Sucheta Dalal :Scam probes: the contrast with America
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal


You are here: Home » Column Topics » Financial Express » Scam probes: the contrast with America
                       Previous           Next

Scam probes: the contrast with America  

Aug 14, 2005


One of the best kept secrets is the action taken against those involved in the scam of 2000, which led to large-scale losses, the dem-ise of two banks, Madhavpura Merc-antile Cooperative Bank (MMCB) and Global Trust Bank (GTB) and split the giant Unit Trust of India (UTI) into two, after pushing it to the brink of a collapse.


After a Joint Parliamentary Committee report, the finance ministry was to report the action taken on those recommendations every six months. So far, the ministry has given four Action Taken Reports (ATRs). However, our MPs have such little interest in booking the guilty that the past two reports have remained almost secret. The latest of these was given last month: it is a saga of plodding investigation and mostly negligible action. It is nothing but a long compilation of probes and actions taken against the bit players. These were easy to suspend or penalise. The politically connected big players merely get notices at the end of three years of investigation.


Four years later, the losses have not even been properly tabulated, let alone recovered. No significant penalty has been collected and nobody is jailed. Instead, leading scamsters are back as big players in the derivatives market or have turned into media darlings. Yet, the ATR claims the December 2004 report had completed action on 18 recommendations, while the July report has completed actions on another 23, leaving only 49 pending out of a hefty 276.


While Ketan Parekh was named as the central figure of the scam, the probe into his actions is pathetic. Scores of moves have been launched against his companies, but there is negligible recovery of money. The Central Bureau of Investigation, which claimed to have discovered a Swiss bank account of Parekh, only seems to have made a fool of itself. It is now hoping to pin some illegal Mauritius accounts on the discredited speculator.


Ironically, as in the 1992 scam, the income tax department is again bickering for the first claim to all recoveries with the Debt Recovery Tribunal (DRT) and even the Custodian, over who has prior claims to money that has not even been recovered.


As for banks, the Reserve Bank of India says six banks have together recovered less than a third of the money owed to them (Rs 145 crore) and have written off a larger sum of Rs 215 crore. Since they have filed cases to recover another Rs 143 crore, the finance ministry has ticked off this action as complete.


Interestingly, the ATR says Bank of India agreed to the compromise formula for Parekh’s repayment of Rs 121 crore and it was approved by the government and cleared by its board in September 2003. However, bank officials told me the compromise deal failed because Ketan Parekh wanted all criminal action against him to be dropped. I was also told the matter was before the DRT. Surely, Rs 121 crore is not a small sum, that there should be confusion over recovery proceedings. Then again, no attempt has been made to recover over Rs 100 crore owed by a stockbroker, Mukesh Babu, to MMC Bank either.


As for the other big players, Arvind Johari of Cyberspace Infosys, who boasted proximity to a former Prime Minister, or UTI chairman P Sub-ramanyam and GTB chairman Ramesh Gelli, there is a mere pretence of action against them.


• Action taken against those named in the scam of 2000 is itself a scandal

• Contrast this with the US action in the corporate scandals of 2002

• If Sebi could plea-bargain openly, it could have nailed the big names


Contrast the US action in the corporate scandals of 2002. American courts have powerfully signalled that corporate crime will not be tolerated, by convicting the biggest names in corporate America. Such as Bernie Ebbers and Scott Sullivan of WorldCom, Dennis Kozlowski and Mark Swartz of Tyco, John Rigas and Timothy Rigas of Adelphia Communications and Andrew Fastow of Enron. No leniency was shown on account of age or poor health and they were also made to cough up multi-million dollar fines.


Among Indian regulators, the Securities and Exchange Board of India (Sebi) has at least logged in the highest number of investigations and actions. But it has focussed mainly on the bit players and there are several uncomfortable questions about who it has let off. Even where Sebi has recommended punitive action, the Securities Appellate Tribunal (Sat) has systematically set aside Sebi orders or diluted penalties till these were rendered meaningless.


Thus, the only satisfaction is that inquiries were at least launched against Ketan Parekh’s high-profile corporate pals such as Ranbaxy, Padmini Polymers, Shonkh Technologies, Aftek Infosys, Zee Telefilms, Adani Exports, Himachal Futuristic, Silverline or their promoters/investment entities and connected brokerage firms. But many of these orders have already been set aside or diluted by the venerable Sat.


The ATR has curious feedback from the enforcement directorate (ED), too. So far, it has issued only six show-cause notices, of which two have been adjudicated and four are pending. Regarding investigation into 23 companies, the ED has issued only seven show-cause notices, while 16 investigations are pending. The most concerted action so far is probably against Dinesh Dalmia of DSQ Software. But he is conveniently outside the country, with no serious effort to trace him, except for dogged efforts of the Kolkata police.


If, on the other hand, Sebi had the power to plea-bargain and was forced to operate transparently and under public gaze, it could have let off the bit players, in return for forcing their cooperation in nabbing the real scamsters. Thus, saving taxpayers’ money by quickly wrapping up the investigation.


-- Sucheta Dalal