These shell companies have fake addresses, no business activity and large transactions

In a quiet tree-lined lane in Chennai’s T. Nagar, a nondescript white apartment block sports the word GYAN prominently on its face. It is an unremarkable building, except for one reason. Or perhaps, two.

A couple of the flats — numbered 12 and 16 — are the registered addresses for at least 15 companies linked to V.K. Sasikala, general secretary of the AIADMK (Amma) and her sister-in-law Ilavarasi Jayaraman.

The two house a large number of shell companies that are inter-related in a complex maze. They sport unfamiliar names such as Sri Jaya Finance and Investments, Fancy Steels, Aviry Properties, Curio Auto Mark, Cottage Field Resorts and so on. About the only company which is somewhat publicly known is Jazz Cinemas (earlier Hot Wheels Engineering), which raised eyebrows for the manner in which it acquired a Chennai cinema multiplex in 2015.

Almost all these companies have an auditor called K. Soundarvelan, who is registered as having an office in flat no. 16. The residents of this flat refused to speak to this reporter, but others — neighbours, for instance — swear there is no one by that name who lives in the apartment block.

Sri Jaya Finance and Investments Revenue: 8.56 lakh Balance sheet size: 16.4 crore Current directors: K.S. Sivakumaar & Karthikeyan Kaliaperumal V.R. Kulothungan Midas Golden Distilleries (relative of M. Natarajan, 90% Sasikala’s husband) Revenue: 680.86 crore Ilavarasi Jayaraman Balance sheet size: 188.69 crore (wife of V.K. Sasikala’s Current directors: K.S. Sivakumaar late brother Jayaraman) & Karthikeyan Kaliaperumal 0.02% 0.11% 48.37% Jazz Cinemas (earlier known as K. Kumaravelan Hot Wheels Engineering) Illustration: R Rajesh Revenue: 29.99 crore Balance sheet size: 94.28 crore Current directors: K.S. Sivakumaar & Karthikeyan Kaliaperumal 10% 50% V.S. Sivakumar Fancy Steels (relative of V.K. Sasikala) Revenue: 80.88 crore 99.85% 50% Balance sheet size: 11.39 crore Shareholding Directors: S.S. Poongundran, pattern K.S. Sivakumaar, Karthikeyan Kaliaperumal, V.R. Kulothungan & K. Kumaravelan 50% Signet Exports Revenue: Zero 48.37% 50% V.K. Sasikala Balance sheet size: 5.69 crore (AIADMK (Amma) Current directors: K.S. Sivakumaar P.R. Shanmugam general secretary) & Karthikeyan Kaliaperumal (relative of V.K. Sasikala) *Balance sheet size represents the equity, reserves and borrowings invested in assets, advances and other investments | *All data on turnover and balance sheet size pertain to 2014-15 except for Fancy Steels (2011-12) Sri Jaya Finance and Investments Revenue: 8.56 lakh Balance sheet size: 16.4 crore Current directors: K.S. Sivakumaar & Karthikeyan Kaliaperumal V.R. Kulothungan Midas Golden Distilleries (relative of M. Natarajan, 90% Sasikala’s husband) Revenue: 680.86 crore Ilavarasi Jayaraman Balance sheet size: 188.69 crore (wife of V.K. Sasikala’s Current directors: K.S. Sivakumaar late brother Jayaraman) & Karthikeyan Kaliaperumal 0.02% 0.11% 48.37% Jazz Cinemas (earlier known as K. Kumaravelan Hot Wheels Engineering) Revenue: 29.99 crore Balance sheet size: 94.28 crore Current directors: K.S. Sivakumaar Illustration: R Rajesh & Karthikeyan Kaliaperumal 10% 50% V.S. Sivakumar Fancy Steels (relative of V.K. Sasikala) Revenue: 80.88 crore 99.85% 50% Balance sheet size: 11.39 crore Shareholding Directors: S.S. Poongundran, pattern K.S. Sivakumaar, Karthikeyan Kaliaperumal, V.R. Kulothungan & K. Kumaravelan 50% Signet Exports Revenue: Zero 48.37% 50% V.K. Sasikala Balance sheet size: 5.69 crore (AIADMK (Amma) Current directors: K.S. Sivakumaar P.R. Shanmugam general secretary) & Karthikeyan Kaliaperumal (relative of V.K. Sasikala) *Balance sheet size represents the equity, reserves and borrowings invested in assets, advances and other investments | *All data on turnover and balance sheet size pertain to 2014-15 except for Fancy Steels (2011-12) Sri Jaya Finance

and Investments Revenue: ₹8.56 lakh V.R. Kulothungan Balance sheet size:

₹16.4 crore Current directors: K.S. Sivakumaar &

Karthikeyan Kaliaperumal 90% Midas Golden

Distilleries Ilavarasi Jayaraman Revenue:₹680.86 crore Balance sheet size:

₹188.69 crore K. Kumaravelan Current directors: K.S. Sivakumaar &

Karthikeyan Kaliaperumal 48.37% 0.11% 0.02% Jazz Cinemas

(formerly Hot Wheels

Engineering) 10% Revenue: ₹29.99 crore Balance sheet size:

₹94.28 crore V.S. Sivakumar Current directors: K.S. Sivakumaar &

Karthikeyan Kaliaperumal Fancy Steels Revenue: ₹80.88 crore Balance sheet size:

₹11.39 crore 50% Directors: S.S. Poongundran, K.S.

Sivakumaar & Karthikeyan

Kaliaperumal, V.R. Kulothungan,

K Kumaravelan P.R. Shanmugam 50% 99.85% Shareholding

pattern Signet Exports Revenue: Zero Balance sheet size:

₹5.69 crore 50% V.K. Sasikala 50% 48.37% Current directors: K.S. Sivakumaar &

Karthikeyan Kaliaperumal

As for flat no. 12, it has been locked for years. “Every month, someone comes to pay the maintenance to the security person and then leaves,” said a neighbour who did not wish to be identified. “We do not know who the owners are and the flat is locked. Nobody stays there and there is no company either.”

Company filings show that another mysterious firm by the name Idhayam Homes and Builders has given a written letter consenting that the firms mentioned above may have their offices at the Gyan Apartment address.

All these companies were formed after 1996, most of them around or just after 2001 when former Tamil Nadu Chief Minister Jayalalithaa came to power for the second time. The disproportionate assets (DA) case, which resulted in Jayalalithaa and her confidante Sasikala (who is serving a four-year jail term in a Bengaluru prison) being found guilty, dealt with the period between 1991-96, the former’s first term as Chief Minister. Then, the case related in part to another clutch of companies owned by the two such as Namadhu MGR, Jaya Publications, Sasi Enterprises, Anjaneya Printers, Ramraj Agro Mills, Lex Property Development and others.

Since then, Sasikala and her family have gone on to float a slew of other companies, most of them mysterious shells into which money is invested and taken out for no discernible reason. Below, a peep into this shadowy web.

Midas and Jazz

That Sasikala and members of her family have interests in Tamil Nadu’s lucrative liquor business is well known. Midas Golden Distilleries, which manufactures alcoholic beverages, is a good place to begin unravelling the web of companies. Started 14 years ago, it is tied to Sasikala and Ilavarasi, through its directors K.S. Sivakumaar and Karthikeyan Kaliaperumal, both sons-in-law of Ilavarasi.

Midas was founded in October 2002, barely a year after Jaya assumed office, her second term as Chief Minister; it has its registered office in Sriperumbudur. Major shareholders in Midas since 2009-10 are two companies, Hot Wheels Engineering (begun in 2005 and renamed Jazz Cinemas in 2013-14) and Signet Exports, with each holding 48.4% of shares. Signet Exports was begun in 2003.

While Midas and Jazz Cinemas have ongoing businesses, the other interlinked companies that have invested in these and taken loans from them seem like peculiar shell entities into which money has entered and exited.

The modus operandi is classic. Most of these companies have no real business, with the exception of Maruti Transports and Fancy Transports. They have paid-up capital of between ₹1 lakh to ₹5 lakh, but typically deal in crores as either investments or loans, stake buys and unexplained transactions. Their balance sheets feature large amounts as “share application money pending allotment” from different entities. They remain like this for several years on the balance sheets with shares not being allotted to the applicants. In a couple of companies, the money advanced for shares is converted into unsecured loans after several years. But curiously, the companies do not pay the lenders any interest.

According to a chartered accountant who wished to remain anonymous, keeping the funds as “share application money pending allotment” allows those who had advanced the money to take it back whenever they want, in addition to conferring anonymity on them.

Many companies in the web show increased borrowing (almost always from non-bank sources) followed in the same year by a commensurate increase in loans and advances given out. This is unusual for non-bank companies, whose business operations don’t have to do with raising and advancing capital (but instead has to do with raising capital to invest in the business itself).

We focussed on four of them, which have an especially tangled web of significant and unexplained transactions.

Signet Exports

Take the case of Signet Exports, which is owned by Sri Jaya Finance and Investments and Sasikala in almost equal parts. Its current directors are Kaliaperumal and K.S. Sivakumaar.

The company appears to have no business and its turnover consists largely of interest from fixed deposits in banks. It was dormant until 2008-09. From 2011-12 to 2014-15 (filings are available with the Registrar of Companies only up to this period), turnover is NIL and the company posted losses.

But interestingly, Signet Exports received a slew of loans from other Sasikala family shell entities such as Sri Hari Chandana Estates. It also invested in other family companies such as Mavis Sat Com (which runs Jaya TV, the AIADMK (A) mouthpiece) and Jazz Cinemas, which owns the plush multi-screen Luxe Cinemas in Phoenix mall in Chennai’s Velachery. Jazz bought Luxe from Sathyam Cinemas or SPI in 2015, amid rumours of a forced sale by the owner. The ubiquitous two sons-in law of Ilavarasi are directors of Jazz, while Ilavarasi’s 29-year-old son Vivek Jayaraman is the managing director.

In 2010-11, Sasikala and Sri Jaya Finance and Investments made a payment of ₹1.1 crore and ₹1.2 crore respectively for 11 lakh and 12 lakh shares in Signet. Strangely, the shares were not allotted to them. The money was instead shown as having been advanced to Signet towards “share application pending allotment”.

In the next financial year, “share application pending allotment” more than doubled to ₹5.72 crore. The additional share buys were from Namadhu MGR, Jaya Printers and others who totally paid ₹3.41 crore.

By 2012-13, the “share application pending allotment” money went back to its original size of ₹2.3 crore, as the additional ₹3.41 crore was converted into long-term borrowings. By 2013-14, the entire amount of ₹5.72 crore was turned into long term borrowings. Of this, ₹5.23 crore was invested in Mavis Sat Com and Midas Golden Distilleries. In effect, money flowed from Sasikala and various linked entities into Signet in the guise of buying shares and then from there back into Midas and Jaya TV.

Sri Jaya Finance and Investments

This company owns a majority stake in Signet Exports and thereby in Jazz Cinemas as well. Ilavarasi is the owner of this firm, holding 90% of the equity.

Sri Jaya Finance and Investments is particularly interesting as it is linked with pretty much every other company in the Sasikala web. Originally Jaya Finance, it was registered on September 6, 1994 with three founder-directors: Sasikala, Ilavarasi and V.N. Sudhagaran. V.S. Sivakumar and S. Anantharaman owned the company equally, holding half each of the issued, subscribed and paid-up capital of ₹1000.

Between 2003-04 and 2012-13 the company accepted share application money from several entities but never issued shares. They were accounted as “share application pending allotment” in the balance sheet. From ₹7.11 crore application money on March 31, 2004, this shot up to ₹11.43 crore on March 31, 2013. In 2013-14, this sum was converted into loans. Among those who had applied for shares (and later became creditors) were Namadhu MGR, Jaya Printers, Shri Jaya Publications and J Farm House (other Sasikala family entities). Interestingly, no interest has been paid by the company on the loans to its lenders.

By 2005, the name had changed to Sri Jaya Finance & Investments, the issued, subscribed and paid-up capital increased to ₹1 lakh held by V.S. Sivakumar and S. Anantharaman in the ratio of 60.5% and 39.5% respectively. The two then became directors of the company with Sasikala, Ilavarasi and Sudhagaran stepping down.

In 2011-12, the third tenure of Jayalalithaa as Chief Minister, the company went on a spree of giving and taking loans and investing in companies linked with Sasikala and family. In this year, Jayalalithaa gave a personal loan of ₹1.92 crore to Sri Jaya Finance and Investments, and ₹10.5 lakh to Sasikala.

A company named Royal Valley Floritech Exports loaned ₹45 lakh to the company. In her 2011 affidavit before the Election Commission, Jayalalithaa had stated that she was a partner in the same Royal Valley Floritech Exports. Investments made by Sri Jaya Finance and Investments in this year were all to the same group of interlinked companies. Aviry Properties (V.S. Sivakumar and V.R. Kulothungan are equal shareholders) got ₹3 crore, Bharani Resorts (now dormant) was advanced ₹1.39 crore and Hot Wheels Engineering received ₹1.36 crore. In all, Sri Jaya disbursed a total of ₹8.57 crore in 2010-11 to various group entities. Interestingly, the firm did not record any business activity apart from such loans taken from and given to companies within the web.

Sri Jaya earned a mere ₹12.14 lakh in 2013-14 as interest on bank deposits and rent on agricultural land it had purchased at Bodinayakanur in Theni district. Yet, the company had assets of ₹18.37 crore (on March 31, 2014) comprising mainly of loans and advances for shares amounting to ₹10.81 crore given to various entities such as Hot Wheels, Signet Exports, Maruti Transports and Aviry Properties. As of March 31, 2015, the firm had raised ₹15.97 crore which it lent to other entities or invested in their equity. Sri Jaya with a share capital of just ₹1 lakh is effectively a shell company that acted as a conduit for funds.

Fancy Steels

While short and long-term loans, advances, real estate buys and other transactions fly back and forth between various interlinked companies over the years, one company stands out. Apogee Developers, incorporated in May 2008, did not commence business until 2011, when its name was changed to Fancy Steels. This was also the year Jayalalithaa swept back to power with a massive mandate. In the EGM of November 01, 2011 when the company’s name was changed, the memorandum of association was altered to allow the company to trade in scrap items. In that very year, Jayalalithaa’s personal assistant S.S. Poongundran was made a director of Fancy Steels.

Subsequently the company saw a massive one-time spurt in operations with a turnover of ₹80.9 crore from the sales of scrap bought from car maker Hyundai Motor India Limited and two others that supply parts to Hyundai. However, in the following year, business slumped with the company posting a loss of ₹2.5 crore on a turnover of a mere ₹1.17 crore. A detailed questionnaire was sent to Hyundai Motors on May 2 on its business dealings with Fancy Steels, but it elicited no response.

The familiar pattern of funds coming in as equity or loans and flowing out as advances is repeated in Fancy Steels. It borrowed ₹8 crore as unsecured, interest-free loans from unknown sources. Of this, it advanced ₹3 crore to unknown borrowers. Interestingly, despite its business floundering in 2012-13, the company attracted fresh equity — its share capital shot up from ₹1 lakh to ₹50.01 crore. The ₹8 crore borrowed the previous year was repaid or converted into equity. It is not clear whether the existing shareholders brought in more funds or whether new shareholders were added.

Jazz Cinemas

On December 19, 2011, Sasikala was ousted from Jayalalithaa’s Poes Garden residence and cases were lodged against almost all of Sasikala’s closest relatives, including her husband M. Natarajan. A hundred days later, Sasikala was back inside Jayalalithaa’s home, after writing an open letter apologising to her “sister” and promising to have no truck with her relatives.

Until this point, the two directors of Jazz Cinemas (then called Hot Wheels Engineering) were close to Jayalalithaa. They were Poongundran and journalist Cho Ramaswamy. In the wake of Sasikala’s return to Poes Garden, the directorship changed hands. K.S. Sivakumaar and Kaliaperumal were in the seat by June 2012. By 2014-15, Sasikala’s shareholding in the renamed Jazz Cinemas zoomed by over 1,000 times from 4,100 shares to 41.67 lakh shares, in effect making her the owner of the company.

There are three addresses mentioned for the company. The initial address is 151, Mambalam High Road, T. Nagar in Chennai. This turned out to be a building named “Sri Ranga” with commercial offices on three floors. “There is no company by this name,” declared an aged security guard stationed at the building. Two other companies in the web were also initially registered at the same address — Aviry Properties, incorporated in 2008, and Fancy Steels. Inquiries with long-time residents of the area as well as staff in companies at the building failed to unearth any information about the companies or the businesses they run.

The second address registered for Jazz or Hot Wheels Engineering since 2009 is Plot no. 21-A, South Phase, Guindy Industrial Estate, Chennai - 600032. In 2013-14, Jazz Cinemas moved to its new home in Gyan Apartments.

Legal experts who were shown documents about the companies are puzzled by the intricate links between the companies, the lack of business activity, and the absence of a clear purpose for money flowing in and out of them. One of them paraphrased Walter Scott: “Oh what a tangled web they weave...”

Missing People, Fake Addresses

The investigation into the companies was accompanied by an attempt to trace some of the directors, past and present. Take P.C. Bothra, a former director of Hot Wheels Engineering. His address listed as Thanikachalam Road, Thousand Lights, doesn’t exist. As there is such a road in T. Nagar, the search led to a Silver Park Apartments which has his name as a flat owner. But he and his family were not there. “They sold the flat to us and left last October,” says the new owner. “Uncle [Bothra] suddenly said they were leaving and did not furnish a forwarding address.”

V.R. Kulothangan, a relative of Sasikala’s husband Natarajan, is the director of some companies. including Fancy Steels and a shareholder in Signet Exports. His residence address is a shop in Gems Court in posh Khader Nawaz Khan Road.

The shop turns out to be the address of another company in the web, Fancy Transports, run by P.R. Shanmugham, another Sasikala relative, who owns half of Signet Exports. He admitted he was a director of Hot Wheels a long time ago, but claimed he had nothing to do with it now.

Although he promised a full-fledged interview, he could not be contacted subsequently.

K.S. Sivakumaar and Karthikeyan Kaliaperumal, sons-in-law of Ilavarasi, are directors in almost all the companies in the web.

The former was unavailable at the residence address furnished in the company filings in Parameswari Nagar, Adyar. The house was locked and the neighbours had no idea where the family had moved. Sources close to him maintained he was a “director only in name of the companies”. As for Kaliaperumal, his Habibullah Road home in T. Nagar resembles a fortress with high walls and security guards posted outside. Requests for an interview were met with the response that he was busy and unable to talk now.

With Raghuvir Srinivasan