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Former Union Secretary EAS Sarma who along with others obtained a landmark order from Delhi HC on illegal foreign funding of political parties has called on the Election Commisison to initaite immediate against political parties and Vedanta group
Following a Delhi High Court order that donations to the BJP and Congress from the Vedanta Group prima facie voilated the law, former union secretary EAS Sarma has written to Chief Election Commissioner VS Sampath to initiate immediate action against the parties concerned and to revoke their tax exemptions. Mr Sarma and Association of Democratic Reforms (ADR) had filed a public interest litigation (PIL) in the Delhi High Court (Delhi HC) against foreign funding of political parties.
On 28 March, Delhi HC held that the BJP and Congress had, prima facie, violated the foreign funding law by receiving donations from UK-based Vedanta Resources' subsidiaries and directed the Centre and Election Commission (EC) to take appropriate action against them within six months. As per Foreign Contribution Regulation Act (FCRA) companies like Vedanta come within the purview of the definition of a “foreign company” hence, in pursuance of rules political parties are prohibited from accepting donations from such foreign companies.
EAS Sarma said, “Vedanta has made donations to Congress, BJP and several other political parties like Trinamool Congress. This needs to be investigated urgently and action initiated.”
EAS Sarma has asked Mr VS Sampath to investigate donations received by all political parties from foreign companies during the last several years and proceed against them under FCRA and Representation of the People Act. He has asked for deterrent action, in view of the implications of such donations to the security of the nation and the integrity of our democracy.
EAS Sarma has asked to investigate the bona fides of Vedanta's Public and Political Awareness Trust and the electoral trusts set up by the other foreign companies in terms of implicit/explicit violation of FCRA/Representation of the People Act and take urgent action to comply with the letter and spirit of those laws. Sarma further said, “If necessary, bring all electoral trusts set up by foreign companies within the ambit of FCRA by a suitable legislative amendment. The trusts should make a public disclosure of their financial dealings.”
He writes, “Vedanta has also evidently set up a trust known as Public and Political Awareness Trust, specifically for making political donations. This is clearly an indirect way to channel political donations. It is doubtful whether routing political donations through an electoral trust complies with the provisions of FCRA. I understand that several companies have followed this modus operandi. A thorough investigation will reveal the goings on in these trusts which function in a highly non-transparent manner".
EAS Sarma requested chief election commissioner to appreciate the rationale of FCRA/ Representation of the People Act and the legislative intent that underlies it and decide once for all not to appeal against the Delhi High Court judgement. Sarma said, “I believe that the concept of private companies giving donations to political parties is per se objectionable as such donations have vitiated the democratic processes and led to mis-governance on a large scale. In particular, such donations from foreign companies amount to a slap on the face of India's democracy and they compromise the national security.”
The London based Vedanta in its annual report of 2013 clearly mentions that, “in accordance with the normal accepted practice in India of making political donations, the group made political donations of USD2.01 million in 2012 and USD0.97 million in 2013 through a trust or directly in respect of the Indian general election. The board believes that supporting the political process in India will encourage and strengthen the democratic process.”
Vedanta's listed subsidiary firms; Sesa Goa paid Rs30 lakh to the Bharatiya Janata Party (BJP) in 2012-13, while Sterlite Industries gave Rs5 crore to the Public and Political Awareness Trust, set up by the group to make political donations. In August 2013, Vedanta merged both subsidiaries into Sesa Sterlite. Sesa Goa's annual report showed its political donations dropped significantly in 2012-13 to Rs30 lakh from Rs4.65 crore in 2011-12 as its operations were hit by a mining ban.
Sesa Goa has made donations of Rs2 crore to the Congress, Rs1.75 crore to BJP, Rs50 lakh to Maharashtrawadi Gomantak Party, Rs15 Lakh to All India Trinamool Congress, and Rs25 lakh to Nationalist Congress Party (NCP) during 2011-12.Vedanta donated USD5.69 million to political parties in India between 2009-10 and 2011-12. This includes USD3.66 million during 2009-10, when the previous general elections were held. Since listing on the London Stock Exchange in 2003, the company has donated USD8.29 million to Indian political parties.
Also read our earlier stories on political funding by Vedanta group here,
How a proactive RBI forced HSBC to partly redress glaring mis-selling by HSBC to actor Suchitra Krishnamoorthi. Will this set a precedent? Don’t bet on it
On 14th March, the Hongkong & Shanghai Banking Corporation (HSBC) suddenly called actor Suchitra Krishnamoorthi to discuss a settlement to close her long-pending allegation about gross mis-selling that had caused her a loss of over Rs1.85 crore.
Despite letters to Naina Lal-Kidwai, the high-profile head of HSBC, and legal notices to the Bank, she had come to a dead end. All that the Bank had offered was to waive its charges and commissions and re-invest her money in the hope that they will earn some more revenue. Clearly, this was unacceptable. She had filed a complaint with the banking ombudsman, but without any effect.
In early April 2012, she approached Moneylife Foundation, a not-for-profit organisation, of which I am a founder-trustee. We studied her case and, on 13 April 2012, I emailed Dr KC Chakrabarty, deputy governor of the Reserve Bank of India (RBI), with copies to chairmen of the Securities & Exchange Board of India (SEBI) and the Insurance Regulatory Authority of India (IRDA), secretaries in the finance ministry, Naina Lal-Kidwai and others, about her issue.
Under the guise of ‘managing her wealth’, the Bank had systematically looted her of nearly Rs4 crore through multiple financial instruments. It sold her two toxic unit-linked insurance policies (Rs15 lakh and Rs20 lakh) with a fake assurance of high guaranteed returns on which she incurred huge losses.
In 2007, when she wanted to withdraw funds to buy a house, she was persuaded to take a home loan of Rs1.65 crore to get tax benefits on the claim that monthly instalments could be paid out of investment income. Instead, HSBC relentlessly churned her portfolio to extract income for itself as commissions and entry-/exit-loads. If that wasn’t bad enough, she ended up with a fat short-term capital gains tax because HSBC sold some investments in less than 12 months. Many investments were volatile or underperforming equity schemes rather than debt or liquid funds that were more suited to her profile. So, she paid home loan instalment of Rs2 lakh a month while the Bank relationship managers were busy juggling 38 schemes in her portfolio to keep adding to her losses. She, finally, sold a piece of land to pay off her home loan.
The IRDA chairman’s office was the first to respond to my letter on 16 April 2012 asking for details of her insurance policies. But it merely acted as a post-office, passing on HSBC’s and Tata AIG’s response that the policies were closed.
We calculated the loss due to the churning of her mutual fund portfolio at over Rs29 lakh and suggested that she should file a complaint with SEBI. Although RBI did not send a formal response, the case was examined at various levels. We were also convinced, at that time, that a complaint to the banking ombudsman would be of little use, since its scope is very limited. We requested Dr Chakrabarty to take up the issue of mis-selling of third-party financial products by banks. Meanwhile, Ms Krishnamoorthi filed a complaint with SEBI which she relentlessly followed up with Mr RK Padmanabhan, executive director, SEBI.
In April 2013, Moneylife Foundation held an open house meeting with Dr Chakrabarty which was also attended by the entire top brass of RBI’s customer services division as well as the banking ombudsman (BO) and chairman of the Banking Codes & Standards Board of India. We gave Ms Krishnamoorthi a platform to make a public plea that day.
The RBI was sympathetic and Dr Chakrabarty was especially vocal about his personal view that banks should not sell third-party products. But it needed information to make HSBC pay. R Gopalakrishnan, counsellor of Disha Financial Counselling (a former deputy general manager of the RBI customer services department), stepped in, examined her case and marshalled all the legal and technical points in a two-page note for RBI.
While HSBC held a standard sweeping power of attorney (POA) executed by her, it had omitted to “prepare a financial plan based on the risk profile, resources available and mapping of financial goals as specified by the customer” or do an annual review which was part of the deal. Also, while Ms Krishnamoorthi had blindly signed some letters authorising investments, debits and credits to her account, it had failed to do it in every case under the terms of the agreement. Clearly, the bankers who were recklessly churning her funds were careless.
The end result after five years was a direct loss of Rs83 lakh from investment, Rs28 lakh in HSBC commissions to HSBC, Rs18 lakh from decline in value of two insurance policies, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the income-tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the Bank.
Helpful RBI officials went out of their way to have several interactions with SEBI’s extremely proactive executive director RK Padmanabhan. Both regulators were convinced that Ms Krishnamoorthi had been cheated. SEBI issued a hard-hitting show-cause notice on 1 November 2013, quantifying the loss at over Rs27 lakh and investments that were completely out of line with the risk profile of the customer.
It classified this behaviour as an unfair trade practice and a violation of the code of conduct of mutual fund intermediaries. SEBI’s order threatened not only disgorgement of ill-gotten earnings but also to debar HSBC from the capital market and from buying and selling securities. Yet, HSBC managed to drag the case until March 2014 by seeking more time.
Meanwhile, RBI suggested that she file another case with the BO, which she did, in January 2014, but was rejected instantly on the grounds that it was out of the purview of the BO scheme. Things were beginning to look rather bleak then, but again, following requests from Moneylife Foundation, Dr Chakrabarty granted Ms Krishnamoorti another personal hearing and RBI’s customer services department held several meetings with HSBC officials and Ms Krishnamoorti.
By then, pressure on the Bank from both regulators had mounted to the point that it began to talk about a possible settlement. It was also running out of time and options with SEBI which seemed disinclined to accept its explanations.
So, suddenly, on 14th March, Ms Krishnamoorti received a call from the Bank offering a settlement. We suggested that she insist it should be wound up in a single meeting and that she goes with someone whose presence would give her a psychological advantage. Fortunately, Shekhar Kapur, the well-known director and her former husband, accompanied her. We learn that HSBC began by offering half the ultimate settlement, but when it was rejected, it doubled the amount, subject to various terms and conditions (a gag-order, that she would not bad-mouth the Bank, all existing cases will be withdrawn and the Bank would not admit to wrongdoing, but make the payment as a gesture).
For Moneylife Foundation, this two-year battle was won because of strong pressure from Dr Chakrabarty and support from senior executives at RBI and SEBI, who closed HSBC’s exit routes. Ms Krishnamoorthi too was willing to keep fighting and not give up, despite the many setbacks. But Ms Krishnamoorthi is certainly not the only victim of banks. In fact, there are many in India and abroad. But, as this timeline shows, it is a tough and uphill battle against large financial institutions. The battle can become easier, if other victims get together to consider class action. In our experience, not everybody has the stamina to fight their battles—if they cannot dump their problem on someone else, people get reconciled to their loss and simply turn more cynical.
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]