How shall we investigate future scams? (23 December 2002)
Sometime in the year 2001, the government was under pressure from opposition parties who boycotted the parliament for almost an entire session demanding an investigation into two major scandals.
One was the stock market crash of March 2001 while the other was the defence bribery scandal exposed by Tehelka.com. The ruling National Democratic Alliance gave in to the demands and set up two commissions of inquiry to investigate these events.
The first was the multi-party Joint Parliamentary Committee (JPC) to investigate the scam and the second was the Venkatswami Commission, headed by a retired judge to investigate the Tehelka expose. Look at where we are 20 months later.
The Venkatswami commission has gone into limbo after Justice K Venkatswami (retd.) quit as chairman last month following a controversy over his appointment as Chairman of the Authority on Advance Ruling in the Customs and Excise Department.
At the time of quitting, he said that the report was 90 per cent complete. All that effort is now wasted, because no other judge is willing to do the job and even Tehelka has refused to appear before a new commission all over again.
As for the JPC’s “unanimous” report on Scam 2001, its sole achievement is probably to delay investigation, charge-sheets and punitive action by various regulators and investigative agencies for nearly 20 months. In the intervening period, the markets as well as investors who lost money in the scam of 2001 have moved on and public memory is so notoriously fickle that most of the details have already been forgotten.
When the JPC was set up to investigate the Ketan Parekh scam, I had argued that a cabal of politicians would achieve nothing even if they represented diverse political interests.
What we needed was the sort of open, 24 day public inquiry conducted by the legendary Justice M.C.Chagla in the Haridas Mundhra scandal of 1957. His verdict had led to the resignation of the then Finance Minister T T Krishnamachari and punishment of all the guilty in less than two years.
In contrast to the closed-door JPC hearings of 1992 and 2001, which ended with sketchy media briefings at the end of each day, Justice Chagla had decided that “a public inquiry is a very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based”.
Our politicians have since concluded that the public should know as little as possible and that too when it has become largely irrelevant. The BJP government has proved that deft political manoeuvring can scuttle any form of inquiry – whether it is a present day Judicial Commission or a closed-door multi-party JPC.
The latter especially, tend to behave like a club, where the posturing and protests are limited to parliament and television shows, while the inquiry reports are the result of political negotiations over whom to indict or let off.
For instance, Scam 2001 was mainly about the market operations of Ketan Parekh (as the JPC has pointed out) — his price manipulation across several bourses, his connections with corporate houses and UTI and his shady arrangements with several banks such as Centurion, Global Trust Bank and the little-known Madhavpura Mercantile Cooperative Bank.
In March 2001, when his favourite stocks were crashing, he had access to nearly Rs 5,000 crores of funds, illegally diverted from various banks and companies (Rs 3,300 crore in cash and Rs 1300 crore of share that he had to deliver) and some Overseas Corporate Bodies. This sum is bigger than the entire Harshad Mehta scam, but there is hardly any concerted investigation against Ketan Parekh.
The criminal complaint filed by Bank of India is at a standstill, in the Madhavpura Mercantile Cooperative Bank case he is out on bail despite failing to keep up his promise to pay the bank back in installments. He bought time until January 7 in connection with a Kolkata police investigation and has ben arrested and let off with respect to a complaint filed by an Overseas Corporate Body.
But these don’t even begin to touch the centre of his operations, which was conducted through Global Trust Bank that operated like Ketan Parekh’s personal treasury.
As for his corporate sector cronies, who diverted several hundred crores of rupees borrowed from banks and institutions to him – the JPC tells us, after 20 months that it could not investigate the nexus for ‘paucity of time’. Even Sebi seems to have done an about turn in its earlier investigations (thanks to a change in the investigation team).
It has now made the preposterous claim that the fact of Ketan Parekh’s industrialist friends borrowing recklessly from banks and institutions and immediately diverting the money to him is a stand-alone fact. That Ketan Parekh also happened to ramp up their stocks to absurd highs is another unrelated fact.
That his smiling photograph was splashed on the front pages of newspapers with the same industrialists at various events jointly hosted by them was a third disparate fact and there was no connection between the three distinct facts. Hence, Sebi concludes that there is no evidence to prove that the corporate houses were involved in price manipulation.
The JPC has willingly bought this argument and naturally, the head of Sebi’s investigation team has been rewarded with an extension. As for UTI Chairman P.Subramanyam, who is the cause of UTI’s second collapse, he took charge of an already beleaguered and once-bailed out institution. Then, he was presented with the opportunity of a lifetime to turn it around in the manic, worldwide bull run of 2000. However, he ruined it with reckless investments in empty companies at exorbitant prices and collusive deals that may have been at the instance of powerful politicians.
Yet, for 20 months he was investigated for the solitary case of Cyberspace Infosys. The JPC has now demanded further action against him in connection with a few specific investment decisions, mainly in connection with the private placement of IPOs at steep prices, but the speed with which this will be followed up remains to be seen. Clearly, one is forced to conclude that manipulative politicians will always outwit ordinary people, who will pay the price either in terms of losses or the frequent bailout of crooked institutions at taxpayers’ expense. -- Sucheta Dalal