Consider this: A fast-track court at Jaipur hands out a guilty verdict in the rape of a German girl in exactly 26 days. On the other hand, it takes 14 years for the case that unravelled the massive Securities Scam of 1992 to end in a verdict.
This, after the government enacted the Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992, and set up a Special Court in Mumbai and a Custodian to take charge of scam-related assets. That is why, when Special Case 4 of 1996 was decided last week one only felt a sense of dismay.
But first some background. On April 23, 1992, I wrote about how stock broker Harshad Mehta, once described as the “Amitabh Bachchan” of the stock market, had siphoned off Rs 500 crore from the State Bank of India’s (SBI) treasury. The amount turned out to be Rs 770 crore and it set in motion the process of unravelling a Rs 5,000 crore Securities Scam that sank two small banks, ensnared the biggest Indian and foreign banks and tarnished innumerable reputations.
The government went into a frenzy of action. The Special Courts Act was enacted to ensure swift trial, a special court was set up, all the scam-accused were ‘notified’ and their assets attached by the Custodian appointed under the Act. The Reserve Bank of India (RBI) set up the Janakiraman Committee which came up with a series of investigation reports and a Joint Parliamentary Committee (JPC) began its investigation.
The only lesson that has been learnt and applied in subsequent scams is not to follow any part of the drill described above. In fact, even when a JPC was set up following the Ketan Parekh scam, it was packed with political friends of all the accused brokers and their corporate cronies.
In 1992, however, the Central Bureau of Investigation (CBI) went on a rampage and arrested 13 people starting from SBI’s Managing Director to Harshad Mehta, his brother Ashwin and a bunch of their employees. After 107 days of custody, the CBI forgot about the case. The charge-sheet was filed only in 1996 after some uproar and the charges were actually framed in 1999. Those charge-sheeted were carefully chosen to make up a long enough list of accused and keep out everyone with connections.
By then SBI’s 1992 Chairman M.N. Goiporia had passed away (he was asked to proceed on leave after the scam), so had C.L. Khemani, SBI’s Managing Director in charge of investments who earned a lot of money for the bank through skilful treasury operations, but was shattered and humiliated. He died a few years later.
R.L. Kamath, who headed vigilance and actually went to Pilani to bring back the rouge official R. Sitaraman (who colluded with Harshad Mehta) has also passed away, but not before the mortification of being named the second accused in the case. Since the first accused had to be a big enough name, P.V. Subba Rao, an MD and investment committee member was chosen. He too passed away a couple of years ago, without the chance to have his name cleared.
Three other bankers were included as accused (K. Kailasham, A. Padhye and A.N. Bavedekar) along with R. Sitaraman, the rogue banker who actually colluded with Harshad Mehta.
In the messy operations of SBI’s treasury, where there wasn’t even an instruction manual, investment decisions were taken at the corporate head-office and relayed to Sitaraman at the investment department at the Main Branch, these three officials were authorised to counter-sign cheques and confirmations which they did on trust.
Last week, Padhye and Kailasham (who had signed fewer documents) were acquitted and Bavdekar was sentenced to five years of rigorous imprisonment and a fine of Rs two lakhs. Since the judgement is not yet available, the reasoning is unknown. Another official, Makarand Shidhaye of UCO bank has similarly been severely punished with a fine of Rs four lakh and five years of rigorous imprisonment for blindly crediting cheques into Harshad’s account on instructions from his seniors.
From my investigation of the 1992 Scam, I have learnt that barring R. Sitaraman, the rouge banker who colluded with Harshad Mehta to falsify documents and give him dubious access to over Rs 700 crore of bank funds, none of the others in SBI had a clue about the mischief. Similarly, the late Harshad Mehta had one contact point in UCO Bank.
All the short-cuts and conveniences that were practiced by bankers and brokers in order to speed up transactions while dealing with the slow, manual systems at Public Debt Office of the RBI were held as criminal actions, but only if the case went to court. ANZ Grindlays Bank famously argued in its case against National Housing Bank (NHB) that crediting Banker’s cheques to brokers’ current accounts had become an ‘‘accepted market practice’’.
The case has been settled without anyone being jailed for crediting cheques to Harshad Mehta’s account. But Shidaye of UCO Bank, who has been living on tuition fee earnings, has been harshly punished and has no means to pay the fine.
As the trial trundled through the years, many of the events and situations lost their relevance. The CBI saw several different teams of officials handling the case and it is unclear if they can even relate to the bank’s operations as they happened in 1991-92 or understand the complexities and exigencies of the situation then. After all, automation and liberalisation has transformed Indian capital market processes beyond recognition in the last decade.
Even the judges hearing the case changed repeatedly. The hearings started with Justice Rane, were continued by Justice D.K. Trivedi and Justice Kapadia and judgement was finally delivered last week by Justice S.K. Shah. Now check the contrast. All the bank officials accused of corruption, collusion and conspiracy had to depend on legal aid. Some turned lucky. All the brokers and their employees had the best and most expensive legal brains working for the full 14 years.
While Harshad Mehta is no longer here to face the music, his brother Ashwin Mehta was acquitted and another brother Sudhir has received a one-year sentence. Even among their employees, barring one, all others have lower fines and prison terms than the bankers. Doesn’t it make you wonder why it was popularly known as the Harshad Mehta scam?