Swadhan is a shared payment network service operated in Mumbai under the auspices of Indian Banks' Association (IBA), enabling customers of various banks to use any ATM for convenience, while banks earn revenues by sharing their ATM infrastructure.

Armed with a Madras High Court order, ACI has sent a notice to the Rs 3-crore turnover ISC and IBA about its decision to remove the networking software/Base 24 switch licensed by it. The company has also informed its decision to initiate winding up proceeding against ISC. The software/Base 24 switch is housed at ISC's Mumbai office.

Apart from ACI, Compaq on its part has informed its decision to start winding up proceedings against ISC. Curiously, the two companies are partners in the four-way joint venture ISC. The other two partners are HMA Data Systems and Financial Software and Systems, based in Chennai.

Likely to be caught in the crossfire are Swadhan member banks and their customers. The member banks will be losing their revenue stream (Rs 5 per transaction), while customers will be restricted to using only the ATMs owned and operated by the bank in which they hold their account - provided that the bank has a switch of its own. The network has been operating for the past five years.

IBA, the coordinating body for Swadhan network, is twiddling its fingers for its acts of omission and commission. "We will see to that the network does not fail and all steps will be taken towards ensuring that," says an IBA official.

He also says IBA is deciding on various options - allowing ISC to migrate to a different technological platform or even re-tendering the project and select the same or a new service provider. But he does not guarantee the continuous working of the network without any disruption when ACI plugs out its software.

Says D Balaji Chandran, vice-president and group financial controller, HMA group, to which ISC belongs: "We will migrate to a new technology platform called Oasis, as informed to IBA; 80 per cent of the work is over in this connection. But there will be minor disruption in the services." Group chairman Harish K Murthi is not in India to comment on the imbroglio.

Industry sources say transition to another technological platform cannot happen without shutting down the network for sometime. And can IBA allow introduction of a new solution overnight without evaluating the technical feasibility when it took more than four years to zero in on the existing solution is a pertinent question here.

A high-powered committee headed by ICICI Bank joint managing director H N Sinor is looking into the issue. The committee is learnt to be considering various options available to IBA to have the network up and running without any break.

While it will take time for things to get sorted out, it is really a Catch-22 situation for several banks - including public sector banks like Indian Overseas Bank, Oriental Bank of Commerce, United Bank of India, Allahabad Bank and UCO Bank - which have reposed faith in IBA's capability and the smooth functioning of Swadhan.

Agrees an Indian Overseas Bank official: "We have been informed by IBA that they are looking out for alternate arrangements. Till that happens cardholders of Swadhan member banks will have to bear with the inconvenience."

The plug-in
The SPNS went live on 1 February 1997 in Mumbai with HMA Consortium/India Switch winning the service mandate for five years, pipping Wipro at the last stage. What is interesting to note is that eight out of the 11 bidders opted for the Base 24 switch owned by ACI.

What swung IBA's decision in HMA consortium's favour was the serious commitment on the part of software and hardware providers - ACI (India) and Tandem Computers, respectively - to be part of the company that will implement the contract.

Accordingly, India Switch was floated as a four-way joint venture between HMA Data Systems (holding 51 per cent), Financial Software and Systems (4 per cent - the company owns the exclusive right to commission and service Base 24 switch in India), Tandem/Compaq (15 per cent) and ACI India (30 per cent).

Of the four parties it was only HMA Data Systems, FSS and ACI (India) that contributed towards the equity. It was said to be a win-win deal for all the parties concerned. IBA, under the contract, had committed to pay Rs 10.8 crore to ISC during the five-year period. Sources say till date IBA has paid India Switch a sum of Rs 9.5 crore.

For the HMA group, this deal gave a good leverage to sell its Diebold ATMs made by another group company. And for the other three parties Swadhan gave a strong foothold in the Indian ATM networking market that would have increased as and when Swadhan got extended nationwide presence.

But there were rumblings among the ISC joint venture (JV) partners from the beginning. Though ACI India contributed its share of 30 per cent (Rs 60 lakh) it has not been allotted shares till date by ISC.

The initial reason said was the Reserve Bank of India's permission was awaited for allotment and by the time the central bank's permission was received, disputes between the JV partners cropped up and ISC decided to retain the money, pending resolution of disputes. Tandem Computers was in the process of bringing in its share of equity when it was taken over by Compaq in 1997. The latter decided to invest only when ISC settled its dues for supplying hardware.

With ISC continuing to default payments to ACI and Compaq the dues mounted. At the last count, ISC owes Rs 5 crore to ACI and Rs 3 crore to Compaq for software and hardware that have already been supplied. In the meantime, attempts by Murthi to find a buyer for ACI's holdings in ISC as well as for the company as a whole failed, though such an act is in violation of the commitment made to IBA.

Confirms Anurag Gupta, chairman, Alittleworld.com, New Delhi: "The company was touted to be worth Rs 75 crore and we paid Rs 4 crore as earnest money deposit to the HMA group towards acquisition of ISC. While conducting due diligence, we realised several representations made by ISC had in fact turned out to be false and its assets were leased back to a group company. According to legal opinion, consent of all the four joint venture partners of ISC and IBA is necessary for its sale or purchase, and this was not there."

Says Chandran: "That's a past story. We have decided not to sell ISC because another product of ours, Total Retail Infrastructure Management Services, turned out to be promising. We have sold the product to Bank of India." He also categorically said except for a very minor percentage stake held by Capven, UK, nearly 97 per cent of the ISC's equity is held by HMA group companies registered in India.

In 1999, HMA STARware, another company headed by Murthi, tied up with a Canadian company, Oasis Technology, to distribute Oasis switch - a competing solution for Base 24 owned by ACI.

Infuriated by the turn of events - non-payment of licence fees, denial of directorships in ISC in contravention to the commitment made to IBA, attempts to sell off the company and bringing in a competing solution - ACI and Compaq started writing to IBA. The latter, typical of a true nationalised banking set-up, sat silent on the pretext that the dispute was between ISC and its promoters and vendors even though some of the acts violated its own service contract.

Strangely, IBA extended the Swadhan contract to ISC by another six months on the condition that it will do the due diligence as to the company's financial and technical capability. But till date IBA is yet to carry out its due diligence audit of ISC.

When the dispute reached a boiling point ACI served its licence termination notice on ISC. In order to pre-empt ACI from removing the Base 24 switch, ISC filed a case in the Madras High Court praying for an injunction against ACI from removing the software.

Faulting IBA for non-payment of its dues ISC failed to deposit with the court Rs 50 lakh as ordered by the high court and prayed for extending the injunction granted earlier. The high court dismissed the case with costs in favour of ACI, and later the review petition too.

Future course
With no hurdles on its path, ACI, the sources add, is all set to move fast - possibly this week - to plug out its software. It is learnt that an ACI official met IBA officials last week to brief about the situation and expressed his willingness to continue with the network if its interests are adequately protected.

The viable option before IBA, and which will result in competitive market forces, is to get out of this coordinating role and allow the banks to choose their own switch and service provider, the sources say.

When Swadhan was started there were only four banks in India owning a switch. Today, most of the banks are expanding their ATM network. While banks in the Swadhan network have issued around 30,000 cards, HDFC Bank, SBI and ICICI Bank on their own have issued 1.2 million, 1.5 million and 2 million cards, respectively.

As most of the banks are using the same Base 24 switch they can interconnect on their own. Moreover, Financial Software and Systems alone have networked around 4,000 ATMs and it will really be a win-win situation if they talk to each other. Swadhan network has less than 700 interconnected machines.

The other choices for IBA are: taking over the Swadhan network as per its original agreement or shutting down the network for six months and start again the process of selecting the service provider.

As it stands, people like Financial Software and Systems managing director Nagaraj Mylandla are not keeping silent. With banks like SBI, ICICI, HDFC, Punjab National Bank and UTI (as also 10 others), and Mastercard taking up his services for the proven Base 24, he is bidding hard for the Swadhan network. "Today, part of the SPNS network is operating offline. I can give total online operations, and the cost of migration will be negligible. I can run the network on an ASP basis or on BOOT basis, whatever the IBA wants."

And this actually makes more sense than handling the entire network to one group or company that has defaulted on its contractual commitments and shown interests in cashing the business than continuing the same.