Sucheta Dalal recounts how she broke the story, and how hundreds of court cases have meandered for two decades with no end in sight
On 22 April 1992, exactly 20 years ago, an acquaintance of the news editor of The Times of India tipped me off about an incredible story. Harshad Mehta, arguably the only superstar the Indian stock market has seen and known by the moniker Big Bull, had been summoned by the State Bank of India (SBI). I was told that Harshad Mehta—whose apparent stock-picking prowess had made him a media darling—had been asked to pay up Rs500 crore immediately and was to hand over a cheque the next day. Harshad, with a following to match a film star or a cricketer, caused a flutter at the Bank by arriving in hisToyota Lexus—which, at Rs40 lakh+, was among the most expensive cars in the market at a time the Indian economy was just opening up.
The story seemed incredible, because Harshad’s networth was estimated at a few thousand crores of rupees. However, for a year before that, a market source had been giving me details about the unholy nexus that had sprung up between a set of powerful politicians, bankers and brokers which was providing a seemingly endless source of money to propel the bull run. Brokers were the centre of this action and, although Harshad was the star bull, he had plenty of enemies too.
I made scores of calls; a colleague made a trip to the SBI canteen for the scuttlebutt on Harshad’s visit to the chairman’s office. When asked, Harshad denied it outright and the SBI chairman MN Goiporia dismissed it as a figment of my imagination. We still didn’t have a shred of documentary evidence to back our story. I made a call to a senior banker for confirmation. He refused to talk, but heard out what I had pieced together and then merely grunted an affirmative and disconnected the line.
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When the report appeared on the front page of The Times of India on 23rd April, suitably watered down and using the term Big Bull instead of Harshad Mehta, all hell broke loose. I met senior bankers at a conference that day and the fear was palpable. But Harshad Mehta did pay back Rs500 crore and The Economic Times triumphantly front-paged that story along with an interview with the SBI chairman. He confirmed that the Big Bull had, indeed, paid back well over Rs500 crore out of the Rs770 crore in government securities that had vanished into the brokers’ account due to a ‘missing’ Subsidiary General Ledger (SGL) receipt. That confirmation unravelled a chain of connections to other banks, brokers and financial institutions and it exposed the utter lawlessness that had become ‘accepted market practice’. A spate of arrests followed: some of them deserved, others a knee-jerk action directed by the government. On the positive side, it also triggered an unprecedented pace of market reforms. But more of that later.
Essentially, the Harshad Mehta scam (as well as the Ketan Parekh scam which took place eight years later), are stories of successive regulatory failure—at the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI, which did not have the powers in 1992) and the ministry of finance. It was compounded by a thoughtless process of investigation and action aimed at appeasing the public and silencing the political opposition. The Central Bureau of Investigation (CBI) and the special court did not even attempt to understand the dimensions of the scam or draw up a plan of investigation and litigation to separate civil and criminal liabilities or sequence/bunch litigation when there were shares or money that had passed between several entities and institutions. And there was absolutely no regard for the time value of money. This attitude has not changed in all the many scams that have erupted since 1992.
The size of the Harshad Mehta scam estimated by the Joint Parliamentary Committee (JPC) was Rs4,024 crore. We believe it was around Rs5,000 crore which, at 8% inflation, would be Rs23,000 crore today—a significant sum even by today’s standards. Of this, the custodian claims to have recovered Rs6,170 crore and distributed Rs5,480 crore mainly to the income-tax department and a few others. If the recovery seems significant, it is because the number is artificially inflated by the steep rise in stock prices (at least three to four times) and the skyrocketing realty rates in Mumbai (fetching a considerable sum for Harshad Mehta’s sprawling 10,400sq ft apartment). Most of the money released has gone to the income-tax department which continues to hold on to its ludicrous claims of Rs20,000 crore of sums owed along with interest and penalties (see Justice or Farce?).
Those involved in the daily grind of cases say that the number of cases touted by the custodian are misleading. Over 600 significant cases have been filed; of these, even the custodian says, 270 are still grinding their way through the once-a-week hearings at the special court in Mumbai which was set up for ‘speedy trial’ of scam-related offences. The trials are completely lopsided. On one hand, junior bankers of SBI and UCO Bank have been sentenced to rigorous imprisonment, merely for countersigning cheques without any involvement or dubious intent. Foreign banks, on the other hand, escaped criminal action and punishment, despite practising the same shortcuts and conveniences to speed up transactions while dealing with the slow, manual systems at the public debt office of the RBI. ANZ Grindlays Bank famously argued in its case against National Housing Bank (NHB) that crediting banker’s cheques to brokers’ current accounts had become an ‘accepted market practice’. The case has been settled through arbitration without anyone being jailed for crediting cheques to Harshad Mehta’s account.
The story about regulation and supervision is the same. By pure chance, in 1992, SEBI was headed by its best chairman yet—GV Ramakrishna. He ruthlessly brought order to a rag-tag community of brokers, 20 stock exchanges and a variety of intermediaries and encouraged the creation of a new exchange to keep the BSE (Bombay Stock Exchange) in check. But when he refused to compromise and water down a report on Goldstar Steel & Alloy, a company in which the then prime minister’s sons were involved, he was kicked upstairs to the Planning Commission. The next seven years were marked by steady systemic changes towards automation of trading, but poor regulatory oversight.
Indeed, just five years after the 1992 scam, Harshad Mehta was on a comeback trail. He set up a whole network of entities called the Damayanti group to conduct his market operations; the group openly operated out of his Nariman Point office which was technically under the custodian. SEBI watched in silence, refused to act on my feedback and allowed him to ramp up the shares of BPL, Videocon and Sterlite Industries in style. Investigations began only when the bubble had burst. Without direct access to bank funds or even a legitimate trading membership, this was bound to happen.
In June 1998, he had created www.harshad.com and would have cashed in on the dotcom bubble. His groupie Ketan Parekh, along with a pack of crony businessmen, created yet another stock bubble which went bust in 2000-01 and took down two banks (Global Trust Bank and Madhavpura Mercantile Co-operative Bank, which has been kept alive for political reasons). Ironically, DR Mehta, the then SEBI chairman who allowed this to happen under his watch, was allowed to remain in office for seven years. Interestingly, Satyam Computers of Ramalinga Raju who confessed to a fraud in 2008 was a part of the K-10 scrips which were ramped up by Ketan Parekh. A second JPC was appointed to probe the Ketan Parekh scam but it was a farce from the very beginning with Pramod Mahajan, as the strategist for the BJP-led government, ensuring that it was packed with sympathisers of the accused.
Most Got Away
On 31 December 2001, Harshad Mehta died of a massive heart attack in a suburban Mumbai jail after he was arrested for a second time. The unceremonious end to a story that had fired the dreams of every middle-class Indian was tragic. The man who wanted to be a ‘Pied Piper’ actually lived his dream of fabulous riches, a sprawling 10,400sq ft house with a putting green and a fleet of expensive cars and prestige only for a very short while. Over the next nine years, all those who fawningly called him the Amitabh Bachchan or the Einstein of the markets faded away from his life. And, in the end, he seemed just a tired scamster, still trying to regain lost glory with variations of the same old scam. But, without the mega bucks of banks and institutions to finance him, there was no way he could recreate the magic.
Ironically, prime minister PV Narasimha Rao, who Harshad claimed to have bribed, remained unaffected as did every other politician who colluded with the scamsters. Each of them bounced back (P Chidambaram had resigned over owning shares of Fairgrowth Financial Services), was unaffected or faded away (one example is B Shankaranand, then the powerful petroleum minister) without paying a price.
Every corporate/promoter who colluded with Ketan Parekh (such as Himachal Futuristic Communications, Zee, Padmini Technologies, Shonkh Technologies) has got away scot-free. Some, like Manoj Tirodkar, have even snagged massive loans from banks to go nearly bust again. Himachal Futuristic walked away by paying Rs10 crore under a consent deal with SEBI in 2010. Ironically, the 15th action taken report of the finance ministry mentions that charges against the company were dropped after adjudication on 11 March 2009. The Zee group was similarly discharged by SEBI’s whole-time members, immediately after CB Bhave took over as chairman.
The biggest beneficiaries of the scams have been lawyers and law firms. Unlike journalists, activists, investigators and regulators, they are not required to take a moral stand on who they represent. Consequently, the best brains in India are always and invariably working at getting scamsters and crooks off the hook for enormous fees. These fees are linked to conferences and court appearances and not the completion of cases or their success. The worst victims are innocent, or just weak, bank officials (who couldn’t say no); they are slowly destroyed in decades of court appearances and the absence of decent legal representation. This, more than anything else, is also responsible for the legal quagmire and endless litigation that results from any investigation.
Ironically, the office of the custodian which claims that it has filed 11,000 cases (disputed by all others involved in the trial) has continued to file fresh ones. After a decade, the custodian finally woke up in February 2012 to ask Ketan Parekh (and 19 entities connected with him) the source of over Rs72 crore that he repaid in instalments to Bank of India and Madhavpura Bank under a court order. Madhavpura Bank, in turn, is waking up to protect its right. On 31st March, a media report said that it was set to contest the discharge by a magistrate’s court of two key cronies of Ketan Parekh—Dharmesh Doshi, who worked with him, and stockbroker Mukesh Babu. We believe that this flurry of action in the Ketan Parekh case is only the Congress government’s way to embarrass the Opposition a decade after the scam. But it again proves that whatever the political formation at the Centre, they have all been interested in feeding off public money.
What a far cry all this is from 1956, when Justice MC Chagla said after the Haridas Mundhra scandal: “After very anxious consideration I have decided that this enquiry should be held in public. A public enquiry constitutes a very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based. Members of the public will also be in a position to come forward at any stage to throw more light on the facts disclosed by the evidence. Justice should never be cloistered—it should be administered in broad daylight.” He also decided to take evidence on oath so that those who “gave evidence did so with a sense of responsibility and the knowledge of the consequences of giving false testimony.” The Mundhra enquiry was wrapped up in two years, including the appeal to the Supreme Court. That record has never been repeated in the 56 years since that scandal.
On 22 April 1992, exactly 20 years ago, an acquaintance of the news editor of The Times of India tipped me off about an incredible story. Harshad Mehta, arguably the only superstar the Indian stock market has seen and known by the moniker Big Bull, had been summoned by the State Bank of India (SBI). I was told that Harshad Mehta—whose apparent stock-picking prowess had made him a media darling—had been asked to pay up Rs500 crore immediately and was to hand over a cheque the next day. Harshad, with a following to match a film star or a cricketer, caused a flutter at the Bank by arriving in hisToyota Lexus—which, at Rs40 lakh+, was among the most expensive cars in the market at a time the Indian economy was just opening up.
The story seemed incredible, because Harshad’s networth was estimated at a few thousand crores of rupees. However, for a year before that, a market source had been giving me details about the unholy nexus that had sprung up between a set of powerful politicians, bankers and brokers which was providing a seemingly endless source of money to propel the bull run. Brokers were the centre of this action and, although Harshad was the star bull, he had plenty of enemies too.
I made scores of calls; a colleague made a trip to the SBI canteen for the scuttlebutt on Harshad’s visit to the chairman’s office. When asked, Harshad denied it outright and the SBI chairman MN Goiporia dismissed it as a figment of my imagination. We still didn’t have a shred of documentary evidence to back our story. I made a call to a senior banker for confirmation. He refused to talk, but heard out what I had pieced together and then merely grunted an affirmative and disconnected the line.
When the report appeared on the front page of The Times of India on 23rd April, suitably watered down and using the term Big Bull instead of Harshad Mehta, all hell broke loose. I met senior bankers at a conference that day and the fear was palpable. But Harshad Mehta did pay back Rs500 crore and The Economic Times triumphantly front-paged that story along with an interview with the SBI chairman. He confirmed that the Big Bull had, indeed, paid back well over Rs500 crore out of the Rs770 crore in government securities that had vanished into the brokers’ account due to a ‘missing’ Subsidiary General Ledger (SGL) receipt. That confirmation unravelled a chain of connections to other banks, brokers and financial institutions and it exposed the utter lawlessness that had become ‘accepted market practice’. A spate of arrests followed: some of them deserved, others a knee-jerk action directed by the government. On the positive side, it also triggered an unprecedented pace of market reforms. But more of that later.
Essentially, the Harshad Mehta scam (as well as the Ketan Parekh scam which took place eight years later), are stories of successive regulatory failure—at the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI, which did not have the powers in 1992) and the ministry of finance. It was compounded by a thoughtless process of investigation and action aimed at appeasing the public and silencing the political opposition. The Central Bureau of Investigation (CBI) and the special court did not even attempt to understand the dimensions of the scam or draw up a plan of investigation and litigation to separate civil and criminal liabilities or sequence/bunch litigation when there were shares or money that had passed between several entities and institutions. And there was absolutely no regard for the time value of money. This attitude has not changed in all the many scams that have erupted since 1992.
The size of the Harshad Mehta scam estimated by the Joint Parliamentary Committee (JPC) was Rs4,024 crore. We believe it was around Rs5,000 crore which, at 8% inflation, would be Rs23,000 crore today—a significant sum even by today’s standards. Of this, the custodian claims to have recovered Rs6,170 crore and distributed Rs5,480 crore mainly to the income-tax department and a few others. If the recovery seems significant, it is because the number is artificially inflated by the steep rise in stock prices (at least three to four times) and the skyrocketing realty rates in Mumbai (fetching a considerable sum for Harshad Mehta’s sprawling 10,400sq ft apartment). Most of the money released has gone to the income-tax department which continues to hold on to its ludicrous claims of Rs20,000 crore of sums owed along with interest and penalties (see Justice or Farce?).
Those involved in the daily grind of cases say that the number of cases touted by the custodian are misleading. Over 600 significant cases have been filed; of these, even the custodian says, 270 are still grinding their way through the once-a-week hearings at the special court in Mumbai which was set up for ‘speedy trial’ of scam-related offences. The trials are completely lopsided. On one hand, junior bankers of SBI and UCO Bank have been sentenced to rigorous imprisonment, merely for countersigning cheques without any involvement or dubious intent. Foreign banks, on the other hand, escaped criminal action and punishment, despite practising the same shortcuts and conveniences to speed up transactions while dealing with the slow, manual systems at the public debt office of the RBI. ANZ Grindlays Bank famously argued in its case against National Housing Bank (NHB) that crediting banker’s cheques to brokers’ current accounts had become an ‘accepted market practice’. The case has been settled through arbitration without anyone being jailed for crediting cheques to Harshad Mehta’s account.
The story about regulation and supervision is the same. By pure chance, in 1992, SEBI was headed by its best chairman yet—GV Ramakrishna. He ruthlessly brought order to a rag-tag community of brokers, 20 stock exchanges and a variety of intermediaries and encouraged the creation of a new exchange to keep the BSE (Bombay Stock Exchange) in check. But when he refused to compromise and water down a report on Goldstar Steel & Alloy, a company in which the then prime minister’s sons were involved, he was kicked upstairs to the Planning Commission. The next seven years were marked by steady systemic changes towards automation of trading, but poor regulatory oversight.
Indeed, just five years after the 1992 scam, Harshad Mehta was on a comeback trail. He set up a whole network of entities called the Damayanti group to conduct his market operations; the group openly operated out of his Nariman Point office which was technically under the custodian. SEBI watched in silence, refused to act on my feedback and allowed him to ramp up the shares of BPL, Videocon and Sterlite Industries in style. Investigations began only when the bubble had burst. Without direct access to bank funds or even a legitimate trading membership, this was bound to happen.
In June 1998, he had created www.harshad.com and would have cashed in on the dotcom bubble. His groupie Ketan Parekh, along with a pack of crony businessmen, created yet another stock bubble which went bust in 2000-01 and took down two banks (Global Trust Bank and Madhavpura Mercantile Co-operative Bank, which has been kept alive for political reasons). Ironically, DR Mehta, the then SEBI chairman who allowed this to happen under his watch, was allowed to remain in office for seven years. Interestingly, Satyam Computers of Ramalinga Raju who confessed to a fraud in 2008 was a part of the K-10 scrips which were ramped up by Ketan Parekh. A second JPC was appointed to probe the Ketan Parekh scam but it was a farce from the very beginning with Pramod Mahajan, as the strategist for the BJP-led government, ensuring that it was packed with sympathisers of the accused.
Most Got Away
On 31 December 2001, Harshad Mehta died of a massive heart attack in a suburban Mumbai jail after he was arrested for a second time. The unceremonious end to a story that had fired the dreams of every middle-class Indian was tragic. The man who wanted to be a ‘Pied Piper’ actually lived his dream of fabulous riches, a sprawling 10,400sq ft house with a putting green and a fleet of expensive cars and prestige only for a very short while. Over the next nine years, all those who fawningly called him the Amitabh Bachchan or the Einstein of the markets faded away from his life. And, in the end, he seemed just a tired scamster, still trying to regain lost glory with variations of the same old scam. But, without the mega bucks of banks and institutions to finance him, there was no way he could recreate the magic.
Ironically, prime minister PV Narasimha Rao, who Harshad claimed to have bribed, remained unaffected as did every other politician who colluded with the scamsters. Each of them bounced back (P Chidambaram had resigned over owning shares of Fairgrowth Financial Services), was unaffected or faded away (one example is B Shankaranand, then the powerful petroleum minister) without paying a price.
Every corporate/promoter who colluded with Ketan Parekh (such as Himachal Futuristic Communications, Zee, Padmini Technologies, Shonkh Technologies) has got away scot-free. Some, like Manoj Tirodkar, have even snagged massive loans from banks to go nearly bust again. Himachal Futuristic walked away by paying Rs10 crore under a consent deal with SEBI in 2010. Ironically, the 15th action taken report of the finance ministry mentions that charges against the company were dropped after adjudication on 11 March 2009. The Zee group was similarly discharged by SEBI’s whole-time members, immediately after CB Bhave took over as chairman.
The biggest beneficiaries of the scams have been lawyers and law firms. Unlike journalists, activists, investigators and regulators, they are not required to take a moral stand on who they represent. Consequently, the best brains in India are always and invariably working at getting scamsters and crooks off the hook for enormous fees. These fees are linked to conferences and court appearances and not the completion of cases or their success. The worst victims are innocent, or just weak, bank officials (who couldn’t say no); they are slowly destroyed in decades of court appearances and the absence of decent legal representation. This, more than anything else, is also responsible for the legal quagmire and endless litigation that results from any investigation.
Ironically, the office of the custodian which claims that it has filed 11,000 cases (disputed by all others involved in the trial) has continued to file fresh ones. After a decade, the custodian finally woke up in February 2012 to ask Ketan Parekh (and 19 entities connected with him) the source of over Rs72 crore that he repaid in instalments to Bank of India and Madhavpura Bank under a court order. Madhavpura Bank, in turn, is waking up to protect its right. On 31st March, a media report said that it was set to contest the discharge by a magistrate’s court of two key cronies of Ketan Parekh—Dharmesh Doshi, who worked with him, and stockbroker Mukesh Babu. We believe that this flurry of action in the Ketan Parekh case is only the Congress government’s way to embarrass the Opposition a decade after the scam. But it again proves that whatever the political formation at the Centre, they have all been interested in feeding off public money.
What a far cry all this is from 1956, when Justice MC Chagla said after the Haridas Mundhra scandal: “After very anxious consideration I have decided that this enquiry should be held in public. A public enquiry constitutes a very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based. Members of the public will also be in a position to come forward at any stage to throw more light on the facts disclosed by the evidence. Justice should never be cloistered—it should be administered in broad daylight.” He also decided to take evidence on oath so that those who “gave evidence did so with a sense of responsibility and the knowledge of the consequences of giving false testimony.” The Mundhra enquiry was wrapped up in two years, including the appeal to the Supreme Court. That record has never been repeated in the 56 years since that scandal.
Justice or Farce?
Too little has been recovered and too many cases are unresolved, reducing the scam trial to a farce
To deal with the 1992 scam-related cases, the government promulgated The Special Court (Trial of Offences Relating to Transactions in Securities) Act. What has been the progress? Custodian Satish Loomba told Moneylife that since 1992 there have been 40 criminal cases, of which 30 had been disposed of. Market sources dispute this. The custodian has also claimed that over Rs6,170 crore has been recovered and Rs5,480 crore distributed to the income-tax department, banks and financial institutions; as much as 30% of this money was recovered in as late as March 2011. Yet, the scam itself was just Rs5,000 crore (according to us) and Rs4,024 crore as per the Janakiraman Committee set up to investigate what really happened in 1992. Where is the discrepancy? Well, if you calculatethe value of assets in constant terms without taking into account the changed value of assets that are subject to inflation, you will end up with a distorted reality.
The special court was set up for the ‘speedy trial’ of offences related to the securities scam, and to restore public confidence and recover over Rs5,000 crore that was supposed to have been lost. The custodian is the principal administrative officer (for attachment, management and liquidation of assets) and functions under a system of concurrent judicial review by a special court, comprising sitting Judges of the High Court at Mumbai.
So far, the custodian has notified 70 individuals or entities for their involvement in the 1992 scam. Of these, 27 have been de-notified. The statute was to ensure a speedy trial of scam-related offences, but nearly 20 years later, 300 cases (most of them filed in the early 1990s) are still dragging through various courts. Many of the guilty have not been punished, while some innocents have been condemned to grinding litigation. There is no time limit prescribed in the Act for filing fresh applications or cases. From meeting every single day, the special court now meets once a week and from the initial three judges, the court now has a single judge. At the current pace, it will take another 20 years before the more important cases are resolved, turning the whole process into a joke. According to a lawyer handling the scam-related cases, even the so-called ‘resolved’ cases can be, and are being, challenged in the Supreme Court. There is simply no end in sight.
While litigants have long complained privately about lack of financial and legal understanding and sensitivity of the officials, the custodian recently was strongly censured by Justice VM Kanade in a case involving S&S Power Switchgear (SSPS) which complained of denial of fair hearing and settlement offer. The court observed that the “Custodian has not bothered to… produce any document to prima facie show that the said claim was recoverable from SSPS.” SSPS had offered, without prejudice, a full and final settlement of Rs90,000 without any interest. The court directed the custodian to examine the offer but the custodian sought adjournment of several hearings and neither accepted nor denied the proposal submitted by SSPS. This is how it has taken 20 years for the custodian’s office to achieve the little it has. Irritated with the custodian’s foot-dragging, Justice VM Kanade of the special court commented: “…it is the duty of the Custodian to act fairly and prosecute third parties in respect of the recovery of claim on behalf of the notified parties… the application has been filed in most casual and irresponsible manner.” He adds, “More than 20 years have passed after appointment of this Court and yet freshapplications are filed in this frivolous manner against third parties for recovery of the alleged claims and merely because law of limitation is not applicable to the Special Court, this Court cannot entertain such applications for recovery without ascertaining whether prima facie case is made out or not as observed …”
In addition, there is no information on the total expenses incurred by the government on the investigation and legal proceedings of the 1992 securities scam. Across the globe, there is a rule of thumb that is often quoted in fraud investigations. It says, “Investigation of any fraud will cost as much as the amount of the fraud itself.”
The Money Illusion
While it seems that a lot of money has been recovered, it has mostly gone to the income-tax department. Though the objective of the Act was to recover monies lost by the banks and financial institutions, but “the revenue department has the first claim and so the I-T department received maximum amount,” Mr Loomba added.
More importantly, whatever has been recovered has to be seen in inflation-adjusted terms. A Rs5,000-crore scam in 1992 is like a Rs23,000 crore-scam today, only at 8% compounded. The high-quality real estate and blue-chip shares recovered from various people have inflated at 50%+. The sale of eight flats in Madhuli building at Worli (Mumbai), belonging to the Harshad Mehta group illustrates what really is going on. Spread over two floors and 10,400sq ft, these interconnected flats at Madhuli Co-operative Society, occupied by the extended Mehta family, spelt the ultimate in aspiration and achievement for investors and speculators in India’s liberalised economy in the 1990s. The property included a billiards room, a putting green and a mini-theatre… things that were unheard of in 1992. The Mehtas owned five flats on the third floor and three on the fourth floor which were occupied by four brothers and their families and their mother.
The sale of the flats was first ordered in October 2003 after which the case has seen incredible twists and turns with multiple appeals and stay orders. Harshad Mehta’s widow Jyoti Mehta has filed an appeal in the Supreme Court and, at present, there is stay on the sale of the property. The property, at its current market price (about Rs40,000 per sq ft), could fetch around Rs42 crore.
According to legal sources, unless the civil cases are resolved, there is little chance of further recovery of large amounts of money. The little that is recovered will give us the illusion that a lot of money is being unearthed, thanks to the continuously rising value of blue-chip shares and real estate. — Debashis Basu & Yogesh Sapkale
Too little has been recovered and too many cases are unresolved, reducing the scam trial to a farce
To deal with the 1992 scam-related cases, the government promulgated The Special Court (Trial of Offences Relating to Transactions in Securities) Act. What has been the progress? Custodian Satish Loomba told Moneylife that since 1992 there have been 40 criminal cases, of which 30 had been disposed of. Market sources dispute this. The custodian has also claimed that over Rs6,170 crore has been recovered and Rs5,480 crore distributed to the income-tax department, banks and financial institutions; as much as 30% of this money was recovered in as late as March 2011. Yet, the scam itself was just Rs5,000 crore (according to us) and Rs4,024 crore as per the Janakiraman Committee set up to investigate what really happened in 1992. Where is the discrepancy? Well, if you calculatethe value of assets in constant terms without taking into account the changed value of assets that are subject to inflation, you will end up with a distorted reality.
The special court was set up for the ‘speedy trial’ of offences related to the securities scam, and to restore public confidence and recover over Rs5,000 crore that was supposed to have been lost. The custodian is the principal administrative officer (for attachment, management and liquidation of assets) and functions under a system of concurrent judicial review by a special court, comprising sitting Judges of the High Court at Mumbai.
So far, the custodian has notified 70 individuals or entities for their involvement in the 1992 scam. Of these, 27 have been de-notified. The statute was to ensure a speedy trial of scam-related offences, but nearly 20 years later, 300 cases (most of them filed in the early 1990s) are still dragging through various courts. Many of the guilty have not been punished, while some innocents have been condemned to grinding litigation. There is no time limit prescribed in the Act for filing fresh applications or cases. From meeting every single day, the special court now meets once a week and from the initial three judges, the court now has a single judge. At the current pace, it will take another 20 years before the more important cases are resolved, turning the whole process into a joke. According to a lawyer handling the scam-related cases, even the so-called ‘resolved’ cases can be, and are being, challenged in the Supreme Court. There is simply no end in sight.
While litigants have long complained privately about lack of financial and legal understanding and sensitivity of the officials, the custodian recently was strongly censured by Justice VM Kanade in a case involving S&S Power Switchgear (SSPS) which complained of denial of fair hearing and settlement offer. The court observed that the “Custodian has not bothered to… produce any document to prima facie show that the said claim was recoverable from SSPS.” SSPS had offered, without prejudice, a full and final settlement of Rs90,000 without any interest. The court directed the custodian to examine the offer but the custodian sought adjournment of several hearings and neither accepted nor denied the proposal submitted by SSPS. This is how it has taken 20 years for the custodian’s office to achieve the little it has. Irritated with the custodian’s foot-dragging, Justice VM Kanade of the special court commented: “…it is the duty of the Custodian to act fairly and prosecute third parties in respect of the recovery of claim on behalf of the notified parties… the application has been filed in most casual and irresponsible manner.” He adds, “More than 20 years have passed after appointment of this Court and yet freshapplications are filed in this frivolous manner against third parties for recovery of the alleged claims and merely because law of limitation is not applicable to the Special Court, this Court cannot entertain such applications for recovery without ascertaining whether prima facie case is made out or not as observed …”
In addition, there is no information on the total expenses incurred by the government on the investigation and legal proceedings of the 1992 securities scam. Across the globe, there is a rule of thumb that is often quoted in fraud investigations. It says, “Investigation of any fraud will cost as much as the amount of the fraud itself.”
The Money Illusion
While it seems that a lot of money has been recovered, it has mostly gone to the income-tax department. Though the objective of the Act was to recover monies lost by the banks and financial institutions, but “the revenue department has the first claim and so the I-T department received maximum amount,” Mr Loomba added.
More importantly, whatever has been recovered has to be seen in inflation-adjusted terms. A Rs5,000-crore scam in 1992 is like a Rs23,000 crore-scam today, only at 8% compounded. The high-quality real estate and blue-chip shares recovered from various people have inflated at 50%+. The sale of eight flats in Madhuli building at Worli (Mumbai), belonging to the Harshad Mehta group illustrates what really is going on. Spread over two floors and 10,400sq ft, these interconnected flats at Madhuli Co-operative Society, occupied by the extended Mehta family, spelt the ultimate in aspiration and achievement for investors and speculators in India’s liberalised economy in the 1990s. The property included a billiards room, a putting green and a mini-theatre… things that were unheard of in 1992. The Mehtas owned five flats on the third floor and three on the fourth floor which were occupied by four brothers and their families and their mother.
The sale of the flats was first ordered in October 2003 after which the case has seen incredible twists and turns with multiple appeals and stay orders. Harshad Mehta’s widow Jyoti Mehta has filed an appeal in the Supreme Court and, at present, there is stay on the sale of the property. The property, at its current market price (about Rs40,000 per sq ft), could fetch around Rs42 crore.
According to legal sources, unless the civil cases are resolved, there is little chance of further recovery of large amounts of money. The little that is recovered will give us the illusion that a lot of money is being unearthed, thanks to the continuously rising value of blue-chip shares and real estate. — Debashis Basu & Yogesh Sapkale
Rare Reforms
The only bright side of the 1992 scam—it revolutionised the market infrastructure, says Debashis BasuDr Manmohan Singh once told Sucheta Dalal that reforms happen in India only when we face a deep crisis. In 1992, when the securities scam hit us, India had just emerged from a massive balance of payments crisis. The government made a commitment to the International Monetary Fund that sweeping economic reforms would be initiated, including setting up of institutions to strengthen the market infrastructure and regulatory oversight. However, this does not mean that we would have kept our promises. It was Harshad Mehta who ensured that we did not bumble and procrastinate, when his Rs700-crore heist exposed a massive Rs5,000 crore scam that crippled the market and focused everybody’s attention on how badly our capital markets were run.
The pace of change following the scam was so breathtaking and the reforms so well executed that it became India’s showpiece. This story of market reforms over a decade is unparalleled anywhere in the world.
Today we take the smooth automated trading, glitch-free settlement, dematerialisation of shares and private sector mutual funds for granted. But, as Dr RH Patil, the first managing director of National Stock Exchange said, “Indian capital markets around the early 1990s were akin to the Stone Age”—inefficient, one of the riskiest in the world, and an exclusive club of brokers who ran the exchange largely for themselves. Listed companies and investors were largely pawns in their game.
Brokers’ Club
It has been like that for decades. Let’s hear what GS Patel, former chairman of Unit Trust of India said in 1987, about the exchange structure and practices: “The majority of 1,400 active stock brokers hail from a few families, as most of the persons who are normally admitted to membership of the stock exchanges, are either close relatives of the existing members or their employees. Even today, many well educated, professionally qualified and competent persons who want to pursue stock broking as a profession are denied entry into the business because of the inbuilt restrictive provisions and very high prices demanded by the existing members of the stock exchanges for the sale of theirmembership cards or shares.”
And how did this club function? Mr Patel goes on to describe: “Normal functioning has recently become only a brief interlude to crises and stoppages of work. Malpractices like insider trading, rigging up of prices, creating false markets through spreading rumours, getting misleading information published in newspapers, option and kerb trading, manipulation of closing quotations of prices, etc, are rampant and have , unfortunately, become a chronic feature of the working of the stock exchanges. Even in the case of some of the smaller exchanges, apart from increasing evidence of malpractices, there are infightings, among rival groups, for controlling and dominating the governing boards of the Exchanges, paralysing their working in the process.”
Mr Patel recounts that “attempts to reform the stock exchanges in the past have failed and they continue to remain the most loosely regulated and polluted sector of the organised financial system of the country, despite elaborate provisions of the Securities Contracts (Regulations) Act, 1956, whose implementation is, incidentally, left to them only.” Rather, there was a “mushroom growth of roadside associations of brokers… essentially for the purpose of speculative trading.”
This was the Indian stock market. The debt market and the money market were no better. The 1992 scam had its roots in the money market characterised by over-regulation on paper, lack of controls in practice, manual entries in ledgers and the misguided policies of the Reserve Bank of India that refused to acknowledge the reality of the marketplace. The system was so flawed that Harshad Mehta came up with this telling justification of his wrongdoing: “I am a part of the system.”
The scam changed all this. From an era when manipulation was rampant and exchanges were open for only two hours a day for only 150-200 days in a year, stock exchanges were jerked out to the modern world, thanks to two men who acted strongly in public interest—GV Ramakrishna, the chairman of the newly-formed Securities and Exchange Board of India in 1992 and Dr RH Patil, from the stodgy Industrial Development Bank of India tasked with the job of setting up the NSE.
Between an August 1992 meeting convened by Montek Singh Ahluwalia at the finance ministry (attended by GV Ramakrishna, SS Nadkarni, Dr PJ Nayak, and Dr RH Patil) and November 1994, when the NSE went live, the face of the Indian market would change forever.
But change was hard-fought. The powerful BSE brokers’ lobby, supported by politicians, asserted their ‘fundamental right’ to do business as they thought fit, even though in the 1992 scam equity prices were manipulated by top brokers with money diverted from banks. Brokers had to fall in line only because the SEBI chief happened to be GV Ramakrishna who was adept at cracking the whip. Indeed, even he would have remained a toothless tiger, had not the scam forced the government to delegate powers to SEBI under the Securities Contracts (Regulations) Act, and SEBI Act in 1992.
The NSE stitched together the features of New York Stock Exchange (NYSE) which dealt mainly in large stocks; nationwide network of trading terminals like NASDAQ; computerised order-driven trading system of the Paris bourse or Vancouver, largely free from manipulation of the market makers; and settlement guarantee system of the Chicago’s futures exchanges. In choosing communication technology that would help connect trading terminals, NSE used VSAT (Very Small Aperture Terminal), used by department stores of USA. With this set-up, NSE’s trading volumes grew exponentially and broke the back of century-old BSE. With the NSE also came the concept of a separate clearing corporation for settlement of trades and real-time limits for trading members. This was followed by the setting up of a share depository which went live in November 1996 just two years after the NSE began operations.
This flurry of activity between 1992 and 1996 created great market infrastructure but unfortunately, SEBI and the exchanges have consistently failed in their developmental role. Under DR Mehta, SEBI saw a manic phase in the initial public offerings (IPO) and a two-time collapse of Unit Trust of India. Since then, SEBI has tightened entry barriers, flip-flopped about electronic identity of investors while the stock exchanges have failed to act decisively in favour of investors (such as in disputes over Power of Attorney given to brokers to buy and sell on behalf of investors). The result: IPOs are in doldrums, delivery volumes have shrunk and millions of investors have fled the market, never to return. Shamefully, India’s investor population has shrunk from 20 million in 1991-92 to a mere 8 million according to the D Swarup Committee report—and this includes mutual fund investors. The reaction of exchanges and SEBI is to launch a series of investor education seminars around the country even as SEBI’s advisory boards are packed with market intermediaries and regulations continue to be made without ever listening to investors’ issues.
The madness has continued over the past three years in the mutual fund space so that even large global funds like Fidelity have exited India, seeing no future here. Part of the problem is that there is no level playing field between regulations, commissions and costs between financial products supervised by different regulators. RBI has adopted universal banking practices and continues to allow people to be ripped-off by relationship managers of banks who dump toxic insurance products on the financially gullible. Many insurance products are designed to hurt rather than protect; the regulator still clears them for sale by armies of agents and banks. SEBI’s rules, on the other hand, are so strict and cumbersome that investors are put off. The finance ministry as well as the ministry of corporate affairs understand the problem—but they are clueless about the solution. Instead of looking at reforms by putting investors at the centre, they are spending money on financial literacy programmes or think that tax-breaks are the way to lure people back to the capital market. We are clearly a long way from any meaningful change—and so long as fixed deposits provide good returns and equity investors feel shortchanged, there is no way investors are going to return to equity markets. Maybe we need another crisis, as Dr Manmohan Singh would say.
The only bright side of the 1992 scam—it revolutionised the market infrastructure, says Debashis BasuDr Manmohan Singh once told Sucheta Dalal that reforms happen in India only when we face a deep crisis. In 1992, when the securities scam hit us, India had just emerged from a massive balance of payments crisis. The government made a commitment to the International Monetary Fund that sweeping economic reforms would be initiated, including setting up of institutions to strengthen the market infrastructure and regulatory oversight. However, this does not mean that we would have kept our promises. It was Harshad Mehta who ensured that we did not bumble and procrastinate, when his Rs700-crore heist exposed a massive Rs5,000 crore scam that crippled the market and focused everybody’s attention on how badly our capital markets were run.
The pace of change following the scam was so breathtaking and the reforms so well executed that it became India’s showpiece. This story of market reforms over a decade is unparalleled anywhere in the world.
Today we take the smooth automated trading, glitch-free settlement, dematerialisation of shares and private sector mutual funds for granted. But, as Dr RH Patil, the first managing director of National Stock Exchange said, “Indian capital markets around the early 1990s were akin to the Stone Age”—inefficient, one of the riskiest in the world, and an exclusive club of brokers who ran the exchange largely for themselves. Listed companies and investors were largely pawns in their game.
Brokers’ Club
It has been like that for decades. Let’s hear what GS Patel, former chairman of Unit Trust of India said in 1987, about the exchange structure and practices: “The majority of 1,400 active stock brokers hail from a few families, as most of the persons who are normally admitted to membership of the stock exchanges, are either close relatives of the existing members or their employees. Even today, many well educated, professionally qualified and competent persons who want to pursue stock broking as a profession are denied entry into the business because of the inbuilt restrictive provisions and very high prices demanded by the existing members of the stock exchanges for the sale of theirmembership cards or shares.”
And how did this club function? Mr Patel goes on to describe: “Normal functioning has recently become only a brief interlude to crises and stoppages of work. Malpractices like insider trading, rigging up of prices, creating false markets through spreading rumours, getting misleading information published in newspapers, option and kerb trading, manipulation of closing quotations of prices, etc, are rampant and have , unfortunately, become a chronic feature of the working of the stock exchanges. Even in the case of some of the smaller exchanges, apart from increasing evidence of malpractices, there are infightings, among rival groups, for controlling and dominating the governing boards of the Exchanges, paralysing their working in the process.”
Mr Patel recounts that “attempts to reform the stock exchanges in the past have failed and they continue to remain the most loosely regulated and polluted sector of the organised financial system of the country, despite elaborate provisions of the Securities Contracts (Regulations) Act, 1956, whose implementation is, incidentally, left to them only.” Rather, there was a “mushroom growth of roadside associations of brokers… essentially for the purpose of speculative trading.”
This was the Indian stock market. The debt market and the money market were no better. The 1992 scam had its roots in the money market characterised by over-regulation on paper, lack of controls in practice, manual entries in ledgers and the misguided policies of the Reserve Bank of India that refused to acknowledge the reality of the marketplace. The system was so flawed that Harshad Mehta came up with this telling justification of his wrongdoing: “I am a part of the system.”
The scam changed all this. From an era when manipulation was rampant and exchanges were open for only two hours a day for only 150-200 days in a year, stock exchanges were jerked out to the modern world, thanks to two men who acted strongly in public interest—GV Ramakrishna, the chairman of the newly-formed Securities and Exchange Board of India in 1992 and Dr RH Patil, from the stodgy Industrial Development Bank of India tasked with the job of setting up the NSE.
Between an August 1992 meeting convened by Montek Singh Ahluwalia at the finance ministry (attended by GV Ramakrishna, SS Nadkarni, Dr PJ Nayak, and Dr RH Patil) and November 1994, when the NSE went live, the face of the Indian market would change forever.
But change was hard-fought. The powerful BSE brokers’ lobby, supported by politicians, asserted their ‘fundamental right’ to do business as they thought fit, even though in the 1992 scam equity prices were manipulated by top brokers with money diverted from banks. Brokers had to fall in line only because the SEBI chief happened to be GV Ramakrishna who was adept at cracking the whip. Indeed, even he would have remained a toothless tiger, had not the scam forced the government to delegate powers to SEBI under the Securities Contracts (Regulations) Act, and SEBI Act in 1992.
The NSE stitched together the features of New York Stock Exchange (NYSE) which dealt mainly in large stocks; nationwide network of trading terminals like NASDAQ; computerised order-driven trading system of the Paris bourse or Vancouver, largely free from manipulation of the market makers; and settlement guarantee system of the Chicago’s futures exchanges. In choosing communication technology that would help connect trading terminals, NSE used VSAT (Very Small Aperture Terminal), used by department stores of USA. With this set-up, NSE’s trading volumes grew exponentially and broke the back of century-old BSE. With the NSE also came the concept of a separate clearing corporation for settlement of trades and real-time limits for trading members. This was followed by the setting up of a share depository which went live in November 1996 just two years after the NSE began operations.
This flurry of activity between 1992 and 1996 created great market infrastructure but unfortunately, SEBI and the exchanges have consistently failed in their developmental role. Under DR Mehta, SEBI saw a manic phase in the initial public offerings (IPO) and a two-time collapse of Unit Trust of India. Since then, SEBI has tightened entry barriers, flip-flopped about electronic identity of investors while the stock exchanges have failed to act decisively in favour of investors (such as in disputes over Power of Attorney given to brokers to buy and sell on behalf of investors). The result: IPOs are in doldrums, delivery volumes have shrunk and millions of investors have fled the market, never to return. Shamefully, India’s investor population has shrunk from 20 million in 1991-92 to a mere 8 million according to the D Swarup Committee report—and this includes mutual fund investors. The reaction of exchanges and SEBI is to launch a series of investor education seminars around the country even as SEBI’s advisory boards are packed with market intermediaries and regulations continue to be made without ever listening to investors’ issues.
The madness has continued over the past three years in the mutual fund space so that even large global funds like Fidelity have exited India, seeing no future here. Part of the problem is that there is no level playing field between regulations, commissions and costs between financial products supervised by different regulators. RBI has adopted universal banking practices and continues to allow people to be ripped-off by relationship managers of banks who dump toxic insurance products on the financially gullible. Many insurance products are designed to hurt rather than protect; the regulator still clears them for sale by armies of agents and banks. SEBI’s rules, on the other hand, are so strict and cumbersome that investors are put off. The finance ministry as well as the ministry of corporate affairs understand the problem—but they are clueless about the solution. Instead of looking at reforms by putting investors at the centre, they are spending money on financial literacy programmes or think that tax-breaks are the way to lure people back to the capital market. We are clearly a long way from any meaningful change—and so long as fixed deposits provide good returns and equity investors feel shortchanged, there is no way investors are going to return to equity markets. Maybe we need another crisis, as Dr Manmohan Singh would say.
Taking Bankers for a Ride
Why and how bankers are often at the centre of scams, reveals Gurpur
Bank managers in India, particularly those belonging to the public sector, have a weakness for one simple thing: an insatiable hunger for deposits. Bank managements give undue importance to mobilisation of deposits and branch managers who succeed in exceeding the deposit targets are rewarded with promotions and/or postings of their choice, if not a monetary reward. Those who know this weakness can win over bank managers by keeping fat balances in their current accounts for a short period or mobilising bulk deposits by fair means or foul, with a clear intention to cheat the bank in some way or the other. This, followed by lavish hospitality, gifts and presents, puts the bank manager under an obligation to reciprocate the favour by acceding to the demands of fraudsters. This is the beginning of all frauds in the banking sector. Bank managers, who fall a prey to such tactics of so-called customers, invariably end up becoming a party to scams and pay a price.
In the present public sector banking set up, all bankers—from the branch manager level to the chairman—have powers to grant loans, recommend high-value loans, grantconcessions in interest rates and waive charges, etc. Fraudsters know this and work on it. In the past, many honest and sincere officials also became innocent victims of scams because they faithfully followed instructions of their bosses who were probably ensnared by scamsters.
The Harshad Mehta scam, the Ketan Parekh scam and several others were perpetrated by those who knew how to exploit the weakness of bank officials. While some officials were facilitators and willingly assisted scamsters, there are many innocent victims who have willy-nilly become part of the scam. For innocent victims, impeachment by the media even before a case is filed, and then the inordinate delay in getting justice, makes their lives unbearable. The real culprits use their ill-gotten gains to delay punishment by fair or foul means and continue to enjoy their expensive lifestyle. We need a system that can deliver justice by punishing the guilty and exonerating the innocent in a reasonable time.
Consider this true story. An employee in Dubai stole a draft leaf from the cashier’s drawer, got it fraudulently signed by the manager through an unauthorised ‘cash received’ stamp and sent it to his friend in India. The fraud was discovered at the end of the day when the cashier found a shortage of cash. A hurried meeting of the employees to find out if anyone had a clue about the fraud yielded no results. So the manager first stopped payment of the fraudulent draft issued on a bank in India to avoid a loss and reported the matter to the company owner. He, in turn, informed the police through a simple phone call; they swung into action based on this telephonic request and, after some interrogation, the guiltyemployee buckled under pressure and confessed.
He was immediately arrested. A charge-sheet was filed within seven days and the hearing of the case commenced within a week. In less than three weeks, the employee was sentenced to six months’ imprisonment followed by deportation. Can there be a simpler legal system and faster justice anywhere in the world?
Why and how bankers are often at the centre of scams, reveals Gurpur
Bank managers in India, particularly those belonging to the public sector, have a weakness for one simple thing: an insatiable hunger for deposits. Bank managements give undue importance to mobilisation of deposits and branch managers who succeed in exceeding the deposit targets are rewarded with promotions and/or postings of their choice, if not a monetary reward. Those who know this weakness can win over bank managers by keeping fat balances in their current accounts for a short period or mobilising bulk deposits by fair means or foul, with a clear intention to cheat the bank in some way or the other. This, followed by lavish hospitality, gifts and presents, puts the bank manager under an obligation to reciprocate the favour by acceding to the demands of fraudsters. This is the beginning of all frauds in the banking sector. Bank managers, who fall a prey to such tactics of so-called customers, invariably end up becoming a party to scams and pay a price.
In the present public sector banking set up, all bankers—from the branch manager level to the chairman—have powers to grant loans, recommend high-value loans, grantconcessions in interest rates and waive charges, etc. Fraudsters know this and work on it. In the past, many honest and sincere officials also became innocent victims of scams because they faithfully followed instructions of their bosses who were probably ensnared by scamsters.
The Harshad Mehta scam, the Ketan Parekh scam and several others were perpetrated by those who knew how to exploit the weakness of bank officials. While some officials were facilitators and willingly assisted scamsters, there are many innocent victims who have willy-nilly become part of the scam. For innocent victims, impeachment by the media even before a case is filed, and then the inordinate delay in getting justice, makes their lives unbearable. The real culprits use their ill-gotten gains to delay punishment by fair or foul means and continue to enjoy their expensive lifestyle. We need a system that can deliver justice by punishing the guilty and exonerating the innocent in a reasonable time.
Consider this true story. An employee in Dubai stole a draft leaf from the cashier’s drawer, got it fraudulently signed by the manager through an unauthorised ‘cash received’ stamp and sent it to his friend in India. The fraud was discovered at the end of the day when the cashier found a shortage of cash. A hurried meeting of the employees to find out if anyone had a clue about the fraud yielded no results. So the manager first stopped payment of the fraudulent draft issued on a bank in India to avoid a loss and reported the matter to the company owner. He, in turn, informed the police through a simple phone call; they swung into action based on this telephonic request and, after some interrogation, the guiltyemployee buckled under pressure and confessed.
He was immediately arrested. A charge-sheet was filed within seven days and the hearing of the case commenced within a week. In less than three weeks, the employee was sentenced to six months’ imprisonment followed by deportation. Can there be a simpler legal system and faster justice anywhere in the world?
Some
section of media and leaders of Congress Party in particular are bent upon
tarnishing the image of BJP and its president Mr. Nitin Gadkari by hook or by
crook. When entire congress party team is facing allegation of one after other
scams they are in quest of some sort of similar scam to blame BJP. When they
could not find anything against so much serious, they chose to unearth two decade
old story of Nitin Gadkari.
There
may be many companies registered with Registrar of Companies (called as ROC)
giving false address, some of them may be associated with RSS and IRB might
have extended some loan to Purti , but where is the proof that Mr. Gadkari used
the power to earn illegal money.
Everyone
knows that in India businessmen save tax by various methods and for this
purpose corporate houses form false companies and convert their black money
into white money. Almost all big companies have formed several smaller
companies called as associate or sister companies for name sake and for
conversion of their black money. If through investigation is made in all
companies registered with ROC, I am very much sure 80 percent of companies will
be found non-existent. Therefore if Income tax authorities and the government
investigate all such companies, 90 percent of corporate houses will be found on
wrong track and they all will be in jail.
But
the pertinent question is Why one Gadkari only is under trial of media and that
of UPA government, why not others.
Why
the government is then behind Ramdeo Baba who use to loudly cry against black
money?
Why
officials of ROC remain silent all the time and do not take innovative steps to
stop malpractices prevailing in their offices?
Why
do not they stop selling of fake companies?
Why
banks sanction loans to fake companies and none of officers are unished when
the account turn bad?
How
they failed to stop IPO scam which took place in recent past when thousands of
fake companies were formed by greedy businessmen to loot the money of poor
people? Why has government failed to take lessons from Harshad Mehta scam and
IPO scam and failed to reform governance accordingly at all levels?
How
is it possible that bank officers do not object lending by borrowing company to
its associate companies?
Several
companies in India resort to unhealthy trading among companies of the same
family to get sanction of huge loan from bank and finally banks have to bear
the loss. Why government is not stopping and punishing such bank officials who
work in nexus with big shots, not only business houses but also politicians
holding power to serve their personal interest?
There
are many bank officers and many politicians who are doing business indirectly
with big business houses and in return they are giving illegal favour to such
business companies. Why government is silent on politicians and government
officers doing business at the cost of their duty to common men?
As
a matter of fact media people who are very much loyal to leaders of Congress
Party are making all their efforts to tarnish the image of BJP and NDA so that
loss caused to Congress Party by Kejriwal team may be shared by BJP too.
In
a country like India where votes are cast on sentiments, not on performance,
there is all possibility that media and congress party will succeed in their
foul game, but ultimately, sooner or the later the real face of their anti
national elements and selfish leaders will be exposed before illiterate and
innocent common men and they will throw Congress Party out of power for good
and ever.
Fraudster created 16 bogus companies
HYDERABAD: Auto driver-turned-crorepati Venkata Ramana, an accused in the AP State Minorities Finance Corporation (APSMFC) fraud, had floated 16 companies to siphon off Rs 55.47 crores. It was through these bogus companies that the conspirators diverted money into their personal accounts by issuing over 240 cheques.
Crime Investigation Department (CID) officials said after basic formalities of registering the companies with the labour department and Registrar of Companies (ROC), the 16 companies which had no set up and staff, where shown as existing entities for diverting money from the current account created in the name of APSMFC at Vijaya Bank, Koti.
"They executed the fraud in a well-planned manner. To ensure that no one gets wind of the fraud, all the 16 companies were registered in the name of Venkata Ramana under fake addresses," sources in CID said.
With the crores of rupees he swindled, Venkata Ramana purchased properties across the state besides swanky cars.
CID officials are now in the process of approaching the management of the proposed ABCchannel, in which the prime accused Ch V K Sai Kumar invested Rs eight crore of his ill-gotten wealth, to know the status of the money. It is also learnt that Sai Kumar, with the help of a few others, even tried to participate in a procurement tender for CCTV cameras floated by theElection Commission for the byelection in Kadapa.
The CID sleuths are also verifying whether over Rs 120 crore fixed deposits of APSMFC with various banks are intact or not. "As of now, they appear to be safe, but we need to check whether the culprits tried to lay their hands on these FDs as well. It is not just officials of various government departments who are jittery about the safety of their funds parked in various banks through Kesava Rao, the middle man who was also arrested. Even some bank officials are equally scared. They are contacting CID officials to verify transactions and scan for dubious one,'' the sources said.
In the next few days, CID officials would question a manager of Vijaya Bank, Koti, who was at the helm of affairs eight months ago and during whose tenure the fake current account of APSMFC was opened.
Investigating officials are also probing why bank officials did not raise objections when crores of rupees were withdrawn in just a few months. Generally, if FDs of even small amounts are liquidated, bank officials try to convince account holders not to do so since their business would be affected.
Meanwhile, the Nampally Criminal Court gave CID seven-day custody of the four culprits-Sai Kumar, Venkata Raman, Kesava Rao and Naveen Kumar-to gather more information about the scam. The CID would take them into custody on Thursday.
wow. regards, DEvaNSH Chaurasiya
ReplyDeleteGreat and informative article. Thanks for sharing.
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