The Anubhav Plantations Scam
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Details
Themes: Corporate scams / Controversies
Period : 1992 - 1998
Organization : Anubhav Group / Anubhav Plantations
Pub Date : 2002
Countries : India
Industry : Agriculture / Farming & Fishing / Financial Services
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Case Code : FINC009
Case Length : 09 Pages
Price: Rs. 200;
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How the Schemes Worked Contd...
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Even though the girth of the trees would be lower at six years than at 20 years, I am very clear that my observations are correct and that Anubhav's
claims are in fact conservative. We have set records by growing teak trees to 32
feet in height in only 22 months, which would have taken six years to attain
under forest conditions." Anubhav claimed that the yield of its trees would be 40 cubic feet. Experts claimed that the yield norm would be 10 to 15 cubic feet of timber per tree over a 20-year time frame. They also estimated the internal rate of return (IRR)5 to be 30% for a teak plantation project. While the IRR of a project with the best quality soil (grade I) was estimated to be 32%, for inferior soil qualities, grade II and III, the figures were 23% and 13% respectively. Thus, the IRR that the plantation companies claimed to offer - 25-40% - was regarded as highly unrealistic.
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These claims were refuted by experts, who said that with substitutes such as plastic, plywood and particleboard becoming popular in the West, the demand for wood could decrease in the future. The steady increase in teak prices during 1992-98 was projected to be unsustainable because of increasing supply. MRFD studies revealed that teak prices would drop sharply after 2009. An official said,
"I expect a fall in prices after the year 2009. In fact, by the year 2015, I
expect the price of teak timber, particularly those of girth 60-75 cm, to
decline to less than half of the price prevailing in the year 2009."
Plantation companies' procedures were also flawed. These companies did not directly own the land, they only supervised the sale deed between the owner of the land and the investors. Investors were issued certificates indicating the extent of ownership and, in most cases, received only photocopies of the original sale deed. The certificates were issued under the common seal of the company, but were unstamped, raising suspicions about the commitment of the company. Most of the companies invariably linked the transferability of these certificates to transfer of land back to them. Thus, in spite of paying for the land, investors did not get absolute title to the land and were in no position to transfer their rights to the land along with the timber.
In this entire procedure, plantation companies held all the cards. The certificates issued under teak tree schemes were not delivered to investors until three months after the payment of the final installment. The concerned company took these certificates back three months prior to the closure of the schemes. In the interim, if the investors defaulted, the company had the right to hold back the certificate. But if the company defaulted, the investor could do very little legally since the certificates were with the company.
5] IRR is the rate of interest for discounting the cash flows of a project/investment over time such that the present value of the net revenue flows is equal to the capital sum invested. It is used to determine whether a prospective investment is viable. For instance, if the internal rate of return is higher than the rate of interest at which a firm can borrow, the investment would be worth pursuing.