Sucheta Dalal :Blowing the whistle in real life
Sucheta Dalal

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Blowing the whistle in real life  

Jun 6, 2005

Satyendra Dubey, a brave engineer was shot dead because he blew the whistle on the rampant corruption in the Golden Quadrilateral project construction. When The Indian Express revealed that the Prime Minister’s Office failed to protect his identity — which might have caused his death — it raised a furore among Indians everywhere.


Corporate India joined in the many prayer meetings held to mourn Dubey and debate appropriate protection for whistleblowers. Then came the collapse of Enron and Worldcom and the revelation that these companies may have been saved if the management had heeded the warning of whistleblowers.


The need to protect whistleblowers was debated around the world. But in India, an attempt to mandate whistleblower protection was scuttled by the corporate sector with the argument that it would only empower disgruntled employees to harass the management.


I always believed that this was typical self-serving move by the corporate India; I now have some proof.


Over the last few months, I have had an opportunity to observe how a whistleblower’s attempt to expose fraud, forgery, fake bills and excise evasion by a component maker has come to naught. The story is amazing because those directly affected by the fraud are showing no interest in nailing the perpetrator.


This story will not mention names expect to say that these are all blue chip companies. The component maker — we will call it Company A is listed on the Bombay Stock Exchange and supplies components to Company T. The terms of the agreement specify that ‘A’ will only use raw material from ‘well-known’ companies such as ‘M’ and ‘V’. Instead of buying the better quality material (which was probably more expensive) from these reputed companies, ‘A’ simply printed fake bills and test certificates that were identical to those normally issued by ‘M’ and ‘V’ and thus pretended to fulfill the terms of its contract.


A whistleblower tried to expose the fraud internally but ended up losing his job. He then approached me to expose the mischief. He had with him a stack of the fake bills and test certificates, including an invoice from the printer where they were printed.


How does one confirm that these are counterfeit bills? Or, that the whistle-blower’s allegations are genuine?


I decided to approach Company T and Company M. The former probably received sub-standard components and the latter had its bills forged. Both responded positively and offered to investigate. Company M was especially helpful. Within days, its CEO had the bills scrutinised and provided me proof of the fraud.


First, his officials showed that Company A did not buy any material from them. Secondly, they established that the serial numbers on the fake bills were in fact issued to another client, and provided me with a photocopy of the original bill, which corresponded to the fake bill. Thirdly, they gave me a two-page note, explaining how the seemingly genuine bills were different from the originals.


This took place in February 2005. Although Company M’s bills were being forged, its CEO felt that Company T, as the affected party, was best placed to initiate action!


I handed over the entire set of documents to Company T (including the information from Company M), under the mistaken impression that the fraud would now be exposed. After all, Company T, which made expensive, quality-sensitive products, was being duped with sub-standard components backed by fake bills.


Strangely, nothing happened. Having told me that they were keen on pursuing the issue, the company went completely silent. A month later, I began to remind its directors about the issue and was assured that the investigation was still on.


Meanwhile, the whistleblower told me that Company A had got wind of the fact that its fraud was likely to be exposed. One of the officials responsible for the bogus documentation quickly destroyed all the evidence at the company (mainly test certificates and bills) and left the job.


This was sometime in March. Around then, the Excise Department also raided Company A’s plants and slapped a penalty on it for excise evasion.


I then stepped up my reminders to Company T, contacted another director and asked why it seemed so reluctant to investigate the fraud. He promised to take charge of the investigation himself and called for an investigation by the internal audit team.


Although it was already rather late and Company A had covered its tracks, there was still hope of some action.


Meanwhile, there was another development. Company A began negotiations to sell off one of its plants to a fourth entity — Company MM. I wrote to the Managing Director of company MM and gave him the entire story.


A week ago, the Board of Company MM cleared the purchase of one plant of Company A, through a demerger. Their version is that a ‘fraud’ did occur, but not at the unit they are buying and it pertains to the year 2003 and 2004. They have also been assured that people connected with the fraud have since been fired.


I am further told that there are ‘two sides’ to the issue, which probably means that the company is ready with a set of allegations against the whistle-blower if he persists in fighting for justice.


Now Company T also called back. Its internal audit team had confirmed the fraud. Stunningly however, it downplayed the episode claiming this was probably just an excise duty fudge. It also insisted that there was no problem whatsoever in the quality of components supplied by Company A.


Why would a company print fake bills of two raw material suppliers, showing higher purchase costs, in order to avoid excise duty? It doesn’t make sense. What is crystal clear is that Company T does not wish to pursue the case. What is behind this mysterious reluctance to expose a fraud, especially when the business house that Company T comes from had no qualms about lodging civil and criminal complaints against its own directors in the past? The answer is simple.


If it admits that it received and used sub-standard material it may lead to a customer backlash and that would far more damaging to its image. It makes no mention about whether it will even stop sourcing components from Company A in future. Unless of course, the same components will now be supplied by the unit acquired by Company MM, which is friendly to the group and has a better public profile.


The law of the business jungle is simple. Lofty speeches about fair play and whistle blowing are all very well for prayer meetings, but when it comes to business self-protection is far more important.

-- Sucheta Dalal