The Clean-up of Corporate India Seems To Have Begun in Earnest!
Modi Sarkar 1.0 ended its term with a lot of unfulfilled promises and a sense of outrage that large industrialists were getting away with defaults again, the promise of good administration had been forgotten and bad loans, which had spiralled past Rs10 lakh crore, were threatening to sink public sector banks (PSBs). 
As we headed into the general elections, the brazen shenanigans of the Sandesaras of Sterling Biotech, the multiple defaults of Anil Ambani, and the manipulation of judicial processes by the Essar group created a sense of crushing disappointment. Added to it, there was a massive ‘shadow banking’ crisis precipitated by the collapse of dubious IL&FS (Infrastructure Leasing & Financial Services), with its deep links to India’s top bureaucrats. 
But Modi Sarkar 2.0 has started out on a heartening aggressive note. It is common knowledge that India’s investigative agencies act only when there are clear directions from the prime minister’s office (PMO). The slew of actions by multiple investigation agencies, with quick filing of charges or decisive action to bring back absconding industrialists from the cosy comfort of overseas tax havens, is sending shivers down the spine of Indian industry. 
But this clean-up has been long overdue, to restore confidence in the system. At a time like this, it is important to remember some simple numbers published by Prof R Vaidyanathan in his book Indian UnInc., in 2014. While big industry accounts for the bulk of our bad loans, they account for only 18% of India’s gross domestic product (GDP). It is India UnInc., comprising unorganised sector and family businesses that contribute 45% of GDP; and, yet, they pay usurious interest rates. 
Similarly, household savings contribute over 70% of our domestic savings, he says. Yet, banks have little respect for depositors, while they write off thousands of crores of rupees to benefit crooked industrialists. So let’s hope the government remains unmoved by the lobbying and pleas of big industry to go easy on them. 
Over the past three decades, I have watched various governments, including the previous NDA (National Democratic Alliance) government, dilute and bury major scams after the initial photo-ops and arrests. Weak charge-sheets, incompetent filings and decades of litigation, finally, led to meaningless judgements. 
Some investigations just vanished. Ours is a country that could not find out who received kickbacks for the Bofors gun deal or hold anyone responsible for the collapse of Unit Trust of India (UTI). We have also never questioned regulatory failure. 
For the first time in decades, we are witnessing decisive follow-up action, whether in the form of filing quick charge-sheets in IL&FS, freezing assets of absconding industrialists or the work done to corner Mehul Choksi, Nirav Modi, Vijay Mallya or the Sandesara family, are examples. It is early days yet; we can only hope that the momentum will not flag over the next five years. There is a lot to do.
The breadth of action becomes apparent when one lists these actions. 
Regulators, Raters and Auditors: Probably, for the first time ever, the Reserve Bank of India (RBI) has been asked by the SFIO (Serious Fraud Investigation Office) to conduct an internal investigation into lax handling of IL&FS, despite the red-flags raised by its inspection report two years earlier. 
On 1st July, the rating agency, ICRA Ltd, sent its managing director and group chief executive officer, Naresh Thakkar, on leave until further notice, based on allegations of fixing ratings. A report on Moneycontrol indicates that CRISIL Ltd lost business to ICRA in 2016 for refusing to fix the credit rating. 
If only there were a responsibility cast on CRISIL to report this fact to the regulator, the IL&FS debacle may have been averted. It is, probably, time to make such reporting mandatory.
In yet another swift action, the SFIO moved the bankruptcy court on 11th June with a petition to ban two audit firms—Deloitte Haskin & Sells and BSR Associates, statutory auditors for IL&FS Financial Services (IFIN). Deloitte audited IFIN for a decade without raising any red flags (allegedly in exchange for consultancy assignments).  
Neeraj Singhal: The promoter of Bhushan Steel (which has been acquired by Tata Steel in one of the earliest and biggest bankruptcy resolutions under the new law) continues to face the heat of relentless investigation and action. Tata Steel paid over Rs32,500 crore to acquire the company; but banks still took a hit of Rs20,000 crore and, hence, the ongoing investigation and recovery effort. 
On 1st July, SFIO filed a 70,000 page complaint against the group before a special court at Dwarka. Neeraj Singhal and Nitin Johari, a top executive, were arrested in early May, about a month before the SFIO complaint was filed. They have been charged with fraudulent misuse of letters of credit (LCs), financial misstatements, over-valuing assets to obtain bank credit, fake write-offs and siphoning off over Rs2,000 crore through a network of over 150 companies. 
Neeraj Singhal had been arrested by the SFIO even in August 2018 and released on bail, even though he was arrested by the Central Bureau of Investigation (CBI) in 2014, when he was caught bribing the Syndicate Bank chairman.
Sterling Biotech: On 26th June, the Enforcement Directorate (ED) attached the overseas assets worth Rs9,778 crore of Sterling Biotech which, along with previous attachments, now aggregates Rs14,508 crore of assets attached. This includes oil rigs, ships, aircraft, oil-fields and property registered in multiple countries. 
Since the promoters are understood to be hiding in Nigeria, where they have a sprawling business empire (while they failed to pay Indian banks), these attachments could deal a hard blow to the wealth stashed overseas. The Sandesara group is understood to have laundered this money through shell companies and fraudulent standby LCs of Rs4,500 crore. 
A consortium of banks, led by Andhra Bank, wants to accept a 45% settlement offered by the absconding promoters and withdraw two defaulting companies of the Sterling group (Sterling Biotech and Sterling SEZ) from bankruptcy proceedings. The ED had strenuously objected to the withdrawal. 
On 1st July, the ED indicated that it plans to expand this probe to the film industry, with which the star-struck promoters had close ties. The investigation could also lead to a top public sector bank chief and a powerful political family from Mumbai. This brazen misuse of LCs and bank credit would not have been possible without the active collusion of top bankers. In fact, Moneylife has documents from whistle-blowers that could indict some bankers.
Nirav Modi and Mehul Choksi: The action against Nirav Modi, the once high-flying jeweller who scooted after drilling a Rs13,700 crore hole in bank books, is relentless. While he remains incarcerated in London following government action, his assets in India have been attached and auctioned. Government agencies are now going after his overseas assets, built with funds siphoned from Indian banks. They have managed to get the Singapore High Court to order the freezing of a bank account of Nirav’s sister, Purvi Modi, and her husband with Rs44 crore.
Meanwhile Mehul Choksi, of Gitanjali Diamonds, who surrendered his Indian passport and acquired Antiguan citizenship, is also likely to face extradition. Mr Choksi owed over Rs14,000 crore to Punjab National Bank and, like Nirav Modi, had duped it through LC fraud. 
The prime minister of Antigua has reportedly indicated that Mr Choksi would lose his newly acquired citizenship of that country and be repatriated to India. Mr Choksi, in long distance interviews, continues to blame the Bank. If he spills the beans on how the Bank colluded with him, hopefully some negligent bankers will also face the music. 
Probably for the first time in India’s history, the government has used its clout and influence to bring back fraudsters, instead of helping stash money abroad! What a contrast from a Congress finance minister who told me he could do nothing about bringing a crony of Ketan Parekh back to India, even while he openly traded in India as a foreign institutional investor. 
Winsome Diamonds: Until recently, one had believed that Jatin Mehta and family of Winsome Diamonds/ Suraj Diamonds had got away with their heist of bank funds. After duping banks of Rs7,000 crore, he scooted abroad to acquire the citizenship of St. Kitts, a tax haven in the Caribbean islands, and nobody seemed interested in pursuing him. 
On 3rd July, the CBI raided 61 places across India, with a team of over 300 officials to go after various companies, but primarily Winsome Diamonds. It is unclear what they will do; but one expects this to lead to extradition efforts along the lines of Vijay Mallya, Nirav Modi and Mehul Choksi. 
The Middling Fraudsters: On 3rd July CBI raided the second rung of industrialists, whose defaults are around Rs100 crore. These included Ludhiana-based Supreme Tex Mart (allegedly owes Rs143.25 crore to State Bank of India), Aegan Batteries (alleged loss caused to banks of Rs99 crore), Ramnanndi Hotels and Resorts Ltd (alleged loss Rs131.79 crore), Naftogaz India Pvt Ltd  (owes Rs93 crore), SL Consumer Products (Rs55 crore loss), etc. 
Such concerted actions make one optimistic, after a very long time, that the government is, indeed, serious about punishing corporate fraud by Indian industrialists. Many of them have built immense personal wealth, most of it stashed abroad, through rampant diversion of funds, inflated project costs and bribing and corrupting bankers and politicians. For many decades, they have dumped bad loans running into thousands of crores of rupees on banks, mainly PSBs, the cost of which was eventually borne by the people through repeated re-capitalisation of banks by the exchequer. Hopefully, this would be a thing of the past, because we need to restore confidence in the system. 

5 years ago
Good to see an article from ML with some positivity and hope in the future. Indeep hope this hope comes true and all these efforts lead to a serious change in attitude of industrialists and bankers. It might be worthwhile to add that it is the first time in the history of banking that heads of some public sector banks are now in jail and heads of all corrupt private banks have been thrown out by the RBI. I wish some of them get some serious jail time too like in the USA. While its a sad fact to see lacs of crores of write offs by banks, the flip side is that for the first time, at least crooks are losing these businesses (the hen that laid their golden/corrupt eggs) and banks are acknowledging the problem at hand instead of repackaging the problem loans into 30 year debt with 10 year moratorium and assuming all is well. While I give less than 25% score to this govt on economic issues and their capability to manage it, they score >75% on intent and ability to take risks and change the system at any cost. We are a country full of crooked businessmen and now all these crooks are going to jail or are in NCLT. No wonder GDP is suffering and employment is in the doldrums. Hope this is the transition period and a new breed of businessmen emerge to take this country to the next level.
Alok Avasthi
5 years ago
Good Article. As she says - let’s hope the government remains unmoved by the lobbying and pleas of big industry to go easy on them.
sundararaman gopalakrishnan
5 years ago
Good article as usual by Sucheta Dalal..
5 years ago
With such strict Banking Norms & a strong regulator, it doesn't fit right somewhere that the people who scooted the wealth away didn't have anyone in banking or political arena backing them.
No one material has been brought to light in that aspect? Do you think they will be ever be judged or brought to justice?
5 years ago
Excellent Article, as usual. May your hopes come true.
5 years ago
The real test would be when the judiciary finally convicts them and that too in timely manner. The track record so far has been dismal. Let us hope that judiciary also rise to the occasion.
D S Ranga Rao
5 years ago
Welcome news.
Gurudutt Mundkur
5 years ago
HA! HA! Nice to read something positive coming from you!
5 years ago
It is easy for big corporates to get 1000 crores loan than for a SME to get 10 crores loan.
S. Gopalakrishnan
5 years ago
Videocon , the Dhoots , Chanda Kochar of icici bank and her husband are conspicuously absent in this round up !!
Ramesh Jaradhara
5 years ago
In political arena, morning never choose the day! By flesh and blood, Modi is a politician first, and then a true Indian later.
Mohan Krishnan
5 years ago
Madamji sorry you are jumping the gun. Thing can go awry anytime with the crony capitalist/Politician/bureaucratic system which is well entrenched.
bhavesh pandya
Replied to Mohan Krishnan comment 5 years ago
Just eyewash.... Madam ji how much actual money came back????? ZERO
Replied to Mohan Krishnan comment 5 years ago
bharat singh
5 years ago
your app have no option to share the content
B. Yerram Raju
5 years ago
Better late than never. The article is an excellent reminder to unleash the forces of law to book the economic offenders sooner than later. It is important to make economic offences non-bailable.
Replied to B. Yerram Raju comment 5 years ago
Anil Ambani is victim of corruption in Govt...He is not getting his 30000 crore back from Govt....In India media does not look for real issue but keep on pressing where ever they find loopholes...
Think from Anil Ambani perspective that he has to sell hus HQ also...
Yes, he might have made some adjustments to his books but our past govts for 60years were like that and promoted cooking of books ...Things can't change overnight....
Replied to chanchalmantri100 comment 5 years ago
I don't understand your point. Thank god our mantri's are not chanchal like you to take fraud by these industrialists so kindly as you are expecting. You seem to have lot of sympathy for Anil Ambani despite acknowledging that you understand he made "some" "adjustments" in his books, which seems to be pardonable in your view. Shareholders of his companies have lost in lacs of crores and banks (read taxpayers) have lost tens of thousands of crores. Lets not blame it on some fake claims of 30000 crore on the govt to trivialize the issue.
Replied to chanchalmantri100 comment 5 years ago
Ramesh Bajaj
5 years ago
I hope this goes on and even unlisted companies come under the scanner. Most of us cannot survive litigation and costs.
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