Peerless Case

Summary of the Case

Peerless is non financial banking company that sells life Insurance policies to small savers and was formed in East Bengal in year 1932 that was at that time part of India but now the Bangladesh. The company was established by R. Roy who was working with the British Insurance companies at that time as a clerk but then he found it as an opportunity to open his own insurance company and so he started it with the initial subscription of Rs. 300 although one person of minimum of 999 was allowed and authorized capital was Rs. 20000. Due to increasing importance of Calcutta from commercial activity point of view Roy shifted Peerless to Calcutta in 1935. Peerless changed its name to Peerless General Insurance and Investment co. Ltd and authorized capital also increased to Rs. 300000. But in 1947 after independence Peerless was deprived of its profitable business due to nationalization. Roy provide true leadership to the company and devised new schemes that tapped the savers not being tapped by the large banks and financial institutions. After his death in 1960, his elder son Roy Jr. also lead the company very efficiently and open its offices near to their market of small savers.

After the death of Roy Jr. in 1985, the problem started to prevail in the form of no leadership as S.K Roy was not capable of it and State government also take Peerless to the court for their unfair practices. In this situation S.K Roy himself become Managing director and bring P.C. Sen on 2 percent equity as Chairman and managing director (CMD) who served many companies as executives and was chairman of Burn Standard and was suspended in case of misappropriating 40 crore Rupees but he somehow sustained his reputation as no nonsense.

Peerless was also accused to paying lavishly on first year subscription such that 37.4% and charged additional 7% for their services from depositors and thereby reduced its burden to 55.6% in case of lapse. They were accused that they force their field force (agents) to leave their old subscription and mobilizing new subscription and so they are earning from it. Peerless came out of all this as Supreme court held decision in their favor and they were asked to follow Reserve Bank of India guidelines.

It was firstly the big names that attracted people to invest in Peerless although their returns of 14% on investment were quite unattractive comparing with government securities that doubles in 5 years. Secondly their marketing reach as there were around 18 hierarchy levels of agents and through automatic promotion system agents were promoted to the next level on fulfillment of preset performance standards.

After 1991, there was an opening of Indian economy and opportunities for new entrants increase in all sectors and so Peerless also diversified itself into diverse sectors like hotels, hospitals, computer hardware and software, television manufacturing, electronic equipment , jute, tea, fertilizers and many other fields through joint ventures with foreign investors. Under flagship company of Peerless that is Peerless General Finance & Investment company other subsidiaries includes Peerless shipping and oilfield services Ltd, Peerless Developers Ltd, Peerless Financial services Ltd, Peerless Hospitex Hospital and Research center Ltd, Peerless Hotels Ltd, Peerless technologies ltd and Peerless Global Pte Ltd.

Organizational structure of Peerless was traditional and it required multistage reporting and was inappropriate for large diversified operations and top 4 positions of the group were made up of the friends and family in control of the group. Also their middle managers were not professionally educated so as to averse high salary and it was Sen desire to sustain centralized control.

P.C Sen was the person who had a strong political support because of cash starved governments and he wanted to be in the good book of the politicians and later he became the person who was started to be considered as synonymous to the company he works for i.e Peerless and he was looking to grow in core sector of the Industry and sphere of consumer products and services but mistimed as the company was attacked by RBI claiming that they were putting depositors money in risky venture that was considered as deceiving depositors and then in 1996 taking of processing and maintenance charges for revenue expenditure were disallowed by Supreme court and then Sen was adviced to resign from Peerless by Chief minister of West Bengal Mr. Jyoti Basu who year back took the company to court for misappropriating money but later he took loan for government payroll. Next morning the news of his resign spread with the resign of his wife, daughter and son in law who were in management of other subsidiaries. With his resign Peerless with its uncertain future get into the immediate control of S.K. Roy