Citizens' Issues
Defiant Sahara

Will Subrata Roy, who has defied regulators and courts thanks to his political backing, be finally brought to book?

Will Subrata Roy, ‘chief worker’ of the Sahara group have to be arrested to ensure his appearance in Supreme Court (SC) on 4th March? Will he, finally, understand the gravity of an unprecedented non-bailable warrant (NBW) issued by the SC and make an appearance without coercion? No. He has once again, employed the best legal brains in India to come up with more delaying tactics.

Most ordinary persons would not have dared to defy the SC once it had angrily rejected his plea for exemption from personal appearance, especially when he already faces restrictions on travelling abroad. However, the extraordinary Sahara saga that is being played out in multiple courts, for over three years, defies every rule in the book about fear and respect for judicial proceedings.

Even the NBW does not seem to have woken up this strange man with powerful friends among all of India’s movers and shakers. Immediately after the SC issued a NBW, the Sahara group released a letter from Sahara Hospital claiming that Mr Roy could not leave the bedside of his ailing mother. In effect, the man who usually flies private charters or helicopters could not leave the Hospital even for a couple of hours to remain present in court! The SC also has been extraordinarily patient with Subrata Roy. Its path-breaking order asking him to refund Rs20,000 crore to investors was back in August 2012.

That trial itself was marked by Sahara’s audacious strategy of making defamatory and contemptuous statements against the Securities & Exchange Board of India (SEBI) through full-page advertisements. This stopped only after SEBI, finally, hit back when Sahara went too far and called it a ‘sarkari gunda’. Meanwhile, Sahara’s battery of lawyers kept trying to delay compliance though endless appeals.

Until the SC put Sahara’s claims about the funds collected, repaid and the identity of its investors under the lens, none of India’s investigative agencies, nor the Reserve Bank of India (RBI), had dared to examine the endless source of a large gush of money.  
There is also no clarity on what the group has paid in terms of service tax, income tax or to the provident fund, although it claims to employ hundreds of thousands of people. Even today, the SC is only looking at two specific companies that raised over Rs20,000 crore through a synthetic instrument called optionally fully convertible debentures (OFCDs) that were made to appear like financial paper that was under regulatory scrutiny and oversight.
As Moneylife has written earlier, nearly Rs20,000 crore raised by the two Sahara realty entities was to be managed by a tiny partnership firm of the promoters called M/S Sahara India. The documents submitted to the Supreme Court show this clearly; but it would not be a surprise if all the money, claimed to be raised by the Sahara pariwar from tiny investors, is similarly controlled.

How has Sahara avoided investigation and scrutiny by our revenue, intelligence and investigation agencies over the decades? That is a mystery that even a SC order may not solve. Maybe Arvind Kejriwal can.




3 years ago

Keep up the good work , i dont think we need kejriwal to rake this up. If it were an aam aadmi he would have lost all his dignity. Its high time the Judiciary shows some guts & takes a decision.

The UBI Saga Exposes Many Warts

SEBI is hell bent on making the corporate governance norms more and more tough. Its silence about United Bank of India saga shows how bogus its avowed stance is

On 13th February, the Securities & Exchange Board of India (SEBI) revised its corporate governance code, for the third time, making it stricter. The new code, effective October 2014, expects to ‘empower the board’ to ensure legal and ethical conduct of management. It also wants the board to evaluate, reward and, if necessary, remove senior management and ensure succession planning. The code, says an academic’s review, will create an ‘empowered board’ that is always vigilant, as opposed to a ‘passive board’ that usually gets active only during a crisis.

This strict code, with many laudatory provisions, will apply to all companies listed on our stock exchanges. Or will it? Look closely, and you can see that none of the new provisions will apply to the entire swathe of listed public sector undertakings (PSUs) that have inflicted big losses on investors. This is evident from the fact that neither SEBI nor the stock exchanges, who administer the corporate governance code through their listing agreement with companies, have uttered a word about the goings on at United Bank of India (UBI) that have mauled its share prices.

On 22nd February, its chairman & managing director (CMD), Archana Bhargava, suddenly opted for voluntary retirement citing health reasons. The finance ministry instantly accepted her application and allowed her to vanish from public view; she has not responded to our queries.

Ms Bhargava was allowed to opt for voluntary retirement after Reserve Bank of India (RBI) governor, Dr Raghuram Rajan, formally asked the government to remove her and supersede the entire board of the Bank.

Four days after Ms Bhargava’s exit, UBI’s board remains paralysed and unclear about its own future; the Bank is being jointly run by two executive directors. Anonymous sources, quoted in media reports, say that the board is unlikely to be superseded, despite the banking regulator’s recommendation, because it is a ‘politically sensitive time’. So, how will SEBI’s new corporate governance code help UBI investors who, at the very least, are entitled to a proper disclosure of facts from the board of directors? Do PSU boards have truly independent directors or empowered audit committees? Will they be exempt from the tough new norms and punishments prescribed by the SEBI code and the new Companies Act? The answer is: Yes.

Someone like Rajiv Takru, secretary (financial services), ministry of finance, will always call the shots at listed PSU banks. Management succession and remuneration will never be within the purview of these boards; but government appointees will continue to wield enormous influence on behalf of their political masters, crony capitalists and influence-peddlers. Investors, like those of UBI, who have lost over 70% of the value of their holding—the share price declined from Rs85 in January to around Rs25 (at the time of writing)—won’t even know who to demand answers from. Their source of information will continue to be media reports quoting anonymous sources.

Consider another angle. Reliable sources in the banking industry and the Bank say that Ms Bhargava may have exaggerated the bad loans below Rs10 lakh. For this, she blamed the core banking software (supplied by Infosys Ltd) which was unable to detect these. She is also accused of reckless lending by her own senior officers. These sources say that she was bent on declaring the entire portfolio, running into over Rs2,000 crore, as non performing assets (NPAs), which is a huge exaggeration. Many of these loans, they say, are likely to be written back in the coming months. If this happens, the share price may rise and investors who sold in a panic have reasons for serious complaint. Who will SEBI hold accountable? The passive board which does not even know its own fate? The government, as owner of UBI, for failing to make full and proper disclosures to shareholders? The RBI, as banking regulator, which remains secretive and does not disclose the true state of UBI’s finances or respond to rumours about merging the Bank with a stronger one? Clearly, the accountability of PSU bank boards or management is a hoax on investors.

If corporate governance norms do not apply to giant PSUs, or make a difference to politically connected companies like Kingfisher Airways, LANCO (of pepper spray in parliament fame) or NDTV, what is the purpose of tinkering with the rules? Our regulators, like our investigation agencies, will nitpick on compliance and harass companies who follow the rules or are not powerful enough block action. The same regulators will maintain a studied silence over the massive rise in bad loans of public sector banks that have even caused their unions to panic. SEBI is also silent about the misuse of funds by large corporate houses that use their political clout to get bad loans restructured repeatedly.

Here is yet another aspect to the governance conundrum in PSUs. In just over a year at UBI, Ms Bhargava precipitated a crisis by antagonising her entire board of directors over declaration of higher NPAs. She wrote to RBI asking for a forensic audit of UBI’s loans, since neither the RBI inspection nor the Bank’s external auditors had recognised the true extent of the rot in the Bank. Bad loans at the Bank trebled—from Rs2,964 crore in March 2013 to Rs8,546 crore in December 2013. The Bank, which was ‘profitable’ until the first quarter of 2013-14, reported a Rs489-crore loss in the second quarter which spiralled to Rs1,238 crore in the December quarter. Was this an accurate representation of the Bank’s finances? Nobody knows. The RBI governor’s letter, recommending Ms Bhargava’s removal, suggests that it does not see her as a crusading clean-up agent. However, our sources say that there is, indeed, a big increase in bad loans at UBI; but this is in line with those of all public sector banks. They also agree that much of her provisioning was high and, probably, exaggerated.

In fact, SEBI has allowed it to become a tradition for incoming chairmen at PSU banks (including State Bank of India) to declare higher NPAs so that their own performance shines in comparison to their predecessor’s. In a listed company, this would amount to a deliberate attempt to depress the stock price and ought to be investigated under price manipulation and insider trading rules. Will SEBI dare to launch such an investigation and initiate action? Or will Archana Bhargava and the UBI board of directors be allowed to fade away without accountability for her actions or consequences?

Let us now look at another aspect of how UBI and other listed PSUs make a mockery of SEBI’s corporate governance code. The universal view at RBI and UBI is that Ms Bhargava had extremely poor people skills and rode roughshod over her board of directors and senior management. However, neither shareholders nor employees have a say in the selection process.

Everybody knows that most appointments (barring rare exceptions) as bank chairmen are the result of hectic lobbying and dubious deal-making with corporate houses, brokered by notorious chartered accountants who turn up as finance ministry appointees at many banks. So Ms Bhargava, despite her patchy track-record at Canara Bank and Punjab National Bank about the quality of loans and other transgressions, apparently managed to bag a coveted assignment.

When hundreds of listed government companies (representing the largest block of assets) have no control over the appointment of their board of directors or their chairman and managing director, how fair is it for SEBI to keep making corporate governance rules more onerous?

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]



Raj under Goswami

3 years ago

At the highest level of any organisation, especially financial organisations - which deal with the public money, only persons with high integrity and not those clouting high connections, should be posted. It is pity that such vital aspect is generally ignored in the prevailing system.
However, it is heartening to learn that UBI may bounce back to profits by reducing NPA by more than Rs.2000/- crore (Business Standard, Apl 4 2014). If the constant supervision of RBI and efforts of exiting bank officials at the helm of affairs can bring about this transformation, it will be an appreciable task.

Dayananda Kamath k

3 years ago

before accepting a resignation or voluntary retirement from an officer in public sector bank.a detail search of all his actions at every posting in the bank is checked and a clearence of no liability or likely liability of his actions is verified.but how a cmds application can be accepted in single day. the person who accepted and all others who delat the matter and approved should also be braught to book. so tha such things do not recur.


3 years ago

When the government is not bothered about replacing batteries for submarines thereby endangering our national security, the fall of one bank is not significant for them to change their ways. All public sector banks are basically meant to cater to the whims and fancies of their political bosses only.


3 years ago

Your can find Corporate Governance in PSBs only in their annual report, seldon in practice. The Ganugly Committee recomendations which prescribes minimum corporate governnance norms in Board functioning itself is observed in breach. Board Meetings are led by the CMD and in a few cases CMD, Ministry Director and RBI Director. Other in(dependent) Directors are passive spectators. Board Meeting which last for 2 hours, 80 to 100 agenda items are cleared. Rarely the observations of the Directors are recorded. Board decisions too appear in single line without any discussion part. In one day Board meetings, Management Committee meetings (which sanctions loan proposals), other committees of the Board etc.. all gets completed within hlaf day!

Whether RBI/ Ministry is not aware of these things? Everyone will wake up only during a crisis. Rest of the time life goes on. Long live Corporate Governance!

Gopalakrishnan T V

3 years ago

The author has come out clearly as to how Corporate Governance principles are not being adhered to in PSUs particularly in PSBs sighting the example of United Bank of India and its recent revelations.The SEBI frames rules to be pursued to ensure Corporate Governance in Corporates but it seldom ensures adherence is a fact known to all Corporates and market players. Corporate Governance in Banks particularly in PSBs are only in paper and the Government Director and Chairman as dictated by the Government have their own principles of Governance where even RBI the sole regulator of banking has limited say.These shortcomings in the adherence to Corporate Governance rules are known to all but the connections, lobbying, contacts and other under currents in the actual functioning of the Corporates including banks have a destination not known to many.Fortunately banks are not allowed to fail thanks to Government backing using tax payers money as otherwise left to themselves many banks would have failed long back. The UBI was havibg severe problems and was categorised as weak bank along with other two PSBs in the late 1990s and all the three were saved with the strong backing of the Government. Corporate Governance and even other Governance Standards are missing in our system is a truth and ethics and values are concepts only to be found in discourses.


3 years ago

There is underinvestment in skills in PSBs simply because promotions are given for non-performance and proximity to the top. Vertical accountability and not horizontal accountability has caused serious decline in the work culture of PSBs

Yerram Raju Behara

3 years ago

Top assignments in PSBs depend upon the effectiveness of lobbying and not on performance. Once the persons reach the General Manager level, the game starts. They start acquiescing to pressures to cling to the chair or jump up.
If some one is at zero level and not much has been done to elevate him/her, it does not mean that others should be also allowed to remain at the same level. Why accuse SEBI if they want to impose CG on the corporate sector more than the banking sector that has multiple regulators. The RBI and Finance Ministry derive comfort in lazy boards. Their nominees endorse the controversial Board resolutions only to go back and raise correspondence on them and not even in the next Board meeting they raise the issue nor does the Chairpersons or other Directors ask why these questions were raised. They are dealt with from the management side. If somebody thinks that there is CG in PSBs it is his or her fault. There are only namesake Boards. This is one of the reasons, perhaps for the RBI Governor to set up a Committee to look into CG in Banks under the Chairmanship of Dr.P.J. Nayak. When a similar Committee's Report under Ashok Ganguly was consigned to cupboards, it is a matter of doubt whether the new Committee would be able to have its way in action finally. PSBs are management-led and not Board-led. It is the RBI that should act swiftly and not bow to the Finance Ministry.



In Reply to Yerram Raju Behara 3 years ago

All these reports and committees after finding some scams are just to divert the attention of public from this and ultimately its our money which had been misused how are much whether they are educated person like Arachana Bhragava or any body if they politicial clout through them if they come to power its 100% sure that there is going to looting of banks assets is sure because once the Govt appoints then as chairman then they would ask the chairman to lend money to those companies where politicians are shareholder or his company and natural once it goes to these companies its only bad debts to be written off and since the chairman had come through back doors naturally the chairman also inorder to safeguard her or his position they also loot and keep the buffer money and cost of bank and as such in india the credbility and accountability and integrity is totally lost which is bad sign for an countries future

FDI in Railways: specific areas in which the funding will help

It is never too late to buy the latest and most modern equipment available, to get the job done in the Railways and the funding through FDI can help in this

Recently, Moneylife carried a story on the prospects of foreign direct investment (FDI) in the Indian Railways. As mentioned therein, the Department of Industrial Policy and Promotion had felt that the Railway Ministry's response to the draft cabinet note was confusing and therefore, it needed some more clarifications before further action could be taken. This is likely to take some more time, but in the meanwhile, it would help matters to review and consider what areas FDI participation would truly help India.


According to information available, rail wagons are designed to carry a load of pre-defined capacity plus nine tonnes with leeway to load one more tonne without any overload penalty across the entire railway network, as per the interim budget, presented recently.


The average load carried per wagon is about 62 tonnes though some wagons carry about 67 tonnes. As per a railway official, as reported in the press, a capacity creation of 15 million tonnes (mt) will account for about 30% of the 50 mt incremental loading that the railways aim to move during 2014-15. They have set a target to achieve 1,101 mt of cargo to be moved in this fiscal year.


However, in order to carry higher load per wagon, the Railways need to invest in wagons, improve rail tracks and bridges. For this purpose, Railways propose a market borrowing of Rs12,800 crore against Rs14,000 crore last year, to procure rolling stocks, including wagons, locomotives and coaches. Should the need arise, they will revise the target and borrowing accordingly.


One of the biggest problems that Railways have faced continuously is the issue relating to extension of rail-track laying, for which there are no indigenous technology or capacity. In fact, worldwide, there are only a few companies who can do this job meticulously and who are in great demand. The three principal companies are reported to be Harsco Corporation of the US, ETF of France and China Railway Shanghai Design Institute Group Company. The railway track laying machines are manufactured by the above three major companies, who, on obtaining overseas contracts, bring in their equipment, lay the track, complete their job on schedule, and take back the equipment, to another location for a new assignment!


Readers may recall that for the Eastern Railway Freight Corridor, according to information available, there are 16 bidders, both Indian and foreign, but most of whom have taken supporting bids from two of the above named specialists in the field. This corridor is likely to be completed in four years' time after the award.


According to an official of the Railways, as reported in the media, there are 35,000 route Kms that cover 70% of rail lines engaged in carrying freight allow for higher carrying capacity. The load per wagon will increase only by about 2 tonnes, as the routes currently permit 2 tonnes less loads per wagon. But to do so, Railways will have to make an incremental investment of Rs2,000 crore to replace old tracks and engage in upgrades in some areas.


With these data in the background, it is hoped, that when the final directives are outlined for the FDI in Railways, the following factors will also play a vital role in the development:


a) to engage in serious joint venture discussions to actually start manufacturing the track laying machinery in India itself - need and scope for continuous exists for a few decades to come;


b) to have a separate joint venture with the same FDI (or the second company) to take contracts for fresh track laying and to renew the old and worn out ones that need to be replaced for improvement and safety;


c) to have a separate organisation only for maintenance and repairs of all railway tracks in the country


d) current passenger coaches are mostly (almost 95-98%) in single decks only; double-decker passenger coaches area novelty; since in many areas the traffic is high, double-deckers would help faster movement


e) if Railways do not have a separate division for procurement of land in the proposed areas for laying tracks and stations, this should be established as a separate entity


All these and more and innovative ideas will take at least a decade or more to accomplish, but it is time we set the goals right and focus to reach those objectives. Just in passing reference may be made that a few years ago, these track laying machines cost between Rs10 crore and Rs30 crore, and why these were not purchased by the Ministry of Railways is a serious issue that they can only answer, since these would be more expensive now. But it is never too late to buy the latest and most modern equipment available, to get the job done!


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)




3 years ago

Undoubtedly Railway is the backbone of transport system of the India. Prompt decision making and implementation of above mentioned suggestion is the need of the hour.
Productive Article.

jaideep shirali

3 years ago

The suggestions are very useful, most importantly that we should seriously consider manufacture of track laying equipment. If we could make LCA, launch vehicles or ships, I'm sure that our engineers could make track laying equipment. As far as capital is concerned, if the Indian Railways spends less resources on activities unrelated to its business, more internal resources could be used instead of market borrowings. An increase in rail freight movement would really benefit our economy.

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