Sucheta Dalal :Jumping the Q
Sucheta Dalal

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Jumping the Q  

October 21, 2009


On 3rd October, the Central Bureau of Investigation (CBI), which is armed to the teeth to intrude into the lives of any Indian, moved court to drop the cases against Ottavio Quattrocchi. Earlier, it had asked for the Interpol Red-Corner notice against Mr Quattrocchi to be removed. The businessman, a close friend of the Gandhi family, was the main accused in the Bofors scandal. In two decades, after spending enormous sums of money and despite all the power at its disposal, the politically-directed CBI couldn’t make a case against Mr Quattrocchi.
Contrast this with the fact that 80-year old Minoo Shroff and investment banker Nimesh Kampani have been abroad for almost a year, because the Andhra Pradesh police has the power to issue a Red-Corner Interpol alert against them in a case relating to Nagarjuna Finance not paying its depositors. Funnily, Mr Shroff and Mr Kampani did not abscond with depositors’ money—they were merely independent directors of the finance company and had quit even before it began to default.
These are just two examples of the enormous powers invested in India’s investigation and enforcement agencies which are deeply sunk in a morass of corruption, incompetence and an utter lack of accountability. If anything, India has too many regulators with far too many powers and negligible performance. Consider the Securities and Exchange Board of India (SEBI), which was the first independent regulator to be established in 1992. Since then, SEBI has neither been able to anticipate scams nor deal with them effectively. For over a decade, it covered up its incompetence by whining about lack of powers to harass and hound people, arrest them, seize their books, etc. After all, most officials in SEBI’s investigation and vigilance department have come from the Income-Tax or Enforcement Departments which have arrogated enormous punitive powers to terrorise taxpayers and businessmen.
Over time, SEBI has been granted most of the powers that it sought, but did that improve its investigation capability? Did it manage to detect scams more efficiently or nail blatant price manipulation? No. Instead, the busiest department in SEBI these days is the one that allows wrongdoers to file consent terms and get away by paying tiny penalties. In fact, SEBI has the distinction of allowing the entire Zee group to get away with only a warning for its deep involvement in the Ketan Parekh scam. This, despite its own investigation throwing up extensive evidence of the movement of funds in and out of the country by Zee.
The reason we are discussing the legendary non-performance of our investigation machinery is the recent attempt to empower the Serious Frauds Investigation Office (SFIO) set up in 2003 under the Ministry of Corporate Affairs (MCA) after the Ketan Parekh scam. Every ministry now wants a powerful watchdog body, whose leash will be under the minister’s control to be selectively let loose on industrialists or individuals. Meanwhile, the dog will still have plenty of opportunity to bark and bite people, unless kept happy with juicy bones. 
The SFIO’s investigation record is pathetic and there is little evidence of any seriousness on its part about unearthing murky business practices. But the Satyam scandal and the confession by Ramalinga Raju was a godsend opportunity to push for more powers and empowerment. Sure enough, there are media leaks that a report of the expert committee headed by Vepa Kamesan (former deputy governor of the Reserve Bank of India), lying buried since 2006, may be exhumed to reassess its suggestion to empower the SFIO with extreme punitive powers.
In July this year, the Lok Sabha was told that the report, which examined statutory, administrative and organisational changes to improve SFIO’s effectiveness, was ‘under consideration’ of the ministry. But apart from occasional media quips about some portions of the report, it has never been released for public discussion in three years. In fact, the report is best given an official burial. All it does over 102 pages is to outline, in excruciating detail, the many ways in which SFIO must be armed with all the draconian powers that have been rampantly misused by the enforcement and investigation agencies of the government.
It starts by wanting corporate fraud to be ‘appropriately recognised and addressed separately in law’ with statutory backing to allow SFIO to cut through various state and Central jurisdictions to investigate issues. Having done that, it wants the Companies Act to be amended to give SFIO all the powers of search, seizure, arrest and interrogation that are with the police, customs and revenue intelligence agencies. It also wants SFIO to have the powers to attach moveable and immoveable property. It then wants prison sentences sharply enhanced for fraud and wrongdoing as well as unauthorised concealment, destruction and tampering of company records and other evidence.
The Committee even wants directors and officials who participated only passively in the fraud to be held accountable for criminal negligence as well as civil liability and monetary penalty. Since this can be broadly interpreted, one envisages many more directors, bankers and lawyers facing Red-Corner alerts like M/s Kampani, Shroff, Kurien and Iyer in the Nagarjuna Finance case.
Further, it wants Section 372A of the Companies Act to be made non-compoundable and the imprisonment suitably enhanced. This is ironical because SEBI introduced compounding after a decade of bumbling over investigation and, now, it is used to let off offenders. The report also wants special courts with civil and criminal jurisdiction to hear cases related to the Companies Act for speedy disposal.
The Kamesan Committee then pays lip service to issues such as protection for whistleblowers and disgorgement of ill-gotten assets and recovery of damages for the victims. But the superficial discussion of these issues makes it evident that the Committee members have neither encountered whistleblowers nor victims of fraud in their long careers and have no understanding of the real issues that affect them.
Instead of spending so much time on studying the Serious Frauds Office in the UK, or worrying about enhancing perks at the SFIO to make deputation more attractive, the Kamesan Committee would have rendered real service if it had examined why fully empowered investgation agencies, including SEBI, CBI, DRI, Customs and Enforcement, are riddled with corruption and have such pathetic records of investigation or conviction. Having done that, it ought to have suggested only those statutory changes that would have truly enhanced the SFIO’s powers rather than clone other existing agencies.
Better still, it ought to have studied these agencies to recommend a structure of coordination between them, rather than duplicate their efforts. Over the past three years, SFIO has been given 37 cases to investigate; of these only nine are complete. Details of its findings in these cases, including Morepan Laboratories, Shonkh Technologies, JVG Hotels and Stock Holding Corporation of India Limited were released to the public recently, but most of its claimed findings were either investigated extensively by the media or other regulators. Instead of finding ways to empower the SFIO, it might have been better to debate whether its existence serves any purpose at all and it is better to wind it up.

-- Sucheta Dalal