White Collar Thievery in India


One is bewildered why the BJP-led NDA tried to disrupt the working of Indian parliament, and the media, both the print and the visual, were worked up during the last week of April on the issue of Lalu Yadav being chargesheeted in fodder scam while they did not seem bothered about stealing of people’s money to the extent of more than Rs 800 crore by white-collar thieves, masquerading as entrepreneurs. A committee of Indian parliament recently submitted a detailed report on these thieves, their companies that have vanished and what the government should do. Strangely enough, so-called national newspapers have not found time to give any heed to this report, not to speak of writing editorials. So far as leading electronic media are concerned, no “Big Fight” has taken place nor have “We the People” been worried about this loot.

It all began in the 1970s when the government, seemingly, with good intentions announced income tax rebate for those investing in the IPO (initial public offer) of the newly floated joint stock companies. Taking advantage of this, a number of companies were set up and their initial public issues placed in the market. Gullible people were taken in. Companies gathered huge amounts from them by way of subscription, issued share certificates and then vanished into thin air. A number of them continued for some years gathering more money through debentures, company deposits and rights issues and then disappeared without leaving any trace.

One may very easily name any number of such companies, which did not even hold their first annual general body meeting of shareholders. Their whereabouts are unknown. One may recall the Sehgal Carbonless Paper that gathered huge sums from Delhi, after it was launched with great fanfare in the 1970s with advertisements on TV and newspapers. It was followed by Bagrian Shoes, Gangappa Paper, Wrapaid, Rama Fibres, Mayur Syntex, Sidha Syntex, Padma Paper, 5S, Multitech International, Modern group of companies, and so on. Later companies intending to set up plantations and holiday resorts appeared to reap rich harvest of money. It is said there have been no less than 400 such companies with their registered offices in Delhi alone.

It is strange that both the people and the government get agitated when the number of pickpockets goes up in the city and they start roaming about, carrying on their trade, but no such agitation was witnessed when such a large number of companies were registered without any investigation or preliminary questioning by the department of company affairs and the registrar of companies. Both the stock exchange and public sector banks, in fact, connived with them and facilitated loot by them. It is shocking that it took not years but several decades for the government to take cognizance of the situation and bring in SEBI (Securities and Exchange Board of India) in order to curb this kind of white-collar pick pocketing. It needs to be noted that SEBI also has not been able to achieve much tangible success in this regard.

It is an open secret that when a company comes out with its IPO or rights issue, its promoters stuff the prospectus with all sorts of lies about the future of the company and try to create illusions. Thus they act as proverbial pied piper. It is too much to expect any kind of vigil on the part of media because they are bribed through huge advertisements and from politicians whose activities are sustained by them through liberal donations.

One may recollect how the present chief minister of U. P. sent Sanjay Dalmia to Rajya Sabha when Multitech International, a company promoted by him became traceless after it gathered huge amounts from gullible investors in its shares. For some time its signboard was seen hanging on a building in New Delhi South Extension, Part I, but it is not known where it migrated afterwards. Perhaps, the mighty CBI will find it difficult to trace it. Mulayam Singh and his advisers should have glanced through the bulky report of the Supreme Court judge Vivian Bose in the murky deals of Damia-Jains during Nehru’s regime. Another example, the former Prime Minister Atal Bihari Vajpayee, while in office laid the foundation stone of a huge technology park, which was to be built by a company, promoted by two businessmen of Lucknow. The Unit Trust of India (UTI) handed over to them the US-64 funds. What happened afterwards is known to all. The investors in US-64 suffered and the goodwill of the UTI nose-dived. Strangely enough, nobody dared question why Vajpayee associated himself with the proposed venture without looking into its details including murky aspects. Obviously, ignorance cannot be an excuse.

During 1998-2000, the SEBI urged the Department of Company Affairs, not once but several times to identify such companies and take legal action but the Department ignored the repeated request with impunity. Prima facie one may say some sort of nexus of bureaucracy, politicians in power and white-collar thieves behind it. According to available information, 115 companies vanished overnight while first information report with the police has been registered against 92 companies. And that is the end of the matter. One may ask: what about the companies that decamped with people’s money during 1972-1998?  No answer is forthcoming. No political party has raised the matter with any kind of seriousness.

A well-known business commentator has made the following damning observation: “Every time investors get restive about the vanishing companies of 1990s, the government makes a feeble push to take the investigation into vanishing companies forward. Yet, a decade later, regulators have not managed to understand the core issues or successfully disgorge the wealth of a single industrialist picked up from banks or markets—even as another crop of companies are desperately seeking an opportunity to pick investors’ pockets.”

She goes on to point out: “In fact, investors are discovering that there is little they can do to bring shady promoters to book unless they change the laws that govern capital market related offences. The change ought to involve investigation and action under the Indian Penal Code without requiring investors be dragged through a long recovery process. And until courts hear class action suits and hand out exemplary punishments, the so-called action by government agencies is just a lot of noise with no results.”

Even a casual observer may point out that there is no seriousness visible on the part of the SEBI to stop this kind of white-collar pick pocketing of investors’ money, not to speak of bringing the guilty of such an offence in the past to justice. IPOs are even now being cleared only after some perfunctory examination. To cite an example, not long ago, SEBI cleared the IPO of  a company called Shopper’s Stop even though it had not cared to repay as much as Rs 46.2 crore owed to banks and other financial institutions. It was widely believed that these creditors would realise their money once the IPO was subscribed. Thus, the ultimate losers were to be public at large. In fact, it was believed that banks and other financial institutions were interested in the IPO to be cleared without delay and the public lured towards putting its earnings into it. Obviously, the banks and other financial institutions were to collude with the company.

The problem of vanishing companies has come to lime light, not as a result of any agitation by political parties, but owing to a PIL in Allahabad High Court. The petitioner, Virendra Jain, is of the view that there is no effective law to stop defrauding of the public. The only solution can emerge if  the SEBI, the Finance  Ministry, the Law Ministry and other concerned agencies and organisations sit together and frame a stringent legislation to stop this kind of white-collar thieving.

 

       Girish Mishra,
       M-112 Saket, New Delhi-110017.
       E-mail: [email protected].        

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