When powerful people collude to infiltrate and compromise institutions responsible for the highest level of security, the investigation tends to drag and be buried or is limited to one big scapegoat. But the scam never ends—it just acquires a new shape and modus operandi, since scamsters are always way ahead of regulators in mastering new technology, identifying regulatory gaps to seize money-making opportunities by striking deals with corrupt officials. And so it is with the fake stamp paper scam of the 1990s. Abdul Karim Telgi, a school dropout from Belagavi, was thrust on the nation as the kingpin of the scam; he was ostensibly the man who managed to infiltrate the high-security government printing press to obtain discarded machines on which to print fake stamps. He had also created a source for obtaining genuine security paper on which to print the fakes and also stitched together a network of powerful politicians and police officials who helped it thrive and grow, for a price.
On 23 October 2017, Telgi died at the Victoria Hospital, Bengaluru, from multiple organ failure, while serving out concurrent jail sentences. The media, dutifully, noted the event with perfunctory coverage, but has the stamp duty and fake stamp racket really ended? Well, judge for yourself.
In the 1990s, when I worked at The Economic Times, an agitated individual in a polyester safari suit burst into our office to get us to investigate the fake stamp racket prevalent in the stock market. Affixing of revenue stamps on transfer deeds that accompanied physical share certificates was mandatory those days. Our man snapped open a plastic-moulded briefcase to show us sheets of stamps that were of four kinds. They were coded No.1, No.2, No.3 and No.4 and priced in descending order, he said. No.1 was the genuine stamp printed at our security presses; No.2 was on genuine security paper (purloined from security presses) but printed by counterfeiters; it was hard for a layperson to know the difference. No.3 was a fully counterfeit stamp on non-security paper. No.4 was the most outrageous; these were used stamps removed from transfer deeds submitted to share transfer departments of companies. Only the staff of large brokers knew the last part of the racket since they recycled stamps in connivance with company officials.
This man was making the rounds of several newspaper offices; and, although we were fascinated, it was hard to prove; but the scam slowly became public. Only later did we discover how well-oiled and widespread it was, with patronage by powerful politicians, bureaucrats and police officials. They ensured that Telgi wasn’t arrested even after 27 cases were registered against him between 1991 and 1995. He was arrested only in 2001 and, eventually, had 48 cases registered against him with 20 convictions. The trials were quick because Telgi used to plead guilty without contest in most cases; he did not squeal and many of those arrested in the scam were slowly discharged. A deliberate shortage of stamps and stamp paper, with a limited number of stamp vendors, allowed fake stamp and dated stamp paper racket to flourish and it soon spread across several states.
Senior police officials say that the scam was unearthed only because two factions among the police fought over the spoils of the scam. A public interest litigation (PIL) by noted social activist, Anna Hazare, and the court orders that followed, finally, led to a special investigation team (SIT) being constituted in 2001. Serious investigation by SIT, finally, put many high-profile police officers, including a former police commissioner of Mumbai behind bars.
While the Telgi scam investigation was raging, the government came up with the idea of e-stamping, as a clean, transparent and electronic replacement for physical stamps that were susceptible to counterfeiting. The size of the business was estimated at Rs50,000 crore those days. Such is Indian ingenuity that the Stock Holding Corporation of India Limited (SHCIL) designed an e-scam at the very initiation of the new system. I worked extensively on unravelling this scam while writing for the Indian Express, with the help of whistle-blowers inside the organisation. India’s top public sector banks and institutions had come together to set up SHCIL. It was a custodian for dematerialised shares of large institutions. Once e-stamping was announced, it bagged the mandate to become the central record-keeping agency.
At the centre of the scam were R Jayaraman Iyer, chairman and managing director of SHCIL, and S Ramanathan, his deputy and CEO of SHCIL Services Ltd (SSL), a fully-owned subsidiary. As in the Telgi scam, Mr Iyer and Mr Ramanathan co-opted extremely powerful people (regulators and the police) in India and abroad, probably including a Cabinet minister. That is why my writing in the newspaper was abruptly stopped—even though prime minister Manmohan Singh had ordered the removal of the Jayaraman Iyer-Ramanathan duo and asked IDBI Bank, the lead promoter of SHCIL, to take charge.
The SHCIL scam was audacious and elaborate. Under the benign watch of its regulator, the Securities & Exchange Board of India (SEBI) and, despite a powerful board of bank chiefs, SHCIL began diluting the shareholding of SSL until it had sold 76% of its equity to private and foreign entities. This was like stealing a quasi-government company from under the nose of powerful banks and institutions, such as LIC, ICICI, IDBI, IFCI and others, who were on the SHCIL board. In all these years, the market regulator, which keeps inventing new regulations, compliances and disclosures to ensure good governance, has never, ever, questioned these board directors who allowed a whole subsidiary company to be hijacked under their watch. SSL went on to create layers of subsidiaries, including a Singapore-based entity called Unitec Value Solutions PTE Ltd.
The e-stamping contract was ostensibly signed between SHCIL and Crimson Logic PTE Ltd, a reputed government-linked company of Singapore. However, the legal document was actually a contract between Crimson Logic and Unitec Value Solutions. A nice chunk of the money paid out to Crimson Logic was to be retained by Unitech Value Solutions, which was 80% owned and controlled by Jayaraman Iyer and S Ramanathan and their friends. In fact, the skimming had already begun when I was stopped from writing about it. SHCIL was flying so high those days that it expected to sign e-stamping deals with Myanmar, Bangladesh and Bhutan and other neighbouring countries. Thanks to that exposure, which lost me my columns in the Indian Express group, e-stamping was no longer touted as the perfect alternative. So we continue to have physical stamp paper, stamps and franking, along with e-stamping even today.
This scam happened because SHCIL had no clear regulatory oversight and the fraudsters managed to co-opt anyone who would have objected. At the same time, it conducted a witch-hunt against suspected whistle-blowers until everybody eventually clammed up. Even today, it is unclear who regulates, inspects and oversees large e-networks like these which handle our tax information, e-stamping, corporate filings, etc. As recently as last week, I have received anonymous alerts with regard to SHCIL. Many officials, who colluded with the dubious-duo, remain in top positions at the organisation.
The e-stamping scam is a prime example of how technology can be manipulated for illegal gains and it will remain hidden for a long time, unless somebody at the core of operations blows the whistle. Sadly, no lessons have been learnt about the dangers of technology. Those of us who are aware about the past are fighting a pitched battle opposing the linking of bank accounts to a biometric identifier which will allow even greater manipulation and damage. It is a pity that this government is disinclined to hear views or opinions contrary to its once-stated beliefs.