DS Kulkarni Developers: A Scam or a Good Business Gone Bad? - By Sucheta Dalal

For almost three decades, DS Kulkarni Developers Limited (DSKDL) was the byword for ethical business practices. This image was, in part, due to the persuasive motivational talks and videos of Deepak S Kulkarni, its promoter, which highlighted his rags-to-riches story and work ethic. When the going was good, people were happy to believe him, especially people from Pune, who have deposited large sums of their savings in his ‘fixed deposit (FD) schemes’. After all, the evidence of his success was visible in the group’s sprawling expansion into hospitality, power, education, automobile dealerships (Toyota has recently terminated its dealership with DSK) and even a professional football team. Media reports describe DSK as a Rs1,500-crore group with a land bank of thousands of acres. 

 

This glowing entrepreneurial story started faltering sometime in 2016, when the seemingly impossible happened and interest cheques of the DSK group companies (collectively referred to as DSK) began to bounce. For the past year, investors have been gathering at DSK’s corporate office in Pune to demand their money back. Curiously, the company’s share price seems unaffected by its financial travails and has traded above Rs30, until recently. Why have DSKDL’s problems received so little coverage (except for sporadic reports in the Marathi media)? It is probably a testimony to Mr Kulkarni’s ability to spin the bad news to his advantage. When a video of him scolding his staff for issuing dud cheques went viral, he said it only showed his sincerity and good intentions. He also attributes the group’s massive financial mess to time lost in recovering from a road accident in 2016 and dull market conditions.

 

In general, DS Kulkarni’s office is always open to depositors. Everybody gets to meet him and his wife; they openly admit to financial troubles and urge investors to give them time to sell assets and raise money to make payments. Investors are also told that if they file a complaint, the chances of getting money back are low. Although investors are upset, they seem willing to give him more time to fulfil his promise. There is also a genuine fear that ham-handed action and arrests by the police or other authorities won’t help because the assets remain impounded forever. That is probably why even an online petition seeking help from the prime minister has a large number of signatories who have chosen to remain anonymous. 

 

However, things are apparently not as simple as Mr Kulkarni seems to suggest. On Sunday, 6th August, I attended a guidance session conducted by Pune’s well-known activist Vijay Kumbhar at Chittaranjan Vatika. Among those seeking his help were a group of DSK investors who are working to dig deep into the reason for the company’s financial problems. These findings have been posted by Vijay Kumbhar in his blog titled ‘DSKDL public limited company or Criminal Enterprise’ (https://vijaykumbhar.blogspot.in/). Every bit of information, backed by copies of sales deeds, share certificates and other documents, paints a murky picture of forged signatures, dual identities, rampant diversion of funds from the public company to 

 

Mr Kulkarni’s relatives, merger of loss-making family firms at inflated valuation and worse. Before we go into the allegations, here are some facts. The company’s 2016 annual report shows no default to banks (its bankers include State Bank of India, Syndicate Bank, Bank of Maharashtra, Union Bank of India, IDBI Bank, ICICI Bank and Vijaya Bank) and it has availed of construction finance from a set of housing finance companies against the security of many ongoing projects. There are no defaults to debenture-holders either. This suggests that DSKDL is careful to ensure no default to secured creditors while it has begun to default afterwards. This is exactly where the  new rule of SEBI (Securities and Exchange Board of India)—about reporting defaults to the stock exchanges—will help protect investors by providing up-to-date information on the finances of a company. 

 

There is no offifical information of DSKDL having raised FDs, although Mr Kulkarni openly says that the trust reposed in him by depositors is the backbone of his enterprise. What is the fate of these depositors and those who have paid to book flats in DSK projects? Here’s another twist. Most post-dated cheques with depositors are from DSK’s private firms such as DSK & Sons, DSK Associates, etc. Two depositors, who approached Moneylife Foundation for guidance, say their deposit was structured as a three-year loan. This means DSK bypassed the now stringent rules for raising deposits. The group paid 19% interest in quarterly instalments; this was later slashed to 12% but remains significantly more attractive than bank term deposits. 

 

DS Kulkarni has told large depositors to accept realty assets against the money owed to them. However, the flats are being offered in projects whose completion is doubtful and the rate quoted is ‘ridiculously high’, says an investor. Moreover, if the project itself is secured against a borrowing, the legal title of the flat offered remains dodgy. DSKDL’s 2016 annual report shows that most projects have been secured against construction finance from housing finance companies such as Indiabulls Housing Finance, ICICI Housing Finance, etc. Let us look at the situation in the light of revelations from Vijay Kumbhar’s investigation. 

 

The first is the strange role of Hemanti Deepak Kulkarni, the second wife of DS Kulkarni, who is the president and chief financial officer (CFO) of DSKDL. Mr Kumbhar has posted documents showing that she held shares in DSKDL, both in her married and her maiden name (Hemanti Nilkanth Phadke). How is this possible, when she had switched to her married name in 1990 (attested by her passport) a year before DSKDL was incorporated and listed in 1991, asks Mr Kumbhar. He has also published documents which show that she signed in both names in her capacity as authorised signatory. This is only the beginning. 

 

The most serious charge that Mr Kumbhar makes is how large sums of money were siphoned out to group entities and relatives of Mr Kulkarni in the purchase of land for the ‘Dream City’ project on the outskirts of Pune. This project started life as an SEZ (special economic zone) in 2007 and was later converted into a township to build 12,000 ultra-luxury apartments. Mr Kumbhar has posted sale deeds which reveal how the Kulkarni family and associate companies were involved in the acquisition of land parcels which were later sold at significantly inflated prices to the listed entity, DSKDL. For example, in one case, DSKDL paid Rs55 lakh/acre to the landowner and Rs75 lakh/acre to DS Kulkarni & Company for the same parcel of land. Thus, land worth Rs55 lakh, was acquired by DSKDL for Rs 1.30 crore, says Mr Kumbhar, quoting its sale deed number. He cites dozens of such examples, with the names of specific family members who were involved and their relationship with DS Kulkarni or his wife. Such payments add up to a huge Rs275 crore in the Dream City project alone, says Mr Kumbhar. 

 

The 2016 annual report has a resolution to sell another 500,000 sq feet of built-up area in the Dream City project to DS Kulkarni & Company,  for Rs300 crore, in addition to property worth Rs65 crore at Kirkatwadi near Pune. This private entity of the Kulkarni family is a beneficiary in a series of transactions by DSKDL. The annual report lists a mesh of related-party transactions involving guarantees to loss-making subsidiaries which were merged with the parent (Rs 100-crore bank guarantee to Central Bank of India for a loan to DSK Global Education & Research Limited). These transactions need to be carefully analysed to understand the true status of DSKDL’s finances and its future.

 

As we go to press, DS Kulkarni has told Hindustan Times, in an interview, that he is in the final stages of negotiations to raise Rs485 crore from foreign investors and sale of a couple of land parcels which will help his company tide over its financial problems and clear all dues by January 2018. Wouldn’t this amount to price-sensitive information that should have been reported to the bourses first?  Or is this yet another ruse to buy time from angry depositors? Will our regulators wake up sometime?

[Courtesy : MoneyLife]