Sucheta Dalal :The Ketan Parekh investigation trundles forward
Sucheta Dalal

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The Ketan Parekh investigation trundles forward  

Nov 19, 2006

Last week, Ketan Parekh is understood to have told the apex court that he can no longer make payments towards the money owed by him to Madhavpura Mercantile Cooperative Bank (MCCB).

The discredited stock trader had been granted bail on the condition that he would repay the money owed to the bank in monthly instalments. It may be recalled that Ketan Parekh had siphoned off over Rs 880 crore from the bank, leading to its collapse.

While Parekh has taken full advantage of the monster bull run in the last three years to accelerate his repayment, the investigation agencies are pretending that he is bringing back money he had salted away in overseas accounts.

What is surprising is the cooperation of the Income Tax (IT) Department in facilitating these repayments. It may be recalled, that in 1992, the IT Department has claimed tax dues running into thousands of crore rupees from Harshad Mehta, his brother Ashwin, Bhupen Dalal and others. This had prevented any settlement or repayment because IT staked first right to all recoveries. This time, however, the IT has not made such a claim. A top IT official told this writer that "it was decided that he must be allowed to repay dues to Madhavpura since it involves payments to small depositors". He would not say who had made this decision.

Asked if the tax authorities had attempted to trace back Ketan's payments to their source, I was told that money was paid through a maze of entities with a cash deposit in a bank account as the end point. In that case, this should be of personal interest to the Finance Minister who has repeatedly talked of tracking all cash transactions of over Rs 10,000 through the banking system.

Yet, IT officials made little attempt to track the cash deposits. The moot question is, can Ketan Parekh's repayment in the Madhavpura Bank case, which is in excess of Rs 254 crore have all been through small cash deposits? It is hard to believe. Clearly, tax officials are dragging their feet over Ketan Parekh's source of funds. Also, why would they make the obviously wrong assumption that he is bringing money from abroad, when the media has repeatedly reported his alleged operations in the stock and commodity markets?

Contrast this with the IT demand of over Rs 10,000 crore (a puffed up figure arrived at by compounded interest and penalties) against Harshad Mehta in 1992 and first right over all recoveries. Harshad Mehta, whose assets of Rs 1200 crore were in excess of his liabilities was willing to pay back his creditors but he was not allowed to do so. This time, the IT has made no impossible tax demand.

The unwillingness to investigate him makes a mockery of the Sebi order (since upheld by the Securities Appellate Tribunal) barring Ketan Parekh and eight associates from the capital market for 14 years. The 60 page SAT order said that the action against Parekh was reasonable, given the extent of his market manipulations. It had also criticised the regulator for letting off two foreign brokerage firms with a much lighter sentence.

Other investigation wings of the government are also reporting some progress. We have reliably learnt that the Enforcement Directorate has tracked two individuals — T L. Chandran and Meena Chandran — who acted as fronts for the Mauritius based Overseas Corporate Bodies (OCBs) set up with a $10 capital that were linked to Ketan Parekh in 1999-2000.

While the Chandrans ostensibly controlled these OCBs, namely Brentfield Holdings, Kensington Investments and Wakefield holdings, the introductions for their bank account were made by Triumph International (then a Ketan controlled entity). We learn that the Enforcement Directorate has obtained confessions from the Chandrans about the nature of their links to Parekh. No formal action has been initiated yet. Five years ago, Sebi reports had claimed that these OCBs had transferred a whopping Rs 2,900 crore out of the country. My sources however believe that a big chunk of that money went into paying off Ketan's financiers who allegedly extracted the money through dubious means.

The Central Bureau of Investigation (CBI) is also trundling along with its investigations and is understood to be on the verge of filing fresh cases in connection with the Global Trust Bank collapse. A few months ago it charged several officials of SBI Mutual Fund with manipulation of Padmini Polymer shares in which Parekh had a substantial stake.

The Serious Frauds Investigation Office (SFIO), operating under the Ministry of Company Affairs also claims to have investigated 16 corporate entities associated with Parekh. The names of all these companies and the manner in which they diverted bank and institutional borrowing — from Global Trust Bank, UTI and ICICI Bank — was well documented during the scam investigations. Six years later, we have two media reports about completion of SFIO's investigation but no action. Many of the companies then connected with Parekh have moved on and in the race for sensitive e-governance contracts of the government.

It may be recalled that the Joint Parliamentary Committee (JPC) had wound up its investigation into the Ketan Parekh scam without going into the role of corporate entities who colluded with the trader. It merely asked the Serious Frauds, set up in the aftermath of the scam, to investigate their role.

So far, investigation into Ketan Parekh's shenanigans have remained a saga of double standards, selective persecution, tardy investigation and the filing of meaningless case that have no relevance beyond destroying a few individuals at the periphery to the brazen market manipulation and siphoning of funds that destroyed two banks (Global Trust and Madhavpura Mercantile) and the highly regarded Unit Trust of India.


-- Sucheta Dalal