Part I: The great jute mill robbery

Azmara PLC, also known as Titagurh Jute Factory PLC, is the Scottish holding company of three West Bengal jute mills -- Victoria, Samnuggur and Angus. Titagurh was incorporated in 1883 and the mills have been operational for over a hundred years.

During the 1980s and 1990s, Titagurh faced a liquidity crisis and defaulted on provident fund and other statutory dues. From 1982 to 1999, the outstanding provident fund dues had grown to Rs 45.75 crore (Rs 457.5 million). During this period, it also faced multiple disputes relating to workers and management in the courts.

In order to avoid closure and loss of livelihood for the workers, the high court granted an arrangement by which the mills could be run by their raw jute suppliers. The licensees would pay a monthly fee of Rs 6 lakh to Rs 12 lakh (Rs 600,000 to Rs 1.2 million) to the owner, Titagurh.

Thus, companies run by raw jute suppliers like the Poddars and the Oswals took charge. Aditya Translink was appointed as the licensee for Samnuggur Jute Factory since 1985, and RBD Textiles became Victoria's licensee from September 1995.

Angus, which was the only mill incorporated in India by Titagurh, had become sick in 1994 and was being run by a special officer appointed by the Board for Industrial and Financial Reconstruction, P R Bagla. Over the last decade, the Poddars and the Oswals have been taking over the jute mills themselves.

Apart from paying the monthly fees, the licensees had to comply with a lot of terms and conditions imposed in their agreement. For instance, they had to fully remit all provident fund dues arising during the licence period. Terms like this were not complied with.

In the normal course, non-compliance should have led to a termination of the licences. Instead, the regional provident fund officials facilitated these very defaulters in acquiring shares of their respective jute mills and reconstituting their boards.

While the licensees continued to operate the mills, in the late 1990s, the holding company's reins were given to one Graham Avery. His mandate was to regain control of the jute mills, pay off creditors and turn the company around.

There was even talk of selling part of the 600 acres of land to a multinational company. About �5 million to �6 million owed to Indian banks and financial institutions were settled. Titagurh's shares were de-listed from the British exchanges in 1991-1992, following an insider trading scandal.

Since 1998, 65 million shares at the face value of 5 British pence were issued. Private investors snapped up what they thought were bargain shares that could fetch them a fortune when they relisted.

Avery had a way with convincing investors, but accounting errors and lack of clarity in the Indian operations made the British investors jittery.

In May 1999, when the Regional Provident Fund Commissioner initiated action against Avery for the long-standing provident fund dues, it was the last straw for Titagurh's investors. He was arrested by the police and the British high commission had to intervene to secure his release.

It is not clear why Avery alone was arrested and the long-time occupiers of the mills -- the licensees -- were not. Under the EPF Act, an occupier or even a manager can be prosecuted for non-compliance. After Avery left the country, he didn't return for fear of another arrest. He resigned from the company in November 2002.

In hindsight, Avery's persecution was part of a pre-planned conspiracy hatched by the local provident fund authorities and licensees who were in control of the mills.

With Avery out of the way, the licensees had a free run. As the report says: 'The licensees running the mills found an ingenious method of becoming the owners of the mills by 'arranging' to purchase all the issued shares of the companies for an insignificant price through front companies.'

Since they were already running the mills, the transition would be smooth.

Between January and July 2001, the local provident fund recovery officer attached and took over the title deeds of immovable and movable assets, including share certificates, of the Titagurh group companies.

But instead of disposing of the land and buildings to recover provident fund dues, the recovery officer decided to sell the shares in the companies. This is an accounting monstrosity -- because the shares of a company in its own books are always on the liability side of the balance sheet.

The provident fund department was thus attaching and selling the liabilities of the mills to pay their provident fund liabilities!