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Harshad,
Ketan, Harshad ...
This
sounds a bit harsh, but perhaps the most final thing that’s emerged
from the decade-long investigo-legal case against the original Big
Bull Harshad Mehta, is his death in a jail in suburban Mumbai in
the wee hours of the morning yesterday. How else would you describe
a Rs 5,000 crore scam where, currently, there are around 600-odd
civil cases still pending; and of the 72 chargesheets filed by the
CBI, only four have really gone anywhere. The convictions, four
so far, are also so small, you can’t be blamed for feeling that
almost no justice had been done.
Hiten
Dalal, one of the scam-accused, was sentenced to a year’s imprisonment
only in July this year when the Supreme Court dismissed his appeal;
the second case involved just Rs 11,000 and the accused was acquitted;
the third led to Hiten Dalal getting a 7-year sentence but this
has been stayed. Harshad himself was convicted in just one case,
a Rs 38-crore one involving Maruti Udyog. Ironically, Harshad himself
wouldn’t have been arrested by the CBI last November — he died while
in custody on this charge — had it not been for a fresh bout of
brazenness on his part. He and his brothers, had declared a large
part of his 1992 portfolio was ‘missing’, but according to the CBI,
sold these in the market to sustain their operations. How’s that
for India’s investigo-legal track-record?
The
Harshad scam, since it’s unlikely that anyone really remembers the
events leading up to Harshad’s first arrest on June 4, 1992, was
essentially quite simple. Harshad got top banks and financial institutions
— the names involved included the State Bank of India, Stanchart,
National Housing Bank, Citibank, and ANZ, among others — to fund
his activities, and this money was then used to ramp up stock prices.
Around 1500 a few months before the budget of 1992, Harshad single-handedly
took the sensex up to 4467 on April 22, the day before the scam
story broke and his began to unravel. How these banks did this was
also quite ingenuous. Some, like the State Bank of India, simply
saw over a thousand crore of securities disappear with the connivance
of officials. In other cases, banks would issue receipts (Bankers
Receipts) based on securities they never even possessed — the tiny
one-branch Metro Bank which had a capital of just Rs 14 lakh, issued
Bankers Receipts worth Rs 575 crore, and these were used to try
and settle part of Stanchart’s dues!
Okay,
so Harshad found and exploited the lacunae in the system, but surely
this was plugged? That’s the problem, it wasn’t, and investors have
lost over a hundred thousand crore rupees in the bargain. Okay,
let’s rephrase that a bit. The Harshad loopholes were plugged (I
hope), but every new scam exposed new lacunae. Prithvi Haldea, who
runs the country’s only database on the primary capital markets,
will tell you that India’s stock markets have had close to one scam
every year in the past decade. In the case of the Preferential Allotment
Scam of 1993, for instance, major multinational firms allotted shares
to themselves at prices way below the market prices — investors
lost around Rs 5,000 crore, thanks to the fact that there was no
regulation governing this.
Between
1992 and 1996, around 4,000 firms raised Rs 25,000 crore from investors
and then vanished or never set up these projects. While investors
cried themselves hoarse, the government’s defence was truly unique
— various arms of it distanced themselves, arguing that it didn’t
fall under their purview. In this case, the stock market regulator
SEBI felt its job was not to regulate what companies did with the
money they raised in the market, while the Department of Company
Affairs (DCA) did the same thing.
Similarly,
between 1995 and 1996, various ‘plantation firms’ raised Rs 50,000
crore from investors by promising huge returns from teak plantations,
and then failed to deliver. At that time, again, there was a dispute
over who was to regulate such schemes — SEBI, the DCA, or, hold
your breath, the Ministry of Forests!
Move
down the scam-a-year decade, right down to the current Ketan Parekh
one (where, among others, the Unit Trust of India was playing chief
banker/backer for Ketan), and you find the same problem of who’s-in-charge
— see this newspaper of July 25 for more details. The DCA, for instance,
wrote to SEBI on June 7, saying the latter had the power to probe
under Section 209A of the Companies Act; on June 11, SEBI replied
saying it did have powers under Section 209A, but these related
to (hold your breath) just matters listed under Section 55A, so
the DCA should probe the case ... on June 21, the DCA wrote back
saying SEBI could do a probe under Section 77 which was in its purview
...
With
a new year just begun, under the laws of probability, there’s another
scam happening while you read this piece.
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