Commentary/Dilip Thakore

ITC's directors have committed offences that certainly don't warrant peremptory arrest and the denial of bail

I just can't believe it.

Despite the kangaroo court trial and conviction of two former chairmen and several directors of the cigarette, hotels, and paper blue-chip company ITC by the Enforcement Directorate and the media, I find it difficult to swallow the proposition that they are guilty of any acts of moral turpitude.

Though I am willing to concede that they may be guilty of infringing laws relating to unauthorised foreign exchange transactions, in my not-so-humble opinion ITC and its directors are at best guilty of technical violations of a law more honoured in the breach than the observance.

In this connection I am dismayed by the naivete and gullibility of media, especially press, personnel. According to a World Bank study, Indian nationals have salted away an estimated $ 100 billion in numbered accounts in Swiss banks to get around India's farcical and wholly unnecessary foreign exchange control laws.

Which means that virtually every business enterprise and businessman of any standing is probably unauthorised transacting great or small business in foreign exchange in violation of the Foreign Exchange Regulation Act, 1973. And when everybody is breaking the law, singling out the directors of one company for condign punishment is a course of action which should invite suspicion of conspiracy, vendetta and/or worse.

For a start, I find it very difficult to summon up indignation or become judgemental about businessmen engaged in exports, imports and international trade building a nest-egg abroad. The provisions of FERA and the rules and procedures relating to the control of foreign exchange are so time-consuming and paper-work intensive, that a businessman who doesn't have a bank account abroad from which he can make quick payments and transfers could be accused of being foolish and imprudent.

If you believe that international businessmen who electronically transfer millions of dollars round the world in a matter of minutes are inclined to wait for Indian businessmen to obtain clearance for every transactions from the slow-moving and generally business illiterate babus of the Reserve Bank of India, then you are as ignorant of on-the-ground business realities as the bureaucrats who drafted FERA.

The plain truth is that in international trade, especially in the commodities and securities trades, speed in effecting payment and closing transactions is a necessary condition of success. And contrary to what bureaucrats and babus back home in India believe, foreign businessmen are not sympathetic to the foreign exchange control and regulation problems of Indian businessmen. On the contrary they are impatient and irritated by them. This is why most successful businessmen have a stand-by emergency fund tucked away abroad.

While advancing this apologist argument for businessmen who transgress the nation's duly - even if foolishly - enacted laws, I don't deny that in recent times the rigours of FERA have been considerably diluted consequent upon the partial conversion of the rupee on the trade account and the liberalisation of the laws relating to the purchase of foreign exchange for overseas travel.

But old habits die hard and attitudes relating to the scarcity and inaccessibility of foreign exchange which became part of the mindset of Indian businessmen who had to suffer chronic delays and harassment relating to the purchase of foreign currencies from the Reserve Bank, will take a while to change.

In my own case I recall with great bitterness the tension and anxiety caused on several occasions when permits to purchase small amounts of foreign exchange when I had to go abroad on work for a few days, were delayed to the last possible moment and I had to make repeated pleading telephone calls to RBI babus for whom I wouldn't otherwise have the time of the day. Therefore I can well imagine the plight of businessmen who have to purchase much larger amounts of hard currency from the RBI which does precious little to earn it.

Let's face it: In most countries of the world including neighbouring Pakistan, the acts of omission and commission of ITC managers -- retaining money abroad and discharging business debts with it -- is not an offence at all. The universal law is that if you earn dollars or pounds you have the right to retain your earnings in the currency of your choice though there is a legal and moral obligation to declare such earnings for assessment of income tax.

Unfortunately for almost five decades the Union government has created an artificial shortage of foreign exchange by compelling immediate repatriation of head currencies which is then forcibly exchanged for rupees at rates decreed by the RBI. Thereafter even star exporters who earn millions of dollars in hard currency have to line up like mendicants before the babes of the RBI and re-purchase it (though most RBI babus behave as though they are giving it away) at inflated prices.

Given this absurd and unworkable regimen, I am not at all surprised that the hard currency hoard of Indian citizens in Swiss banks (not to speak of other banks around the world) exceeds $ 100 billion - enough to discharge the entire foreign debt of the country.

Moreover in this particular case, far from being involved in acts of moral turpitude, the much-maligned ITC directors acted honourably to discharge a business debt and commitment.

In so far as I understand them, the facts of the case are that in the mid-eighties inspired by the phenomenal success of the Bukhara restaurant in the ITC-owned Maurya Sheraton hotel in New Delhi, the directors of the company took a decision to set up a chain of Bukhara restaurants in the US.

Rather than go through the long rigmarole of applying to the RBI for permission and foreign exchange, the then ITC management persuaded a group of NRI doctors in the US to ante up the capital. It seemed like a sure thing and Jagdish Sapru, the then chairman of ITC, informally agreed that ITC would underwrite the doctors's investment in the venture.

Surprisingly and for reasons unknown, the restaurants didn't pan out and suffered heavy losses. In any other country not burdened by FERA-like laws, the venture would have been written off as a business loss by the board of directors. After all for a Rs 52 billion (sales) company like ITC, such a loss is like a flea bite.

But then India is not any other country. Misguidedly, but with honourable intentions, two successive chairmen of ITC and some of the company's directors took the usual option of under-invoicing exports and over-invoicing imports to build up a nest-egg abroad to pay off the doctors.

And in the process they got mixed up with the Chitalia father-son duo who after acting as a conduit for the company (probably on the prompting of BAT which is desperate to increase its 33% shareholding in ITC to 51%) ratted on the ITC management to the Enforcement Directorate. In return for immunity from prosecution, of course.

Strangely, even experienced media pundits don't seem to understand that violations of economic laws such as FERA are not of the same gravamen as public officials accepting bribes, cheating and stealing from banks and government treasuries.

The latter are acts of moral turpitude involving betrayal of the public trust and are tantamount to snatching bread from the mouths of the poor and disadvantaged. Unless it can be proved that ITC's directors defalcated some of the funds accumulated abroad for their personal benefit (and not for the furtherance of the company's business and reputation), their offences are lesser gravity and certainly don't warrant peremptory arrest and the denial of bail.

It's a pity that media and particularly press personnel have failed to distinguish between technical violations of ill-conceived and largely disobeyed laws like FERA and acts of politicians and bureaucrats which involve grave moral turpitude. By equating the two, they have fallen into a trap set by the nation's slippery politicians hell-bent upon proving that corruption is a universal phenomenon.

Dilip Thakore is the founder-editor of Business India and Business World and former eidtor of Debonair.