rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » All regulators have one thing in common: excuses

All regulators have one thing in common: excuses

December 23, 2002 14:39 IST

Believe it or not, while defending itself before the Joint Parliamentary Committee to probe the 2001 stock market scam, the Department of Company Affairs secretary told the JPC that "we have got just about 21 or 22 inspectors in the whole country. Out of that, four people are there not for inspections but for what is called follow up. They have got some in-built limitations ... looking into balance sheets ... is a highly technical kind of job."

Sadly, as the JPC report makes evident, it's not just the Department of Company Affairs that's short on skilled staff, the Central Bureau of Investigation told the JPC that it had '50 per cent vacancies,' and so could not consider broadening its investigation.

The income tax department, another key player in any investigation into financial fraud, appears to be faring equally poorly.

In the case of the Harshad Mehta scam, of 1991 vintage, the department had sent out income tax notices totalling a whopping Rs 11,323 crore (Rs 113.23 billion).

When the cases went into appeal, just Rs 2,038 crore of demands were confirmed by the Commissioner (Appeals), and of this, just a mere Rs 263 crore (Rs 2.63 billion) have been collected.

And as for Securities and Exchange Board of India, the country's stock market regulator, in the case of the Calcutta Stock Exchange, the JPC found that of Sebi director did not attend a single meeting out of 26, another three directors attended 3 of 13 meetings, and yet another 25 out of 62.

But what really takes the cake is the cavalier manner in which major recommendations of the previous JPC have been given the go by, and the manner in which top officials have failed to follow up on important issues.

Take the case of the Special Cell that was constituted after the JPC asked the Central Board of Direct Taxes to examine the nexus between corporates, bankers and brokers.

The cell was to have representatives of income tax, CBI, RBI, Company Affairs, and so on. Early on, the Sebi chief said he didn't see any point having a Sebi official on the panel.

By May 1995, the head of the Special Cell wrote to the CBDT that he had limited resources and didn't have the power to carry out fresh investigations -- the jurisdiction of the Cell, for instance, was limited to just Bombay region. The CBDT chief refused to sanction more manpower, so the cell died a natural death.

When questioned by the present JPC, the CBDT said that in the six years since the Cell had died, they had "written a few letters ... to find out the future progress made. Each of the agencies, somehow or the other, could not get together and give a specific finding as far as the nexus was concerned."

The misuse of the Mauritius route has been another issue that's come up at length during the course of the scam hearings.

Well, guess what? As early as 1993, finance ministry officials had begun talking of how the treaty was being abused, and on December 7, 1994, the then finance secretary Montek Singh Ahluwalia wrote that the Mauritius window should be closed 'if we can.'

The file then went through various other bureaucrats, discussions were held with the Mauritius government, and finally in September 1998, Yashwant Sinha met his Mauritian counterpart.

The Institute of Chartered Accountants of India, the JPC report tells us, has performed equally poorly.

After the Harshad scam, disciplinary actions were initiated against 27 audit firms, for failing to detect diversion of funds among other things.

As of date, while four audit firms have been exonerated, disciplinary actions are pending (for a decade) in respect of 23.

Since these firms were denied assignments, some of them were allowed, in 1998-99, to conduct audits again, even though their cases had not been decided these firms include Price Waterhouse, Lovelock & Lewis and S B Billimoria & Co. Clearly, urgency, the JPC states, was the last thing on ICAI's mind.

The same lack of urgency applies to other areas as well. The CBI registered 72 cases in the 1991 scam, but chargesheets were filed in just 47, and just 6 of them have been disposed off by the courts, and just three people have been convicted.

Sunil Jain in New Delhi