Shamefully Slow Resolution of Financial Scams Damages India’s Wannabe Image as a Superpower. Can It Change Now?
On 30th April, the chief justice of India (CJI), NV Ramana, mentioned in a speech that India has 40mn (million) cases pending in lower courts and that the government was the biggest litigant accounting for 50% of these cases. At another event on 2nd May, the media reported him saying that 4.2mn cases were pending at the district level. Speaking at the same event, attorney general KK Venugopal said, “A large number of cases are pending for more than 30 years. The question is, with an average pendency of eight years in the trial court and eight years in the high court as well, how would the litigant have confidence in the justice delivery system?”
Many believe that filling up judicial vacancies or increasing the number of judges is the answer. But ask anyone with a case pending in any court in India and they will reduce the problem to a single line –tareek pe tareek (adjournment after adjournment). The real reasons for pendency are: never-ending adjournments on the flimsiest of reasons; no pressure on judges to dispose a certain number of matters every month; lawyers being the biggest beneficiaries of postponements since they charge per appearance.
While the judiciary blames the executive and vice versa, the extremely high cost of litigation, with no expectation of timely resolution, has already put justice through courts out of the reach for ordinary Indians. Courts are also niggardly about giving exemplary damages that would have made the long litigation worthwhile. Delayed justice is more meaningless when cases related to financial scams drag on for decades; the value of money recovered at the end of a long and expensive litigation is seriously eroded because of opportunity loss.
Last week, the Economic Times (ET) reported that the finance ministry had asked the tax authorities to complete pending disputes relating to stockbroker Harshad Mehta in the securities scam of 1992. The tax department has asked for a dedicated bench of the income-tax appellate tribunal (ITAT) to hear the matter, says the report. Will this bring to an end a shameful example of India’s inability to deal with large financial scandals?
The 1992 scam was the first big financial scandal in India after economic liberalisation, in 1990-91, ended decades of insular and restrictive business policies. It is interesting because the government at least attempted to ensure an expeditious trial by enacting a special law “for speedy trial of offences relating to transactions in securities and disposal of properties of the notified parties attached by the Custodian.” The Special Court (Trial of Offences Relating to Transactions in Securities) Act of 1992 was passed, but its original purpose was lost over the past 30 years.
Over the decades, the special court and the custodian are permanent establishments with a dedicated website which shows as many as 60 pending cases as of 6 April 2022. Many among the 15 judges who headed the special court were elevated to the Supreme Court and some retired as chief justices. But the cases have dragged on, with no focus on expediting them. Meanwhile, at least two of the accused, Ashwin Mehta (Harshad Mehta’s brother) and Bhupen Dalal (accused in the Standard Chartered matter), have become qualified lawyers and argue their own cases, because nobody understands the issues better than them.
Although the court and the custodian remain zealously at work with claims and counter-claims, one is unclear why nobody attempted to correct key mistakes. The first was to push civil as well as criminal issues before the court. The former could have been settled by a smart and pragmatic government by focusing on the big fish. The office of the custodian, which impounds and disburses assets of ‘notified’ persons based on court orders, was strangely headquartered in Delhi, with branch offices in Mumbai and Bengaluru. Was it to ensure control by the political establishment through the finance ministry?
Will things change with the finance ministry pushing the tax department to finally hurry up with the tax demands on Harshad Mehta and his family? The demand in this case, for the assessment year 1993-94, is over Rs7,374 crore based on a total income of Rs2,106 crore. At one time, it was ratcheted up to Rs11,174 crore with interest, penalty, disallowances and confusion between personal income and business dealings. When you consider that the entire scam was just Rs5,000 crore, it is clear that the tax demand was absurd from the very beginning. Typically, the tax department refuses to budge, has no accountability and, with first right to funds, it is the key reason for endless litigation in India.
There have been multiple cases, cross litigation and appeals from the Harshad Mehta family, including delaying tactics on their part as well.  Some have gone in favour of the family and some against. In February 2019, over Rs2,000 crore of additions to tax were scrapped by the tribunal and a refund of Rs476.63 crore was released in September that year, says the ET report. The 2019 order in favour of the Mehtas was nullified by a ‘revision order’;, but that too has been quashed in March 2021.
But the Harshad Mehta family is not alone in getting refunds or payments and these are not limited to the tax dispute. Several other persons and entities involved in the scam, especially public sector banks (PSBs), have had money returned to them. The custodian has pursued and recovered even informal loans claimed by some scam-accused. All the money recovered remains in the custody of that office until the court orders disbursal.
Sometimes, the custodian’s actions are also illogical and misguided. In 2017, it suddenly sent out 1,500 notices to recover 'tainted shares’ (almost any share that had been transferred by the scam-accused in the period around and after April 1992), along with bonus and dividend payments for the past 25 years plus simple interest of 25%. It led to panic and outrage, since some demands were for  merely 20 physical shares long after the country had moved to paperless trading and dematerialisation. The sudden action was based on a 21-year-old order of the special court (February 1996) but was probably dropped because nothing further was heard from the aggrieved investors.
Meanwhile, the custodian has also released payments from Harshad Mehta’s brokerage firm to various banks and market participants. It released about Rs2,194.9 crore from Harshad Mehta's assets to the State Bank of India (SBI) and the income-tax (I-T) department in 2011. In February 2012, it suddenly initiated action to recover payments by Ketan Parekh, the key accused in the scam of 2000-01, to Madhavpura Mercantile Cooperative Bank which he destroyed. Ten years later, it is unclear if the custodian recovered anything or why it initiated the action.
While we wait to see whether the finance ministry succeeds in disposing the tax demands against the Harshad Mehta family, there is no end in sight for the rest of the cases involving PSBs and those named in their action. Long-defunct companies, such as Fairgrowth Financial Services Ltd, remain in court, while the merger of PSBs has added newer complications to keep the special court busy for another decade.
What is worse, no lessons have been learnt from the legal quagmire in which the scam investigations seem to land up. Even today, there is no attempt to resolve civil disputes in a pragmatic manner. Unless this is done, PSBs and the tax department will remain the biggest litigants for fear of queries from the central vigilance commission or other investigation agencies.
While litigation in scam 1992 drags on, newer financial scandals (especially the mega ones after 2018) will keep bloating the pendency numbers. The Infrastructure Leasing & Financial Services (IL&FS) group of over 347 companies that collapsed in 2018 is another scam that has spawned hundreds of cases that will drag on for decades before the bankruptcy tribunals with no resolution in sight.
While the government and Supreme Court play a blame game and pay lip-service to the problem, the process will be a punishment for most people, except those with the resources to game the system. Some disruption is imperative to keep the hope of justice alive.
2 years ago
The judiciary is the laziest and least productive part of Government. It needs to be reformed, from bottom to top.
2 years ago
If hospitals and hotels can work 24x7, why not judiciary? Need a complete overhaul and review. It is said that we haven't heard the PMor law minister talk anything new in this regard. Why are people languishing in jails for longer period than what their crime be not set free?? Police and judiciary reform are the basics for any society / democracy to prosper
2 years ago
No justice seen in sight.
2 years ago
This only highlights the need for expediting judicial reforms. There must be timelines for civil and criminal cases. The appellants, defendents and the lawyers share the blame equally for abominable delays in settling the cases. There will be more than a million cases that can be settled through arbitration - the least-cost solution. We had a system in Ancient India where at the village panchayat level cases were settled within a maximum of two to three sittings. Now we have made them political panchayats. Can we not de novo look at the entire system of judiciary and find a permanent solution? If there is will, there is way. In any case where the finanical institutions are involved, and frauds are involved, since it is based on the account data, investigation and resolution should be completed within no more than 90 days - the time that the banks take to declare an asset as NPA. Declare some banks as non-performing if they have more than 1000 complaints to the banking ombudsman and levy the highest penalty in the public glare and punish the guilty officials with removal of perks and pensions. If they are involved in fraud, it should not take more than six months to give burial to the case.
2 years ago
What if costs of Rs.10,000/- for each postponement date asked is imposed on the party asking such date.
Genuine exception be made for only the first time such a postponement is asked.
2 years ago
Judges have no accountibility and hence no responsibility and therefore tareek pe tareek suits both judges and advocates who are only end winners in JUDICIAL system.
2 years ago
Our Lordships are not able to pass judgements in cheque bounce cases too.

More than 38 lac cheque bounce cases are pending which should not take more than 2 hearings to decide.
Kamal Garg
Replied to gaurav.kundra comment 2 years ago
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