Sucheta Dalal :The story of scams and scamsters (10 February 2003)
Sucheta Dalal

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The story of scams and scamsters (10 February 2003)  

For those of us who frequently allege that the government refuses to crack down on financial crime, it is time to sit back and put together several recent news reports and unreported details. They add up to an interesting illustration of how the long arm of the law does have a way of catching up with people and their shady dealings. Ketan Parekh, Rajendra Bhantia, Vinod Baid, Keshav Bangur, Dinesh Singhania, Ashok Poddar, the Biyanis and many more of their cohorts are all behind bars—each for a different investigation. Some top Kolkata firms, who were once considered the blue chip brokerage houses have had their accounts frozen and are barely able to keep afloat.

But lets start with Ketan Parekh, the big bull operator who ruled the capital market in 2000. Although his lawyers helped him evade the Kolkata police for several months, the Joint Parliamentary Committee (JPC) report, identifying him as the central character of the scam of 2000 had made his arrest inevitable. Ketan Parekh, who started out as a young groupie of Harshad Mehta in 1992, had managed to escape the dragnet of the scam investigation, barring a solitary case connected with Canbank Mutual Fund. But his Kolkata dealings and the action to be taken in connection with the JPC findings should keep him fighting cases for a long time to come. Kolkata brokers who traded with Ketan Parekh in 2001—the Poddars, Singhania’s, Biyanis—have been under arrest for over two months (only Sanjay Khemani has still elusive). In the months preceding the post-Budget crash of 2001, Ketan Parekh had made a last desperate attempt to prop up prices by diverting a whopping Rs 3,191 crore to Dinesh Singhania, Ashok Poddar and Sanjay Khemani to manipulate prices on the illegal market. This cabal was the nerve centre of Kolkata’s parallel market where illegal trades were conducted and settled on the floor of the stock exchange. They have been involved in every large attempt to manipulate stock prices over the last decade, but were always powerful enough to evade punitive action by the regulator and the police.

That Dinesh Singhania was a past president of the Calcutta Stock Exchange (CSE) indicates their stranglehold over the bourse, but they have since been declared defaulters. Another crony of the late Harshad Mehta, evaded any taint in 1992 and went on to become the treasurer of the Bombay Stock Exchange (BSE) and later its vice-president without any pause in his speculative dealings. He is Rajendra Banthia and has now spent over two months locked-up in a jail at Anand. Banthia’s powerful political friends ensured that he had a Teflon run with his scamming. After 1992, he helped Harshad Mehta in his comeback attempt in 1998 by rigging the scrips of BPL, Videocon and Sterlite; he was also the main architect of the BSE’s scandalous cover-up of that default.

Simultaneously, Banthia acquired defacto control over Nedungadi Bank through a 40 per cent stake; he ran up speculative trades worth over Rs 1,300 crore causing hefty losses to the bank, but although the bank has filed charges against him, he has not been investigated. Last year, Banthia attempted to sell his Nedungadi Bank stake for Rs 35 crore to a group of persons who controlled the Charotar Nagrik Sahakari Bank. But he failed to deliver the shares which were pledged elsewhere. The buyers were also under investigation for diverting funds from Charotar Bank to pay for the Nedungadi stake and the trail of that investigation led to Banthia’s arrest.Interestingly, his political friends have not stepped in to bail him out this time—probably because he does not have the funds to finance another rescue.

Next, there is Hiten Dalal, the low profile scamster of 1992 who was involved in shady dealings with Standard Chartered Bank, Andhra Bank and Canbank Mutual Fund. Dalal made history by being the first of the 1992 scam accused to be sent to jail for a year in a cheque bouncing case. He, along with a bank official and another broker have now been convicted by the special court for defrauding Canbank Mutual Fund to the tune of Rs 103 crore. Hiten Dalal has been sentenced to seven years rigorous imprisonment.

Then there is the Keshav Bangur-Vinod Baid duo arrested by the Central Bureau of Investigation (CBI) on January 9, this year for siphoning money from Bank of Rajasthan. The Bangurs controlled Bank of Rajastan before it was acquired by the Tayals and allegedly owe the bank several hundred crore of rupees diverted to their companies. There are approximately 200 cases filed against them by Bank of Rajastan. The Bangurs attempt to sell the bank made intermittent headlines over the last 10 years when the shares passed through several industrialists including a controversial steel group and a prominent media house, which tried to acquire it before the Tayals obtained control. Keshav Bangur dodges most investigations and was also arrested a couple of occasions, but this first time that the CBI seems serious pursuing the charges against him.

Although Vinod Baid, chairman of the defunct Prudential Capital Market fled to Hyderabad several years ago, he is wanted in connection with several investigations originating in Kolkata. Today he is in CBI custody along with Keshav Bangur for siphoning money from Bank of Rajastan. Baid had shot to prominence during the primary market boom of 1993-95 by promoting several companies and helping dozens of others to pick up easy money from unsuspecting investors. Many have since vanished. He later acquired Sikkim Bank with the help of a fiery Congress MP from Andhra Pradesh and opened a branch at Hyderabad. The bank predictably went bust and it was discovered that Baid had diverted over Rs 60 crore to his own group companies.

When the Reserve Bank placed the bank under moratorium, it found that 95 per cent of its advances, mainly to Baid’s Prudential Group, were non-performing assets. Ironically, the large sums diverted from Sikkim Bank did not get Vinod Baid arrested, but a much smaller diversion from Bank of Rajasthan did. However, Baid seems headed for more trouble since some prominent directors who packed the boards of his companies are alleging that he forged their signatures on several documents.

That these scamsters have been stopped in their tracks is the good news, but the bad news is that there are plenty more out there. Even those arrested were only caught when they ran out of funds to evade arrest. This means that investors may have the cold comfort of knowing that scamsters get arrested, but there is little hope of getting their money back. It leaves them wondering if justice that trundles at such an excruciatingly slow pace serves any purpose at all.

-- Sucheta Dalal