The Tata group first acknowledged these losses in July 2001, but distanced itself from Pendse’s actions. In a statement, Tata Finance’s board of directors said that certain unauthorised financial transactions were discovered by the board that “include, inter alia, diversion of funds to its subsidiary, Niskalp Investment and certain other associate companies, whose affairs were also controlled and managed by the then management of Tata Finance”. “The controversy now assumed larger proportions,” it said.
The Tatas hired AF Ferguson to do an independent audit of Tata Finance’s books. Losses were initially estimated to be Rs 125 crore. Eventually, Tatas alleged illegal diversions to Niskalp caused losses of Rs 425 crore. Tata Sons, the group holding company, took over Niskalp to protect the deposit holders of Tata Finance from potential losses.
Pendse claimed that all his investments were done with the approval of the group's top brass. He claimed as much in an affidavit filed in the Bombay High Court, where he said Tata and other senior group functionaries, such as N A Soonawala, were aware of the investments made by Tata Finance in Niskalp. Tata denied this.
At an annual general meeting of VSNL in August 2002, Tata said, “It is absolutely untrue that I was consulted by Pendse. I was not involved in Tata Finance and its issues. The first time I was informed was when Pendse called me up in Dubai on April 1. If I was involved, why would he contact me?" he had said.
People close to Pendse say he was the blue-eyed boy of the Tata group bosses till the controversy broke out. Pendse claimed in a newspaper interview that “Tata used to talk to me regularly and we used to discuss various matters, including matters of Tata Finance”.
He added that he used to meet Tata every Wednesday at 3 pm (whenever he was in town) to discuss group affairs and those meetings lasted 30-45 minutes. “This practice was followed after my taking over as the managing director of Tata Finance till almost the end of 1998 and early 1999. Thereafter, I continued to meet him frequently, though not on a specific day. I had meetings with him not only in his office but even at his house after office hours,” he was quoted as saying.
Pendse then challenged the Sebi order at the SAT. In April 2014, the SAT quashed the Sebi order and asked the regulator to pass a fresh order "on merits and in accordance with law as expeditiously as possible and in any event within a period of six months".
Sebi then gave an opportunity of personal hearing to Pendse and in October 2014, it finally banned him for two years effective December 2012.