When the budget session of Parliament starts next week, it seems certain that the BJP and its allies will continue to disrupt proceedings with their campaign against ‘‘tainted ministers’’.
Every Indian would agree that tainted ministers should have no place in the government. Yet, there is unanimous contempt for the BJP’s protest and disruption because of its own record in office.
Since this is a business column, we will stick to the government’s business dealings. Contrary to their hypocritical protests today, the BJP-led coalition had made a fine art out of deflecting financial scandals. The formula was simple — rope in the support of equally shady politicians from the Opposition and bury all scams through sheer inaction.
The tendency to be too clever by half was also reflected in the manner in which it tried to ‘fix’ public sentiment through a shining illusion and gimmicks such as SMS campaigning. Fortunately, we have a good basis of comparison in the two major financial scams that occurred in different regimes and led to JPC investigations.
In 1992, Harshad Mehta’s market manipulation snowballed into a huge scam. Manmohan Singh was the FM in a Congress government then. He had the RBI set up a multi-disciplinary committee (the Janakiraman Committee), whose rigorous investigation formed the basis of the JPC’s deliberations. The Special Courts Act was passed for the speedy trial of offences and a custodian appointed to take charge of scamsters’ assets.
Compare this with 2001. The regulator stood by and watched an identical bull run as in 1992, led by Harshad Mehta’s protege Ketan Parekh. The inevitable collapse coincided with the worldwide dotcom bust. If the 1992 scam was estimated at Rs 5,000 crore, in 2001, it was several times bigger. Even after the bull run had begun to unwind, a reckless Parekh had transferred nearly Rs 3,000 crore to Kolkata, mainly to an unknown broker called Sanjay Khemani for unofficial market transactions.
The scam led to the second collapse of the UTI in less than three years. The estimated price tag was over Rs 12,000 crore, but it was covered up with deft financial engineering. However, investors’ trust was shattered and they lost heavily.
The Nedungadi Bank, manipulated by a Harshad Mehta crony called Rajendra Bhantia collapsed and was taken over. Ketan Parekh pillaged (he owes it over Rs 880 crores) the Madhavpura Mercantile Cooperative Bank (MMCB), and its fall had a domino effect on Gujarat’s cooperative banking sector. Lakhs of investors have lost money. Bank of India too has to recover Rs 130 crore from Parekh.
Yet, no attempt was made to freeze the scamsters’ assets, or to set up a multi-disciplinary investigation. This clearly hampered the effectiveness of the JPC, which was already packed with friends of the scamsters. No custodian was appointed to recover assets that rightfully belonged to the public and the stage was set for a tardy investigation that would let off the guilty. The JPC meandered aimlessly, often using hearing to settle personal scores. There was even a discussion on whether the manipulations of 2001 could be classified as a scam.
Now lets compare the results. The 1992 JPC report was criticised for not being harsh enough against foreign banks who were significant players then; but in 2001, the OCBs, who were more notorious have never been investigated. Nearly 40 odd criminal cases (where the CBI has framed charges) and a couple of hundred civil cases filed in the 1992 scam continue to drag through the courts and the SC has disposed off barely five odd cases. The Custodian has eventually done a good job recovering significant sums of money. Foreign banks were forced to cough up several hundred million dollars to pay back portfolio management clients, while NHB collected a cool Rs 1,050 crore although its own dealings with Mehta were dubious.
Cut to 2001. Scamsters’ assets remain untouched and they continued to play in the market through front companies. Former UTI chairman S.Subramanyam has gone virtually scot-free. The Securities and Exchange Board of India (Sebi) has suspended Ketan Parekh from the capital market for 14 years, but there are persistent rumours about his market activity. He obtained bail in the MMCB case by committing to repay the money in fixed instalments, but evaded action despite defaulting on every commitment.
The less known scamsters are being released by Sebi with minor suspension orders that are applied retrospectively. Earlier Sebi’s orders used to be overturned by the Securities Appellate Tribunal (SAT); but in the last few months, it has been letting off scamsters on its own.
Consequently, they are back in action within days of Sebi’s final order, which is more like a release letter than an indictment for wrongdoing. None of them has suffered any known monetary penalty. Among those released by such orders are Sanjay Khemani of Kolkata, the Ashok Mittal Group, the Ramesh Gelli group (of Global Trust Bank) and Rajendra Bhantia and his associates (connected with Nedungadi Bank and Charotar Bank).
Cases against a couple of other brokers have also been buried. Several individuals who ran Ketan Parekh’s many outfits are also back in business through new companies. In the Nirmal Bang case, Sebi cancelled the registration of four entities, but the Securities Appellate Tribunal reversed the order. The reversal was also ratified by the Supreme Court in April 2004 and they were allowed to resume business. Nirmal Bang himself passed away in an accident soon after the Scam was detected.
Another broker is threatening to defy Sebi and restart his business. His confidence apparently stems from the fact that at least two Union ministers in this government were his lawyers. Will Sebi deal with this situation by ensuring that the case is watertight? Or will it add to the statistics of scamsters who got away?
Apart from exposing the hollowness of the BJP’s outrage against ‘tainted’ ministers, this comparison shows how political mischief can derail justice. While those indicted in Scam 1992 are still fighting their way through tedious and extremely expensive legal battles and could end up serving jail sentences, the scamsters of 2001 are getting back to business without paying any fines or facing imprisonment.
Certainly, the BJP has no business talking about morality in public life.