

broker rakesh mehta to strike the deal. opposing his bail, the

CBI said that johari was the main brain behind the entire

conspiracy and had masterminded misappropriation of funds

to the tune of rs 32.08 crore. .

UTI lost its market dominance rapidly and by end of

2005,when the new share-holders actually paid the

consideration money to Government its market share had

come down to close to 10%!

A new board was constituted and a new management

inducted Systematic study of its problems role and

functions was carried out with the help of a reputed

international consultant.

Fresh talent was recruited from the private market,

organizational structure was changed to focus on newly

emerging investor and distributor groups and massive

changes in investor services and funds management carried

out.

Once again UTI has emerged as a serious player in the

industry.

Some of the funds have won famous awards, including

the Best Infra Fund globally from Lipper.

UTI has been able to benchmark its employee

compensation to the best in the market, has introduced

Performance Related Payouts and ESOPs

PRESENTED BY:

Arun Gupta

Isha bandral

Lakhan khajuria

Shivali sharma