Ponzi schemes and alleged Sahara payoffs

BY ARUN AGRAWAL

I. Why is the Central Government Not Addressing the loss of 2 lakh crores in Ponzi Schemes incurred by ten crores depositors living at the Margin?

II. Why is Sahara the only Ponzi scheme that is still in business?

III. Why has SEBI refunded only Rs. 54.43 crores in four years to 11,956 depositors (Annual Report 15-16) when the amount deposited with SEBI is Rs. 14,000 crores and around 2.2 crores depositors were duped by Sahara?

IV. Are the Alleged Sahara payoffs entries true or are they being used to blackmail those at the helm?

V. Either way the allegation of corruption in the case of Sahara needs to be Investigated, more so when it is not true!

The author of the article, having failed in his attempt to intervene in the  Sahara case (Civil Appeal NO. 9813 and 9833 OF 2011) due to lack of locus, and having drafted the pending PIL (Writ Petition <Civil> 928 of 2013) filed by Humanity Salt Lake on Ponzi schemes with particular reference to Saradha and Rose Valley, has sufficiently researched the subject-matter to explain as to why the Ponzi schemes successfully flourished for so long, what was the nature of  violation of law, why paying protection money as bribes was a part of the business expenses, and most importantly why the ten crores marginal depositors who have lost two lakh crores will not recover their money in spite these companies having assets.

Amid the controversy of the Sahara payoffs and the arrest of TMC MPs, the question to be asked is not how much pay offs were made to whom for the “smooth functioning of the Ponzi scheme” (as stated by Enforcement Directorate) but is it because of these pay offs that the poor and hapless savers will never recover their life time savings aggregating 2 lakh crores? Do we, the relatively well off, not owe a duty to these ten crore poor to recover their 2 lakh crore money that has been illegally scammed? In most cases, it represents their entire life time savings. Forget the optics and the drama of demonetization and the enriching of each Indian through the black money stashed abroad, this was their own money dammit! (Pardon the language). Has there been a bigger scam in the land of scams? Does the nation have a conscience? But first the basics of the Ponzi scheme.

What is the Ponzi scheme?

A Ponzi scheme is one in which the deposits are actively solicited from the public through commission agents and as the current deposits received from the gullible public are far more than the payments to be made on past deposits, this excess deposit is treated by the promoters of the Ponzi scheme as their own money.

For example, in the case of PACL the deposits grew from Rs. 800 crores to more than Rs. 49,000 crores over a period of 12 years due to lack of oversight of the authorities and delays involving the Courts, and this Rs. 49,000 crores amount became the scam amount when the authorities were belatedly forced to put an end to the Ponzi scam. All the money was diverted by the promoters for personal use. The way the legal proceedings were delayed at various levels which in turn gave breathing space to PACL to grow their deposits phenomenally by thousands of crores is another scam, but then that is beside the point.

Why were these Ponzi scams successful in India?

The main reason for the Ponzi scheme being successful was the absence of the banking industry in rural areas and lack of financial inclusion for the low-income daily wage earners in urban areas along with the lack of oversight by the regulatory authorities. The Ponzi companies provided to the wage earner and the unbanked gullible poor depositor easy accessibility to para banking service with doorstep service provided by deposit agents of Ponzi companies.

This absence of easy accessibility to the banking industry led to the unscrupulous elements exploiting the opportunity by spreading their tentacles in every nook and corner of the country – villages and semi urban areas – by appointing deposit agents from the local community and paying them handsome commissions. It is significant to note the Ponzi companies did not flourish in the three Southern states where there was better administration and larger penetration of banks in the rural areas.

Number of people whose savings has been wiped out:

Most of the approximately 10 crores of low income people have lost their entire savings to these Ponzi companies. In the case of Sahara, the number involved is 2.2 crores and in the case of Pearl group the number of depositors is around 4.63 crores. There were other 300 large and small Ponzi companies like Rose Valley and Saradha, operating in the country in West Bengal, Orissa, Assam and Bihar which account for the remaining three crores of depositors.

Amount of money involved:

The largest Ponzi scam is not Sahara but the lesser known Pearl group of companies known as PACL. The amount involved for the Pearl group is Rs. 49,000 crores while the amount involved in Sahara group is over Rs. 30,000 crores. The Rose Valley scam is said to be a worth another Rs. 20,000 crores. If all the other Ponzi schemes and collective investment schemes numbering more than 300 are considered, the principal and the interest due, which has been misappropriated by these Ponzi companies, is around a staggering Rs. 2,00,000 crores.

Is it the largest and the worst money scam of the country?

Yes, it is. Around ten crore people have been cheated of their life-time savings aggregating 2 lakh crore. It is not the government but the poor who have been scammed. Does this country have a conscience and a Will to make amends? (Sorry, for sounding like a Gas-swami!)

Difference between Bank and Ponzi scheme:

The Ponzi schemes were operating like a bank without having any of the responsibilities and the safeguards that the banks have. They did not provide for SLR or CRR. They did not have to adhere to credit deposit ratio norms or to capital adequacy norms. Most important they were not subject to any lending norms let alone priority lending norms. There were neither subject to multiple rigorous audits. These companies were free to do whatever they liked with the deposit of the victims of the Ponzi scheme. Around 4% was paid to the deposit agents which was less than the salary bill of the Banks. The rest of the money was siphoned away as commissions, loans to sister companies and investment through benami companies. A small part was also spent on buying the silence of the powers that be.

What is the violation of law?

All these companies which are in the business of misappropriating the savings of the marginal saver are in breach of section 3 of the Company Deposit Rules 1975 made under section 58 A of the Companies Act which prohibits all companies from accepting deposits which are unsecured instruments (debentures or otherwise) for more than 10% of their net worth. The law has a rationale in that an entity should not borrow beyond its capacity to repay and innocent savers should not be exploited by unscrupulous elements. The Rules were framed in 1975.

Violation of 80 to 1600 times the permissible limit went unnoticed by ROC and Serious Fraud Department:

The omission on part of the law enforcers to enforce the law, lies at the root of the scam and companies have been allowed to collect deposits 80 to 1600 times the permissible limits. This omission was deliberate and the concerned officers are far more accountable than the politicians belonging to  Trinamool Congress.

In the case of one Sahara group company, Sahara India Real Estate Corporation Limited (SIRECL), the balance sheet of the Company for the year ended 30/6/11 shows the paid up capital and reserves of Rs. 2,325 crores. Hence the permissible limit for the company was Rs. 230 crores. However, deposits of Rs. 19,000 crores were raised as unsecured debenture. This deposit exceeds the limit by a whopping Rs. 18,770 crores which is more than 80 times the permissible limit.

In the case of PACL, the Company’s balance sheet for the year ending 31/03/2011 shows Rs. 235,508,150,280 as costumer advance. This money is nothing but unsecured deposit though called customer advance. According to the same balance sheet the paid up capital of the company on 31/3/11 was Rs. 40.1 crores and reserve & surplus was Rs 117.4 crores. Thus the total paid up capital plus reserve capital was Rs 157.6 crores only and the company was permitted to accept deposits of Rs. 16 crore only. The company PACL India Ltd. had collected/accepted the deposit to the tune of rupees Rs. 23,550 crores. This permissible limit of 10% under the Act has been exceeded by more than 1600 times.

This violation was going on for decades and yet the ROCs, Income Tax, RBI and SEBI did not act.

Had it not been for the WTM of SEBI and Hon’ble justice J S Khehar (as he was then) the scam would not have been brought out in the open. Both were criticized for their brave acts. The former by Sahara and the SEBI chief U K Sinha and the latter by Sahara lawyers which led to his recusing himself from hearing the matter further. (‘Should we be hearing this case,’ the opening famous lines of the 207-page judgment). In fact, he had reportedly directed the Registry not to put any matter related to Sahara before him! (Legal India 15/5/14)

Criminal Liability under Companies Act

Under 58-A (6) (b) of the Companies Act (old) if the overall collection of deposit beyond the permissible limit is punishable by five years’ imprisonment. Why has this clause not been enforced against any of the Ponzi companies? This shows that the government is complicit in allowing these Ponzi companies to cheat the 10 crore marginal depositors.

Why despite the bribes, commissions, diversion of funds abroad there are sufficient assets to pay back the depositors.

In most cases after diverting the cash for the purpose mentioned above, around 50% of the money was invested in land, real estate, hotels, and real estate development etc. These appreciated over a period of time and made up for the losses incurred in bribes, commissions, investments abroad and lavish lifestyle. Thus, there is sufficient asset to pay back the hapless depositor as the assets can be easily traced. However, it is more important to identify the depositors.

Protection money part of expenses is paid to continue the fraud

The entire Ponzi business is based on continuing the fraud of misappropriating the hard-earned deposits of the marginalised sections of society. If the violations of laws are grave, then so are the earnings. It is money for jam as crores of money are collected each day without any concern that the amount is to be returned.

Paying protection money to politicians, political parties and bureaucracy is a part of expense of the Ponzi business so that their activities are not inquired into. This protection money is a legitimate expense of an illegitimate business. It is for this reason that these Ponzi schemes have continued for decades and would have continued for a longer period had it not been for the honesty and the courage of Dr KM Abraham, erstwhile member of SEBI who wrote the Sahara order and Hon’ble Justice J S Khehar (as he was then) who upheld the order and how! However, neither of them went into the violation of the Companies Act as the same was not the issue before them.

Are the entries of bribes in Sahara computer/records true?

As stated above donations to political parties is protection money for all the Ponzi companies. It is routine. After all what is Rs. 100 crores when the deposit base is over Rs. 30,000 crores. Peanuts! But whether the amount alleged to have been paid to then Gujarat Chief Minister was a future investment or was a blackmailing entry is a different matter.

It is not a coincidence that most of the big Ponzi operators are also in the media business and involved in sponsoring sports? The former gives them blackmailing power and the latter is an advertising expense. They are also large advertisers in the media and buy their silence. At least Sahara was and continues to be.

Sahara, the only Ponzi still in business

Despite the Sahara Chief having spent substantial period in prison, it is the only Ponzi company that is carrying on business as usual by metaphorizing its business model, as rightly predicted by Dr K M Abraham of SEBI while alerting other regulators in his order. The following quote of a newspaper report from the order of SEBI has come true: ‘Sahara agents will now peddle several new investment schemes to raise money under the name Sahara Credit Co-Operative Society. The society has its headquarters and registered office in Sahara India Bhawan, Lucknow, where most Sahara group entities are based.’

Its insurance and its media businesses are intact, a large part of the deposits having been converted into co-operative deposit. It is business as usual.

Meagre amounts of Rs. 55 crores from Rs. 14,000 crores paid to depositors by SEBI in the Sahara Scam:

The Apex Court in 2012 had ordered the refund of the scammed money to the depositors and for SEBI to supervise it. It also appointed a former Justice of the Hon’ble Supreme Court to oversee the refund. What happened? In spite of SEBI receiving Rs. 14,000 crores (with interest on money deposited), only 11596 depositors out of 2.2 crore depositors have received Rs. 54.43 crores (refer SEBI annual report for 15-16) out of this Rs. 14,000 crores in last 4 years.

The low refund figure is because SEBI wants immaculate documentary proof from the illiterate gullible depositors. These were never given to the duped depositor! If the illiterate investor could prove his identity and the deposit would he be depositing his money with Sahara?

At another level one suspects that SEBI chief too is hand in glove with the promoters of Sahara (Refer to the letter written by the then WTM of SEBI, who wrote the Sahara order, to the then PM) and is out to reinforce Sahara’s contention that they have paid the depositors!

Allegations of bribes paid to the Prime Minister:

While there is much in what the Hon’ble CJI says that no document of Sahara can be trusted as there are very few who would know more about the character of Sahara than he does. After all, he had spent months hearing their lawyers before recusing himself!

But then that precisely is the point and why the allegation based on documents should be investigated. Not because they may or may not be true but because the good name of the Prime Minister needs to be cleared in a scam involving a company which is the mother of all scams. Why should the name of the PM be sullied by Sahara?

The fact that Sahara is the only functioning Ponzi scheme, the fact that its insurance and media businesses are flourishing, the fact that its assets are intact and no one is bidding for it, the fact that refunds of only Rs. 55 crores to 12,000 out of 2.3 crore depositors have been made in four years by SEBI, the fact that CBI has not arrested a single politician in this flourishing Ponzi scam, the fact that the neither the Serious Fraud Office not the Registrar of Companies have applied section 3 of the Deposit Rules and taken action under section 58 A (6) (b) of the old Companies Act providing for 5 years imprisonment and more recently the fact that the Settlement Commission has passed a very lenient order strikes at the very credibility of various institutions, shows that Sahara continues to be a favoured group.

Surely the impression that these failures of various government agencies are because of Sahara having falsified documents to falsely implicate the Prime Minister needs to be brought out in the open as the institution and the office of the Prime Minister is far more important than a powerful Ponzi company out to destroy the credibility of the Prime Minister.

Use 120B and 420 of the IPC against the deposit agents and the employees of the Ponzi scheme for refunding the depositor’s money:

The Prime Minister, however, having been accused by a Ponzi company needs to address the much larger tragedy relating to the ten crore marginal depositors losing Rs 2 lakh crores to the Ponzi companies.

Sections 120B and 420 of the IPC has been invoked by the CBI in all the cases of arrest of politicians of TMC, but not against the deposit agents.

It is a fact that accurate details of the depositor’s identity were not recorded and adequate proof of having received deposits were not given by the deposit agents. Most the depositors were gullible illiterate depositors. The agents forced the depositors to renew their deposits or made them do the rounds before refunding a discounted amount.

The Ponzi operators, in turn, never intended to return the bulk of the deposits and therefore found it convenient not to keep proper records so that they could deny the claims of the depositors. It is precisely this trap of the Ponzi operator and the colluding deposit agents that has led to the meagre refund of 55 crores out of Rs. 40,000 crores held by SEBI in the case of Sahara. In the case of PACL, SEBI in its order has abdicated the responsibility of making the refund and left it to the company!

The deposit agents fearing the wrath of the depositors, have united and formed an association to align themselves with the efforts of the depositors to get the refund. There are reports of their getting backdoor entry into the pending PIL referred to above and assuring the depositors that the PIL will get them their refund. Sadly, the present status of the PIL is on implementing future reforms, as suggested by SEBI, to prevent future scams. There is absolutely no concern in the PIL for evolving effective strategies for refunding the money to the depositors who have been duped.

The depositors can be identified by the deposit agents alone. And it is for this reason that section 120B and section 420 should be invoked against them at the district level and the name and the identity of the depositors should be obtained and tallied with the amounts remitted by the deposit agents. It is totally impractical to expect that the semi-literate depositors can approach SEBI and comply with their rigorous procedure to prove their deposit and claim refund.

In fact, the Odissa government has taken the lead in identifying the depositors duped by Ponzi firm Rose Valley Group of Companies to make way for refund of their money. They have passed the Odisha Protection of Interests of Depositors (in Financial Establishments) Act, 2011. In May 2016, the additional district magistrate (ADM), Cuttack, Bibhuti Bhusan Das, issued a notification in different newspapers for identification of duped depositors with a warning of prosecution against those who make false claims. This model along with invoking section 420 against the deposit agents is the only way in which the duped depositors can be identified and paid back their deposits from the seized benami assets of the Ponzi operators. Once behind bars under section 58A of the Companies Act these Ponzi operators will sing like a canary and identify all their assets.

We as a nation owe it as a duty to these hapless ten crore depositors who have lost their life time savings thanks to these Ponzi operators who have bribed their way to immunity.

Will the Prime Minister stand up for these ten crore marginalised Indians and clear his name in the only Ponzi scheme that continues to flourish and in which he is shown to have been paid Rs 55. crores?

The author wants to make it clear that he is not accusing the Prime Minister of having received the bribes but certainly supports investigations on Sahara having allegedly paid bribes in view of the overwhelming circumstantial evidence of the favourable treatment given by various government agencies.

In conclusion, the good name of the Prime Minister needs to be cleared from being associated with these scammers and justice done to the 10 crore marginal depositors who have lost two lakh crores.

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)

Demonitisation: The invisible economic assassination

OPEN LETTER TO FINANCE MINISTER ARUN JAITLEY

BY ARUN AGRAWAL

Mr Jaitley while defending his demonetisation scheme described the 750 words speech of the former Prime Minister Mr Manmohan Singh in Parliament, as lacking in substance and that the 2G and coal scamsters had forfeited their right to lecture on probity.

Harsh words from a lawyer, whose knowledge of economics or the lack of it, has plunged the entire nation into an unprecedented man-made financial chaos which will be his epitaph, irrespective of whether he or we are all dead in the long run or the short run!

Mr Jaitley would do well to answer the following questions with embedded answers which is also an expose on his track record on black money:

Questions on Phony efforts to unearth black-money/wealth abroad:

  • Is it not a fact that while these tiny offshore tax-haven countries which have played havoc with the India’s black money by providing a legal shield for laundering money, it was the larger countries like Germany and France which provided information on tax evaders?
  • Is it not a fact that despite the tall promises made during elections on recovery of huge amounts of black-money stashed abroad, the government was unwilling to act against sundry tiny countries which were responsible for laundering most of the black money into India?
  • Is it not a fact that the information that the government had on foreign black money was from the German government, which paid Heinrich Keiber $ 7.9 million to obtain information on money stashed in LGT Bank of Liechtenstein, and the French Government, which paid for information on HSBC Bank in Switzerland to whistle-blower Hervé Falciani. And is it not a fact that both governments shared the information with the Indian Government for free?
  • Is it not a fact that the Indian Government refused to pay the same informer Hervé Falciani when he offered more information on Indian entities than the 1600 entities provided by French Government?
  • Is it not a fact that under the Black Money UFIA Act only 644 disclosures were made and that these were from entities whose names were on the various lists but to whom notice was not given under section 71 for accounts held in other Banks?
  • Is it not true that the scheme in effect was a bailout for these persons and others involved in stock market scams and who were already under the scanner by the SIT so that they would pay lesser taxes and not have their names revealed and leave their reputation intact?
  • Is it not true that 95% of the black wealth is neither held as deposits in foreign bank accounts or in Indian currency but is converted into wealth in assets all over the world, or invested in India either through the stock market (P notes, FDI FPI etc.), real estate or gold and bullion or other assets?
  • Is it not true that that large holders of black money have laundered their money through small and insignificant countries like Mauritius, Cyprus and Singapore after sending it abroad through havala and bringing it back through faceless and anonymous front companies into India as ‘Foreign Investments?’
  • Is it not true that all this black money laundered through the tax havens by round tripping method has become legitimate white money and is no more considered black money by the Government/RBI/SEBI?
  • Is it not true that apart from the black money brought in as FDI, large amounts of this anonymous black money is invested in the Stock Market through P-Notes whose true ownership has not been allowed to be declared by the Government/RBI/SEBI?
  • Is it not true that the SIT constituted by the Supreme Court identified these P Notes as the major source of black money, recommended that the true identity of the persons (beneficial ownership) investing in P-Notes be revealed and the loophole be plugged?
  • Is it not true that the outstanding on P-Notes in Jan 2015 was Rs. 2.15 lac crores?
  • Is it not true that the outstanding Offshore Derivative Instruments (ODIs) from the tiny island of Cayman Island alone was Rs. 85,000 crores as stated by SIT below?

It is clear from above that a major chunk of outstanding ODIs invested in India are from Cayman Islands i.e. 31.31%. This translates to roughly Rs. 85,006 Crores. The Cayman Islands had a population of 54,397 in 2010 according to Wikipedia. It does not seem conceivable that a jurisdiction with a population of less than 55,000 could invest Rs. 85,000 crores in one country.

  • Is it not true that the government refuses to act against the black money laundered through these tiny islands, despite the recommendation of the SIT and orders of the Apex Court, as its considers this black money as good black money, in the national interest of getting foreign investment and its bullish effect on the stock market?
  • Is it not true that while the GOI is acting against the helpless poor and the marginalised who are either depositing their own money or renting their account for petty deposits along with the domestic hoarders of black-wealth in currency, it is powerless against these tiny countries like Mauritius, Cayman island, Singapore, Seychelles, Panama, British Virgin Island etc. and has negotiated soft and humiliating treaties with them to let off the big sharks involved in generation and laundering of black money?
  • Is it not true that all the treaties negotiated with all these tiny countries are with prospective effect, that is from 2017 onwards when they would be obliged to make disclosures and share information on tax evasion but does not cover the prior period?
  • Is it not true that information from Switzerland will be made available for accounts opened after Sept 2018 and that too in Sept 2019?
  • Is it not true that no person is foolish to leave his cash in foreign banks and that all black money laundered through foreign countries has become legitimate money?
  • Is it not true that for all practical purposes only Rs 2428 crores in taxes is all that has been received from the much-touted black money lying abroad along with some amounts which may come in because of information provided by the German and the French government, no further black money will be unearthed from the large evaders who have used the foreign route to launder their money?
  • Is it not true that it was the earlier NDA government which had replaced FERA with FEMA to undo the criminal liability and then took almost three years to enact the Prevention of Money Laundering Act which had criminal liability and this move emboldened the super-rich in salting their wealth abroad?

Domestic Black Money and Disclosure Scheme

  • Is it not true that the second round of domestic amnesty under the Income Declaration Scheme on payment of 45% was preceded by a massive amount of income tax notices (around 7 lac) to ensure its success?
  • Is it not true that most of the money declared under the domestic IDS was declaration made from the popular practice of laundering money on the stock market by claiming fictitious long term gains (with zero tax) from appreciation of penny stocks whose prices were manipulated by brokers on the stock market?
  • Is it not true that instead of proceeding with criminal charges on these brokers on price manipulations they are being rewarded by allowing them to get listed on NSE and the BSE so that they sell their shares at huge premium?

Existing sources of generation of black money like bribes etc. to continue:

  • Is it not true that most of the black money is generated from bribes, real estate transaction, capitation on education, over invoicing of costs, and proceeds from crime like drug trade, kidnapping, protection money, child trafficking, prostitution, smuggling, grant of mining leases through renewal of licenses, betting on outcome of cricket matches etc?
  • Is it not true that neither bribes or any of the above-mentioned activity can be conducted through white money and that white money must be converted into black to pay for bribes and the rest of the transactions mentioned above?
  • Is it not true that far from taking steps to prevent the future generation of black money changes in law has been proposed to encourage the generation of black money?

On legal steps taken to promote corruption

  • Is it not true that the government has done nothing to discourage corruption but on the other hand has taken steps to encourage it?
  • Is it not true that not even the initial steps have been taken for the appointment of Lokpal in the last two and a half years?
  • Is it not true that the public servants who were bound to declare their assets under the Lokpal Act have been given six extensions since 2014 to declare their assets and they too could have availed the benefit of the two income tax amnesty schemes to launder their loot stashed abroad and in India to legitimate assets through their close relatives?
  • Is it not true that amendments to the Prevention of Corruption Act is proposed to dilute the Act and to liberalise the definition of Corruption?
  • Is it not true that undue benefits given to favored persons will not be considered corruption and prior permission from the government must be obtained to commence investigations against corrupt officials?
  • Is it not true that the key section of the PCA, 13(1) (c) and (d) under which most of the corrupt are charged is being deleted?

On black money in real estate:

  • Is it not true that the difference in taxation on investment made in stock market and investment made in real estate is one of the main reasons for investing black money in real estate?
  • Is it not true that while long-term gains on investment in shares has zero tax, there is a tax of twenty percent on long term gain in real estates?
  • Is it not true that long term gains in shares is defined as one year while it is defined as three years for real estate?
  • Is it not true that an additional 8% of stamp duty is to be borne by the buyer?
  • Is it not true that because of this disparity of 28% in taxation there is undervaluation and creation of black money in property deals as properties may not appreciate by a 28% in three years in addition to the reason of 30% bribes paid by builders to get clearances?

Black money in the education sector:

  • Is it not true that the discretionary management quota is responsible for the auction of seats in professional courses?
  • Is it not true apart from hefty under the table payments on discretionary quota admissions, in most cases of routine admission a coercive donation to the trust is a must?
  • Is it not true that the faithful have been allotted land by the States under BJP to profiteer by opening private educational institution?
  • Is it not true that the Government ensured that the common medical entrance test under NEET upheld by the Apex Court, was over-ruled to ensure that the private state medical colleges conduct another test?
  • Is it not true that private education is supposed to be not-for-profit organisation but nevertheless make massive profits through sub-contracting?

Why losses caused to the exchequer by the present government far more than the losses in the 2G and Coal Scam:

  • Is it not true that accusing the previous government of various scams is a favorite pastime of the present government whereas the truth is that far more losses has been caused to the public exchequer by the present government compared with the previous government?
  • Is it not true that several iron ore mines whose leases were expiring and should have been put to auction have been renewed and benefits of lacs of crores been given to these mine owners, the prominent one being Anil Agarwal of Sesa Goa/Strelite?
  • Is it not true the iron ore mine renewed to favour Anil Agarwal of Sterlite alone is worth more than one lac crore?
  • Is it not true that the lease for the oil fields like Panna, Mukta, Tapti which too is expiring and in which industrialists like Reliance and Essar have made billions of dollars are proposed to be renewed instead of the government resuming them? The benefit to Essar/RIL etc. is worth billions of dollars.
  • Is it not true the lease of the land based oil fields of Cairns Vedanta which produces oil at an operating cost of three dollars is also being proposed to be extended? This benefit would be worth four to five billions to Anil Agarwal’s company depending on the duration of extension and the price of crude and gas.
  • Is it not true that by these renewal of leases, the government is going to lose billions of dollars?
  • Is it not true that in the 2G scam, due to intervention of activists like Prashant Bhushan and Dr Swamy, the Hon’ble Court overturned the government decision and thus no losses took place when the auction took place? (It may be mentioned that the first FIR in the 2G scam was filed by the CBI on the complaint of the author of this article and finds a mention in the 2G judgment)
  • Is it not true that similarly the anticipated losses in the coal mine scam was salvaged by the decision of the Court ordering the subsequent auctioning of the mines?
  • Is it not true that the losses were prevented by the Hon’ble Court and activist litigants (Dr Swamy had not merged his party at the time) and that the BJP had no role to play in it?
  • Is it not true that the losses by renewal of leases of iron ore mine fields and oil-fields is/will be greater than the actual losses of the 2G and the coal scam?

Black money generated by over-invoicing:

  • Is it not true that despite seizure of records of massive over-invoicing of coal imports and power equipment of over Rs 45,000 crores by prominent industrial houses resulting in money laundering and generation of black money, no action is being taken against these industrial houses?
  • Is it not true that the case against Ravi Rishi, the manufacturer of left hand drive Tatra trucks being supplied to the Armed Forces accused of over invoicing of trucks for decades, by the former Chief of the Army and now a Minister, has been closed?
  • Is it not true that the government is losing almost every taxation and arbitration cases involving large corporation and in one case the AG, who had earlier appeared for the opposite side, also appeared for the State and lost the Rs 700 crore case with the order of the Apex Court stating: Delay condoned, dismissed?

Re: Black money from criminal activities to continue

  • Is it not true that there has been no campaign or crack down on the black money generated from the usual criminal trades like drug trafficking, kidnapping, protection money, child trafficking, prostitution, smuggling, betting on outcome of cricket matches etc?

On monumental mismanagement

  • Is it not true that when the announcement of demonetisation was made on 8/11/16, normalcy and a smooth transition was assured in three days over the weekend?
  • Is it not true that the government had thought that liquidity of 15 lac crores in Rs 500 and Rs 1000 notes could be replaced with 2 lac crores of Rs 2000 notes and had not printed any new Rs 500 notes before the announcement?
  • Is it not true that the hoarding of smaller notes, due to shortage of liquidity ensued and this too was not anticipated by the decision-makers at RBI and the Ministry?
  • Is it not true that it was only after a national crisis was caused that the government decided to print and introduce the new Rs 500 notes immediately?
  • Is it not true that it will take at least six months to remonetise the economy given the capacity of the currency printing press?
  • Is it not true that most of the fake currency which is substantially higher that the government estimates too will be deposited without getting detected by the Banks and this may further boost the deposits to a higher figure that the notes outstanding?
  • Is it not true that the fake currency is printed by hostile government who have access to similar technology of note-printing and hence detection of fake is difficult?
  • Is it not true that the government decision of demonetising 15.44 lakhs crores of currency without any remonetisation plan in place was not only a monumental managerial failure but a monumental blunder?
  • Does not the country have a right to know as to who was responsible for the execution of the remonetisation of the 85% of the currency and why responsibility is not being fixed for causing untold hardship to the people of the country for no fault of theirs?

Implication of surgical strike against black money, collateral damage, loss of savings of the unbanked?

  • Was the freezing of the liquidity of the entire population without any alternative not a criminal act against those who needed money for financial emergencies, against the daily wage earner who remained unemployed and against those who are out of the banking system?
  • Was the surgical strike planned with the inputs of the experts, namely the economists, currency officials, re-monetisation experts or was this surgical strike the brain child of the ill-informed persons who did not know the fallouts of their decision?
  • Is it not true that due to lack of banking infrastructure, Ponzi companies like Sahara, Pearl and Saradha sprung up to provide them with door step service and the poor unbanked people deposited their hard-earned savings with them and lost them?
  • Is it not true that in spite Sahara depositing over 10,000 crores, the poor who have lost their life time savings have not received even Rs 100 crores of their deposits back and the government will appropriate the deposit of the poor unbanked people by claiming that it is unclaimed?
  • Is it not true that in spite of the unbanked persons in the rural arear losing thousands of crores to the ponzi companies no concerted efforts have been made to provide them banking services by opening larger number of rural branches?
  • If demonetisation was a surgical strike against the black money of the political opponents and tax evaders, then were not the rest of the citizens victims of the collateral damage?
  • Is it not true that the collateral damage involved more than 95% of the population and if so then as to whether this type of excesses is acceptable in a democracy?
  • Is it not true that this lack of liquidity is effecting those the most who are not serviced by banks, do not have a smart phone, are illiterate and technologically challenged?
  • Is not money a means to live and denial of access to one’s own money denial of right to Life which is a fundamental right?

On holding wealth in cash

  • Is it possible to distinguish which cash is black and which cash is white or which cash is savings of years or cash for transacting legal/illegal business?
  • Is it not easier to trace illegal assets like house property, gold, smuggled goods, investments on the stock market?
  • Is it compulsory to deposit one’s money in banks which are bankrupt (their net worth is less than the bad loans)?
  • Is it not true that there are many Indians who for various reasons do not deposit their savings in the Bank and hold in cash and cannot produce a record of the cash holding?
  • Is it not true if the Finance Minister can hold cash of 1.35 crores (return filed with election commission) then other citizens too can also have a high cash holding?
  • Does not the FM need to explain the necessity to hold such large amounts of cash in hand when there are all types of different digital modes of payment? Is this cash because of withdrawal from the Bank?
  • Is it not true that now you see the scheme failing, as the unscrupulous elements are taking advantage of the ambiguous nature of cash deposits that you are going against the people with a vengeance and frightening them with misuse of IT Act even on the small deposits of savings being made by the poor and the marginalised?

Motive of demonetisation to help the super-rich responsible for making the banks sick

  • Is it not true that the entire exercise of demonetisation was done with the motive of lowering the interest rate in order to keep on providing cheap loans to the large capitalist and to recapitalise the Banks to provide them with more loans?
  • Is it not true that the net worth of the Banks has been wiped out because of dubious loans to large business houses, who have been defaulting on the payment of their loans?
  • Is it not true that for every Rs 100 borrowed by the capitalist they must spend Rs 10 on bribes (party donation, administrative clearances, loan sanctions etc.) and divert another Rs 10 as promoter’s equity/or as his contribution for obtaining the loan/salted away leading to unviability of the project and the account becoming sick?
  • Is it not true that the NPAs (Non-Performing Assets) of the Bank are around Rs 8 lakh crores and that the actual net worth of some of the Banks is negative?
  • Is it not true that the Banks are turning sick by lending the money of the depositors to crony capitalists like Essar, Reliance and Adani, who in turn have been found to be converting the depositors’ money into black money through over-invoicing of imports.
  • Is it not true that the Banks’ imprudent lending has led to unrecoverable loans of over 8 lakh crores and this is going to be funded by the depositors and the and the tax payer?
  • Is it not true that this gap of eight lakh crores was sought to be partly filled up by the demonetised scheme in which it was estimated that atleast 3 lakh crores would not be deposited?
  • Is it not true that this money would have been used to recapitalise the Bank who would have the means to relend to the crony capitalist who in turn would create more black money for themselves, the political parties, and the bureaucracy?
  • Is it not true that the ADAG (Anil Ambani Reliance Group) alone owes 1.22 lac crores to the Banks, Adanis owe 0.96 lac crores, Essar 1.01 lac crores and are not in a position to even pay the mounting interest liability of around ten thousand crores.
  • Is it not true that these companies are also involved in massive over-invoicing of coal imports and power equipment of Rs 45,000 crores, resulting in money laundering and no action is being taken against them?
  • Is it not true that ADAG group entered into a tie-up with the French manufacturer of the Rafale jets the moment India signed a deal? Is it a mighty coincidence or evidence of crony capitalism?
  • Is it not true that no due diligence or security clearance has been done while involving the group in a critical area?
  • Is it not true that the $21 million Coal/Railway/Port project of Adanis in Australia which has full backing of the government and is to be funded by the SBI is also a manifestation of crony capitalism?
  • Is it not true that demonetisation is a devise to use the wealth and savings of the informal sector/labour/poor, the mid- sized trader/producer to subsidise the crony capitalist of the government through cheap loans which are to turn into NPA?

Quantum of black wealth in currency and demonetisation Ineffective:

  • Is it not true that only a small portion of wealth created through black money is in currency and this could not be more than 2% of the total black wealth in India and abroad?
  • Is it not true that most of the big fish having large amounts of demonetised black currency have managed to convert them into legitimate assets by discounting it in the market and this too has generated more of black money to the persons concerned?
  • Is it not true that the losses due to fall in GDP, unemployment, foregone consumption, fall in the stock market index, withdrawal of foreign investment which are directly attributable to the demonetisation is far greater than any gain that may accrue?
  • Is there not a strong possibility that more money will be surrendered than the 15.44 lakh crore outstanding on account of gross underestimation of counterfeit currency which will go undetected?

Better methods of increasing government revenue:

  • Will the government impose 20% tax on long term capital gains on shares as against nil presently and bring it on par with the capital gains on real estate, to boost the government revenue by thousands of crores if not a lac crore each year?
  • Will the government give informers on Income Tax evasion parity with the informers on Central excise, customs and service tax evaders?
  • Is it not true that while 10%-20% of tax recovered along with interest and penalty can be paid to informers without any ceiling in case of evasion under the CBEC, in case of informers of Income Tax it is subject to a maximum ceiling of Rs 10 lacs to an informer and the total reward paid by Income Tax to informers in a single year is maximum of 3 crores which means that only Rs 30 crores of tax is recovered through the informer channel as against the seven lac crore of Income Tax collected?
  • Is it not more logical to announce that reward of 10% without limit will be paid to informers, give wide publicity to the scheme, ensure its implementation through a separate authority supervised by an ex-Supreme Court Judge to ensure that black money on which tax is being evaded is eliminated as the mere the threat of being informed will act as a deterrent?
  • Is it not true that substantial revenue is lost by the government due to SEBI and stock exchanges colluding with the delinquent corporates?
  • Is it not true that neither the government nor SEBI is willing to investigate the price manipulation and insider trading by RIL in which Rs 3500 crores was made illegally and on which three times penalty can be levied?
  • Is it not true that in another case SEBI gave a largesse of over Rs. 650 crores to the erstwhile owners of Bank of Rajasthan group by letting them off with a petty fine of only Rs 30 crores, in spite of a complaint pending with you on corruption?
  • Is it not true that it was only after the constitution of the SIT that the money-laundering on the stock exchange going on for decades through the bogus long term gain was checked?
  • Is it not true that lacs of crores have been laundered through this route?
  • Is it not true that the government is unwilling to disclose the name of the persons who have disclosed their black-money in the amnesty scheme or those who are major defaulters with the Bank?

The Finance Minister

  • Is it not true that being the lawyer of first choice in appearing against PILs while practising as a senior counsel has in some ways made the FM insensitive to public suffering? Is it not true that FM brings the same passion in arguing in favour of grossly mismanaged demonetisation which is not public interest?
  • Is it not true that the presumptive tax introduced by the FM in the last budget for which no accounts has to be kept on a 2-crore trade for 8% profit and 50% profit on Rs 50 lacs income of professionals is a loophole to launder money and to generate further black money?
  • Is it not true that as an opposition MP (not LOP) the FM was appearing in Court and earning substantial fees while Parliament was in session, a practice carried on by many senior counsels who are members of the Parliament?
  • Is not true that life is not an argument which has to be won, and if blunders have been made then it is better to admit and re-work the policy rather than stick it out and make people suffer further?
  • Is it not true that the government being vindictive and using all legal means to terrorize the people of this country after the failure of the demonetisation scheme?
  • Is it true that scheme is causing far more suffering than was caused during EMERGENCY?
  • Will this monumental blunder of demonetisation be the EPITAPH of the government?

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)

Letter to Public Interest Directors of National Stock Exchange

To consider if it is in Public Interest for the National Stock Exchange (NSE) to be non-transparent, promote corruption by colluding with Reliance Industries Limited (RIL) in insider trading/price manipulation and then go Public to List their Shares.

From
Arun Kumar Agrawal

To
Mr. S. B. Mathur (Chairman NSE)
Mr. Y. H. Malegam
Dr. KRS Murthy
Dr. S. Sadagopan
Justice B.N. Srikrishna

Subject:

I. Investigation of Frauds on NSE by CBI/Police

II. Making public the trading details of Price Manipulation and Insider trading in Reliance Petroleum Limited (RPL) and trading details on the High Frequency Trading platform during the period OPG Securities had manipulated the trading platform in alleged collusion with NSE (refer complaint published in Moneylife).

III. Force NSE to submit to RTI Act and prevent the officials from evading the legal system after the 5-member Central Information Commission (CIC) and Hon’ble High Court Ruled against it.

IV. Cost of 50 Lacs to be Paid by Employees involved in filing of Defamation suit

V. Rationalisation of remuneration of Rs 1- 4 crore per annum

VI. NSE going Public with IPO not in Public Interest

VII. Prevention of Other Undesirable Trading: Object of SCR Act

Sirs,

1. This letter is addressed to the Public Interest Directors on the BOARD of NSE, who by being in a majority are presumed to be in control of the Board of NSE. They are requested to ensure that NSE functions in a corruption free and transparent manner.

2. Two instances of large scale corruption and subsequent cover up have considerably eroded the credibility of the National Stock Exchange among the investors, be it Indian or foreign. The first involved the price manipulation and insider trading by RIL in 2007 in which investors lost thousands of crores. The second was the gaming of the trading platform of the High Frequency Traders (HF Traders), exposed by an article and complaint published in Moneylife, which led to the NSE filing Rs 100 crore defamation suit against Moneylife.

3. It is in this context that this letter is addressed to the Public Interest Directors (PID) (downgraded to Independent Directors by NSE: refer Annexure from website of NSE) and the Chairman of National Stock Exchange requesting them to take stern and appropriate steps to ensure that NSE functions in a corruption free and transparent manner. The NSE, unlike other institution, has a Board in which the PID are in majority, who are capable men with no personal interest (even the sitting fee of Rs 20000 does not compensate for their time) and therefore can ensure that public interest is protected and there is no cover up of corruption. The management of the NSE should not be allowed to use the PID as a shield for its anti-public interest agenda.

4. It is further requested of the PID to ensure that NSE submits itself to the RTI Act not only because it is an antidote to corruption but because it is legally the right thing to do. The remuneration of senior officials/Whole Time Directors should be linked to their performance and they should be made to pay the cost of Rs 50 lacs ordered by the Hon’ble High Court of Bombay from the crores of annual remuneration they earn.

5. Those involved in corruption, cheating of the investors and cover up should be reported to the anti-corruption Branch of Police/CBI for investigation and prosecution. Finally, the PID are requested to decide whether it is in public interest that the NSE should go public through an IPO inspite of the contrary recommendation of the Bimal Jalan Committee report and experience with MCX.

Transparency the only option to answer allegation of corruption:

6. Hon’ble Justice G S Patel while imposing a cost of Rs 50 lacs on NSE stated the following in his judgment:

26. Today, all our institutions face the crisis of dwindling public confidence. Neither the NSE nor the judiciary are exceptions to this. It presents a very real dilemma, for the existence of our institutions is posited on that very public confidence and faith and its continuance. The challenge is, I think, in finding legitimate methods of restoring that public trust, that balance. Hence the cries for transparency and accountability everywhere; and I see no reason why the NSE should be any exception to this. (Emphasis mine)

7. Instead of heading the advice of transparency of Hon’ble Justice Patel, NSE has gone in appeal against his orders. Officials of NSE would do well to recognise the fact that court decisions are no substitute for transparency in matters relating to corruption. Persons with competency to write software of algo-trading are highly intelligent persons (probably even more intelligent than those at the helm at NSE) and at times are rank holding IIT graduates.

The anonymous complaint of the HF Trader, accusing the NSE of gaming the trading platform is very specific, with the names of the brokers, the time period and the modus operandi of rigging by the NSE. A mere reading of the complaint has a ring of genuineness to it.

8. The only way to answer those allegation was to make all the trading details of the period along with the trading record of the broker OPG Securities public. These trading records will establish as to whether OPG Securities, the brokering firm that cornered most of the deals and made profits than it did earlier or later to the period of the complaint. Incidentally, OPG securities has a track record and was also found by SEBI to be involved in Fraudulent and Unfair Trading under the PFUTP Regulations.

9. The pathetic defence by the NSE in the financial papers post the judgment of the Hon’ble Bombay High Court can neither fool the discerning public, nor the HF Traders who, as stated above, are far more intelligent than the NSE officials who have offered the lame explanation. Instead of looking at the trading record or referring the matter to the cyber wing of the CBI/Police or subjecting the data to a cyber-lab, officials of NSE have been filing defamation suits of Rs 100 crores to intimidate the media and lecture on of the infallibility of their system. It may be pointed out that systems are as infallible as the humans who operate them! Even the Libor rates were doctored and more recently Volkswagen gamed the emission software.

10. The case of Rs 513 crore insider trading by RIL and price manipulation: The second case relates to the Rs. 513 crore insider trading done by 13 front companies on behalf of RIL in November 2007 in the F&O section of the market. The shares involved was that of RPL, which was a subsidiary company of RIL, in which it held 75% of the shares. The brokers close to RIL indulged in price manipulation from September 2007 to November 2007 during which the price of the shares RPL doubled. The price manipulation was done so that RIL could realise twice the value when it sold 20.5 crore shares of RPL held by it in the cash section. The sale value of 20.5 crore shares of RPL was around Rs 4000 crores which would have been Rs 2000 crores had the price not been manipulated by the brokers. While RIL realised an additional Rs 2000 crores on account of sale of 4 crore shares, the brokers made upwards of Rs 1000 crores on account price manipulation on high trading volumes in the F&O section. RIL made an additional Rs 513 crores through insider trading by 13 front companies. This Rs 513 crores was credited by the 13 front companies to the balance sheet of RIL! There could not be a more blatant form of insider trading.

11. It is my allegation that the officers of the NSE were complicit with the brokers in allowing the price manipulation and the subsequent cover for the following reasons:

  • With expensive computers and software, this type of blatant manipulation and insider trading could not but be shown up and flagged by the computer unless the computers too were rigged by the officials of the NSE on the behest of interest parties.
  • The matter was never reported to SEBI by NSE officials.
  • The scandal was brought in the public domain four months later by a prominent Member of Parliament Shri Amar Singh on 17/4/08 through a Parliamentary question.
  • Shri Amar Singh not only accurately named 10 of the 12 front companies involved but also the amount involved in the insider trading months before the investigations were ordered by SEBI. The article was published by Business Standard.
  • Shri Amar Singh had attributed the knowledge of the insider trading and the companies involved in it, to information received from his sources in the Stock Exchange.
  • When Investigations were finally ordered by SEBI a year later in November 2008, on the persistence of Shri Amar Singh, it was found that allegations of the companies and the amount involved were true! Amar Singh had named 10 companies and Rs 402 crores as the profit while the finding of SEBI on investigation was Rs 513 companies involving 12 companies. Names of 10 companies was common.
  • The price manipulation by the brokers for the period in September to November 2007 was never investigated by NSE. It was not even investigated after the Parliamentary question and the letter of Amar Singh to SEBI published in the newspaper. The inaction on part of NSE can only lead to only one conclusion: that of collusion in enriching RIL and the brokers who benefitted by the price manipulation.
  • If Amar Singh had the information from the NSE ‘sources’ and NSE officials were blissfully unaware of it then the matter needs to be investigated by the CBI. In this connection my complaint to the CBI is pending and can be forwarded if thought to be necessary.
  • The undersigned has fought five cases with SEBI/RIL in various High Courts so far over issues of transparency. It is my experience that almost every authority is helpless against RIL. In another issue unrelated issue concerning RIL on preferential allotment of shares at a throwaway price, the same has been pending with SEBI/ government for over fifteen years even after obtaining legal opinion from one of most respected judges of the Hon’ble Supreme Court.

Rs 5 lacs as price for transparency for exposing corruption

12. There is a tendency at every level to run down the character of ‘activists’ who expose corruption in high places. Choice words like stoolpigeon are used which cannot be sustained on facts! The complainant, therefore, volunteers to deposit Rs 5 lacs in advance for making the entire detailed trading information broker/party wise of the two cases available to him/public. The relevant period in case of RIL is the trading in cash and forward section for RPL shares from August – December 2007. The amount can be forfeited if he is not able to show that there was manipulation. This information for which Rs 5 lac is being offered should have been made available for Rs 10 under RTI Act.

13. The legal fees paid to senior Counsels to prevent NSE from coming under the RTI too should also be disclosed.

14. The undersigned is enclosing a cheque for the amount favouring the Chairman of NSE requesting him to accept his unilateral offer. The account will have a balance for the amount for the next 30 days.

15. The undersigned hopes that if the efforts of the complainant results in disgorgement of profits (by SEBI) made by the brokers and RIL then 50% of the amount should be used to compensate the investors who were cheated by the fraud committed on them. The entire amount should not be appropriated by SEBI/NSE/government or to the so called investor protection fund which is used by the Authorities in an arbitrary manner. The NSE is using the Investor Protection Fund to collaborate with a TV channel to entice investors to invest in shares! This is condemnable as there are large number of investors who have burnt their fingers by investing in shares and vowed never to return on account of various scams that have taken place.

16. It is indeed a tragedy that the authorities, after putting every possible hurdle against financial ‘activists’ to uncover their scam, ultimately benefit from the efforts of the activist in case they happen to succeed!

Senior officials game the legal system to escape accountability under RTI Act

17. The information for which the complainant is willing to pay should have been made available to him under RTI for Rs 10 but for the anti-public interest elements in the NSE who first went in appeal against the order of a five-member CIC Bench (dated 7/6/2007) which in a 25-page reasoned order held that NSE was covered under 2(h) of the RTI Act. The Hon’ble Court held that this was irrespective of whether the majority shares were held or controlled by government owned institution. Subsequently NSE went in appeal against the order of the Delhi High Court (WP 4748/07 decided on 15/4/10) which upheld the order of the CIC. Is it surprising that after obtaining an interim order of stay of the order of the single Hon’ble judge who had confirmed the 5-member Bench order of the CIC, the matter has not been decided for the past five years?

18. If the senior officials can use the legal system to escape accountability from the rigours of RTI Act for 8 years, then so can the junior employees game the system to pass on benefits of thousands of crores to corporates like RIL in the most blatant instance of insider trading. Whether they actually did so will be known if the detailed trading data (broker wise) in RPL shares from August – December 2007 is made public. Is it a coincidence that the insider trading, price manipulation took place in the period when NSE was insulating itself from providing information under RTI Act?

19. It needs to be mentioned that the Hon’ble Supreme Court has held Stock Exchanges to be a State for the purpose of the writ jurisdiction of Courts and even SEBI argued at the CIC that NSE was a public authority and hence covered by the RTI.

Direct NSE to submit itself to the RTI Act

20. As one of the PID is an eminent jurist and a former Justice of the Hon’ble Supreme Court, his valuable opinion on whether NSE comes within the purview of the RTI may be sought, or alternatively it may be independently decided by the PID that NSE should submit itself to the provisions of the RTI and the seven year old appeal pending before the Delhi high Court be withdrawn. Is it surprising that NSE is not interested in pursuing the appeal after having obtained a stay in a case which it cannot win? Should it not be alleged that this is being done so that corruption in NSE goes undetected? Does this non-transparent corruption linked agenda of the NSE is in public interest and have the approval of the PID of the NSE? Even the Bombay High Court advised the NSE to be transparent because it is in public interest to dispel allegation of corruption. However, the officials of the NSE are using public funds by going in appeal against the order of the single judge of Bombay High Court in order to prevent investigation into the allegation of corruption against the exchange.

21. The very fact that the majority of the Directors – to whom the letter is addressed- are PID is sufficient for NSE to be covered under section 2 (h) of the RTI Act.

22. People of our generation (I am a senior citizen), including the senior authorities of the NSE have to recognise the merit and the intelligence of the younger generation, and earn their respect by setting an example of good public behaviour. This can only be done by a commitment to transparency and fair-play and not being clever and using the institutional money power for personal ends of not being transparent and accountable.

23. The NSE officials forget that it is the experience of the people of the Country that there is corruption in every institution where there is scope making illegal money. There is no other institution where larger sums of illegal money can be made as easily and without detection as the stock exchange. How can it be corruption free?

24. In fact the Hon’ble Judge, in the order quoted above, even included the Judiciary while stating that institutions face crisis of dwindling public confidence. One wonders as to whether those at the helm of affairs of NSE are so disconnected with reality that they think that illegal money cannot be made in collusion with the employees of the Stock exchange! Fall in Public Institution share-holding in NSE is no reason to failure of accountability

25. SEBI, NSE and the government regrettably have had a hand in preventing the public sector financial institution holding in NSE from falling below 51%. Shares have been transferred at high valuation to entities with conflict of interest, by taking advantage of the Bimal Jalan Committee report. This has been done in order to free NSE from government audit, from being accountable under the RTI Act, and to pay the senior officials crores of undeserved (compared to other similarly qualified persons in government owned financial institution) salary. The incidents of the post privatisation of the NSE shows that it has also resulted in high level corruption (refer the two incidents above), lack of accountability, non-transparency and disproportionate high salaries.

Other instances of failure to prevent undesirable trading

26. The NSE officials have failed the investors as an institution which has been granted recognition under the Securities Contract Regulation Act whose object it is to “Prevent Undesirable Trading in Securities by Regulating the Business Therein…” Undesirable trading, through price manipulation and insider trading is as old as the Stock Market. It was thought that with the advent of a broker free government owned stock exchange with professional management, the same would stop. Regrettably it did not. In the last 15 years of the existence of the NSE, there is not been a single instance in which profits from price manipulation and insider trading has been disgorged, to compensate the investors. Anecdotal evidence of share prices rising and falling prior to the declaration of favourable/unfavourable developments is commonplace.

The role of price manipulation in generation of black money also figures prominently in the SIT report on black money. Synchronised trading at artificial prices to launder black-money is stamped with the authenticity of a contract. Switching of trades in another person’s name to launder black money is another form of undesirable trading taking place. Trading based on leakage of price sensitive information (margin, circuit % and spot, promotion and demotion of shares from F&O and change in composition of shares in the Index etc.) before the information becomes public, also takes place. The pump (the price) and then dump the shares on the unsuspecting investors is another common abuse of the trading on the Stock Exchange. Cartels of brokers operating in shares of select companies with low floating stock is yet another instance of undesirable trading.

27. It appears that just as the stock exchanges of the past were said to exist for the benefit of the brokers, NSE now exist for the benefit of its employees and its shareholders. The lofty ideals of Dr R H Patil, the founder of the Exchange (who never earned the salaries of crores that the present incumbents are earning) have been given a go by.

Rs 50 lac cost to be paid by NSE employees

28. NSE filed a hundred crore defamation suit in order to cover up the alleged corruption within the organisation. The Hon’ble judge saw through the game and correctly subjected the exchange to a cost of Rs. 50 lakhs. The advice regarding functioning in a transparent manner has not been complied with. Such is the arrogance of these crorepati officials, that instead of being transparent, it has been decided to appeal against the order at the expense of the coffers of the exchange. NSE cannot behave in a manner in which other corporates behave when involved in scam.

29. As the NSE has not been transparent in its functioning, it will be only in order that the concerned employees who decided to file a defamation suit in order to cover up for the alleged corruption should be made to pay the Rs. 50 lakh cost imposed by the court.

Refer the matter for CBI investigation

30. If the trading data of the period along with the trading data of OPG Securities is not made public, then the matter be referred to the CBI for investigation and let the employees of NSE get a clean chit from the CBI.

31. The undersigned has independently verified the complaint from a knowledgeable person who has confirmed that OPG Securities during the relevant period was one step ahead of the rest of the algo-traders! Whether it was on account of his professional competency or because of his having gamed the system in collusion with the employees of the NSE needs to be investigated. As these were done on an electronic platform, there is an electronic trail which can reveal as to whether the system was gamed at the NSE level. If the matter is beyond the competency of the state investigators then private cyber labs with requisite competency can be engaged.

32. Further, if it is a problem for the NSE that the complaint published in Moneylife was from an anonymous source, then my name can be appended at the bottom of the complaint and the matter be investigated. As stated above I am depositing Rs. 5 lakhs for the information in the two cases.

33. Regarding the other issue of corruption relating to price manipulation of RPL shares by the brokers of RIL, I have already lodged a complaint with the CBI and will be taking up the matter at the next appropriate forum.

Public listing of NSE shares

34. NSE, according to newspaper reports, wants to go public and have their shares listed on their own exchange. This is against the recommendation of the Bimal Jalan Committee Report. Though this part of the report was not accepted, those responsible for not accepting the report and differing with the sagacity of the ex-RBI Governor did so to benefit MCX and will be ruing their decision. MCX took advantage of SEBI overriding the recommendation and had their shares listed on the stock market. An impartial investigation will show that the decision of overruling the Jalan Committee on listing of Stock Exchange was done to benefit MCX. Driven by the greed for profit and higher valuation resulted in a fraud of over Rs. 5600 crores which the investors will never be able to recover. It may be mentioned that the shares of MCX were placed with government-owned public financial institutions at a price of over Rs. 1000 per share having a par value of Rs. 10 at the time when the shares were not even listed!

35. No doubt the employees of NSE (barring key employees who are not eligible) too want ESOPs worth hundreds of crores and be freed from control post listing. The employees know that the value of the ESOP will increase if they are higher profits. All types of instruments will be allowed to trade on the exchange and there will be higher volumes in the speculative section in order to generate more profits. These are bound to put the financial system in jeopardy and create financial instability in the future. The country cannot afford to have the shares of NSE listed in order to appease the greed of the employees and the shareholders.

36. The public service that is carried out by a government owned National stock exchange is far too important for the economy of the country then the petty profits that the individual players are out to make by having the shares of the exchange listed on the exchange. It is forgotten that India is a land of stock market scams.

37. Due lobbying from interested quarters, SEBI accepted that part of the Bimal Jalan report that stated that the maximum ownership should be limited to 5% of shares but the stocks should not be listed. The first part was accepted by SEBI but not the second part. This was done to enable MCX to list. This has been used by the existing shareholders of NSE to divest to private players (and not to govt FI) at huge premium. Some of them are in conflict of interest situation and are now out to book their profits on the privately placed shares.

38. Any investor with some experience of IPO will tell you that the best results are produced before the company goes public. Is it then surprising, or just a familiar coincidence, that the profits of the NSE have doubled in the first half of this year when compared to last year? Higher profits will lead to higher EPS and higher valuation at the time of proposed disinvestment of shares by the shareholders! And also for the ESOPs allotted before the IPO. There is nothing National left of the NSE anymore and one seriously wonders if the NSE will be allowed to use the word National anymore!

39. Representation in this regard is being made to the government to utilise its investment in the tobacco company ITC for the purpose of buying the shares of NSE so that it remains a national asset, nationally owned in national interest. NSE is a vital institution in the economy of the country. It has to be seen as an unbiased organisation preventing undesirable trades on the stock market and existing for the benefit of the investors and not for the employees and the shareholders. The Public Interest Directors are requested to make their recommendation regarding the privatisation of the NSE in light of the recent incidents of blatant frauds and non-transparent functioning of the exchange.

Public Interest Directors requested to use their power of majority for public good and not to allow their good name to misused

40. The views of Public Interest Directors are sought on the sanitised agenda that is put before them at the Board meeting by the full-time Directors of the NSE. Fraud committed by the employees cannot and will never be an agenda item as the NSE officials believe that they are beyond corruption.

41. As it is the NSE officials have downgraded the Public Interest Directors as Independent Director as is obvious from this heading from the NSE website:

Annexure A-2
Criteria /Norms under SEBI Regulations applicable to Public Interest Directors (who are essentially Independent Directors)

After downgrading the PID to Independent Directors, without realising that PID are appointed by SEBI under SEBI regulation (SECC Regulation), the Authorities take them granted without correctly advising them on the allegations of corruption and the lack of transparency.

42. Under the SECC Regulations the appointment of all Directors are to be approved by the SEBI and the PID are to be in a majority. In other words it is the PID, appointed with the approval of SEBI, who are supposed to be in in control of the Board. One wonders as to how can NSE not submit to RTI and not function in a transparent manner, more so when allegation of corruption are leveled?

43. The Code of Conduct for Public Interest Directors under SEBI Regulations states: Public interest directors shall meet separately, at least once in six months to exchange views on critical issues.

The issues of corruption in the two matters brought to the specific notice of the Public Interest Directors, transparency, loss of confidence of investors in NSE, corruption, NSE going public are certainly matters of public interest which in the opinion of the undersigned important enough to merit a separate meeting of the PID. Restoring the credibility of the NSE is far more important than the questionable reputation of the individuals at the helm of affairs who file defamation suits and fail to report RIL insider trading and refuse to be transparent.

29/9/2015
Yours sincerely
Bangalore

Annex
(i) PID Downgrade d
(ii) Cheque for 5 lacs

(Arum Kumar Agrawal)

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)

Is a committed CIC now order in Reliance insider trading case

BY ARUN AGRAWAL

The appointment of the present Chief Information Commissioner by selecting the senior most Information Commissioner in a selection process in which all the Information Commissioners were applicants confirms the suspicion that the country is moving towards an era of a committed Central Information Commission (CIC), loyal to the government. This selection process has a far reaching consequences for a government accused of being a government of crony capitalists.

This government has a vested interest in weakening institutions like CIC to conform to the Gujarat model of government. By delayed appointment of Chief Commissioner and three Information Commissioners, the government has already created a pendency of over 40,000 cases which means that an appeal to the CIC has a waiting period of over three years. Information which was to be provided for Rs 10 in a period of thirty days will now take almost four years. This is because all meaningful information involving corruption and crony capitalism invariably have to be appealed to the CIC as the information is not available due to an uncooperative bureaucracy.

The CIC is already packed with ex-bureaucrats who are easily persuaded by government’s arguments and even disregard the precedents of the higher courts. Appeal to the CIC involves three years wait. If the CIC too is compromised because its members are in conflict of interest of having to apply to the government become the Chief Information Commissioner, then the decisions of the CIC will have to be appealed to the High Court. Ninty-nine percent of RTI applicants, who are denied information by the CIC arbitrarily, do not appeal to the High Court because the applicants do not have the resources of lacs of rupees and the stamina of years to appeal to the High Court. If the RTI applicant appeals to the High Court, then a minimum of three years of time is taken by the High Court but if the Government agency or the Corporate appeals against an order of the CIC in favour of the RTI Applicant then stay is granted immediately and then the case is not taken up for years. The same can be verified from data on SEBI, UTI AMC and RIL.

This six year wait renders the RTI meaningless and is a triumph for a government perceived as being one of crony capitalists.

The title of being a crony capitalist government is as bad if not worse than a corruption ridden government. The difference between the two is that in crony capitalism you are perceived as being corrupt irrespective of whether you are actually corrupt. That is why the suit boot Sarkar accusation from a corrupt Congress resonates with the masses.

Current Process of Selecting the CIC followed by the NDA Government

The Chief Commissioner was selected so far by elevating the senior most Information Commissioner as the Chief information Commissioner. This is a process followed by the election commission and also in the appointment of the Hon’ble Chief Justice of India. In a radical departure from the current selection process, the government decided to advertise the post and throw it open to all who could apply after meeting the laid down criteria. There were more than 200 applicants for the post. Among the applicants were all the existing Information Commissioners.

This created a huge conflict of interest among the Information Commissioners. Few Information Commissioner would like to upset the government and jeopardise their elevation prospect by passing orders which the government may not like. It also leads to an apprehension that an existing Information Commissioner may not be elevated if it does not toe the government line. This is exactly what happened in the appointment of the Chief Justice of India in the 70s when the government of the day chose to appoint the CJI by breaching the seniority principle. Four judges of the Supreme Court resigned on being superseded.

Any order by any of the Commissioners of the CIC unduly favouring the government or powers close to it, will now be attributed to this huge conflict of interest which has now manifested in the functioning of the Information Commissioners.

This allegation of the information Commissioners having a pro- establishment slant is best illustrated with a real example of an appeal involving Reliance (RIL) which was decided by a three member bench during the period when the selection of the Chief Commissioner was taking place. Unfortunately it involved the current Chief Information Commissioner who appeared to be in sympathy the applicant point of view at this stage of hearing.

The Reliance Case

Two cases, among others relating to insider trading of RIL were remanded back to the CIC for hearing by the Delhi High Court. The first related to revealing the inquiry report of SEBI on the insider trading by Reliance (RIL) etc while the second RTI application related to the revealing the names of the brokers who had done the short sales deals on the insider trading on behalf of RIL front companies.

This insider trading had taken place in November 2007 in which RIL had profited by 513 crores (as revealed in the decision of the Securities Appellate Tribunal). RIL insider trading escaped the attention of the super computers of SEBI and the stock exchanges. It came into the public domain when Amar Singh MP, agitated the matter in Parliament and went on to reveal the name of the parties involved and the amount earned by them through the print media. The inquiry was ordered one year after the insider trading had taken place. The allegation of Amar Singh were found to be true and the amount by which RIL profited was Rs 513 crores. Two compromises were offered by RIL for Rs 2 and Rs 10 crores to settle the matter of 513 crores without any admission of guilt.

While the Rs 513 crores was made by RIL in forward trading through 12 front companies who had the information in advance of the impending sale, an additional 20.5 crore shares of RPL were sold by RIL in the cash market. RIL made an additional Rs 4000 crores through actual sale of shares on delivery basis.

However, this additional Rs. 4000 crores was made by RIL on account of price manipulation wherein the price of the RPL shares sold was doubled by the brokers in a short period of two months. Hence the genuine profit without manipulation of the share price would have been only 2000 crores.

Both the manipulation of the share price and the execution of the insider trading was done by the brokers. As the shares were also traded in the speculative section of the stock market, the brokers were able to generate very large volumes which sometimes resulted in outstanding positions of over 10,00,000 crores. By manipulating the share price the brokers made at least around 1000 crores. These brokers were never investigated by either SEBI or the stock exchanges from 2007 onwards because of the heavy bribes paid by them to the concerned authorities. It was for this reason that the scam was uncovered not by the regulatory authorities but by a politician MP.

The second RTI application relating to the name of the brokers was to be decided by the full bench. Since the brokers were never investigated by SEBI (on account of bribes paid) there was no way in which the information could have been denied under any of the exceptions in section 8 (2) of the RTI Act. The information was also in public interest because the investors had been cheated by thousands of crores. In fact, the earlier the Chief Information Commissioner had ordered that the information may be made available both in public interest and also because it was not covered under any of the exceptions of the RTI Act.

Both the applications were heard at great length for almost 14 hours and the parties were asked to submit their written submission. The written submissions were filed with the commission on its direction in the month of August 2014 after the orders had been reserved on the conclusion of the hearing of the matter.

Meanwhile, the then Chief Information Commissioner Shri Rajiv Mathur retired on 22/8/2014 but as per the convention the senior most Information Commissioner Shri Vijay Sharma was not elevated as Chief Information Commissioner. Instead, the post was advertised by the DOPT in late October of 2014. All the information Commissioners applied for the post of Chief Information Commissioner. Hence there was a competition amongst the Information Commissioners to become the Chief Information Commissioner. It may be mentioned that Shri Vijay Sharma was heading the three member bench.

Order delivered after all the Commissioner had applied for the post of CIC

The order relating to the two RTI applications mentioned above was passed by the full bench on 28/11/2014 that is after more than a month of the Information Commissioners having applied for the post of the Chief Information Commissioner. As the government had not decided on the successful candidate their fate was yet to be decided by the government. Could then anyone of the Commissioners alienate the largest corporate wrongly or rightly perceived to be close to the power that had the dominant say in the appointment Chief Commissioner?

In spite of having a watertight case, it did not come as a surprise that all the three commissioners were unanimous in denying the information relating to the revealing of the names of the brokers who were involved in executing the insider trading deals for RIL and for manipulating the share price in which they had made massive money.

The information was denied at the behest of RIL who should not have been made a party in the appeal as the information did not concern RIL but was nevertheless was allowed to be made a party to the appeal for reasons best known.

The order could not be justified either on the basis of the specific provisions of the law or on the basis of precedents decided by superior court.

As these brokers had not been investigation since 2007. They had caused massive losses to the public running into thousands of crores. Public interest was overriding. There was no provision in the RTI Act by which the name of the brokers who carried out the deal for RIL could not have been divulged. In fact the earlier, Chief Information Commissioner had allowed the appeal and stated in his order that the information be made public both in public interest as well as for the reason that the information did not falling within any of the exemption clauses.

It was therefore not surprising that because the commissioners could not justify their denying the information on the name of the brokers they copied the order word for word of the other RTI application relating to the information on the inquiry report on insider trading. This cut-and-paste job was unprecedented and betrayed the fact that the commissioners had not applied their mind and had decided to favour Reliance.

Now that the process of selection has been put in the public domain, the message is loud and clear. Government discretion will be exercised in favour of those who exercise their discretion in favour of the government.

Investors lost Rs 3500 crores to RIL and its brokers on account of insider trading. The government ensured that the matter is not investigated for cheating and fraud inspite of a specific complaint lodges with every conceivable authority in the country by the author. Information on the enquiry report has is not put in the public domain and has also been denied by the CIC. Is this crony capitalism or corruption?

The matter has been appealed in the High Court of Karnataka. It is a moot point as to when it will be finally decided?

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)

Wal-Mart, lobbying, bribery allegations and more

The Wal-Mart lobbying bill revelations has rocked the Indian Parliament with the political parties demanding a time-bound probe into the whether any payments were made in India.

According to media reports, the company’s lobbying disclosure reports filed with the US Senate details around $25 million (Rs 125 crore) it spent on its “lobbying activities”. Some of the activity was about “issues related to enhanced market access for investment in India,” a report on Zee News stated.

Wal-Mart can legally lobby in the US but there is no clarity on whether they have spent any money on lobbying activities in India. The UPA government has, under pressure from the Opposition, expressed its willingness to have the matter inquired.

Amidst all the chaos over whether Wal-Mart has really paid anybody in India to lobby on their behalf or not, some very vital facts are being ignored.

Wal-Mart was under investigation in the US over issues related to bribery, tax evasion and money laundering in Mexico. Two US lawmakers Elijah E. Cummings (Member of the Oversight and Government Reform Committee of the US House of Representatives) and Henry A. Waxman (Energy and Commerce Committee Ranking Member) sent a letter to Wal-Mart CEO Michael Duke in August this year to provide a final opportunity for the company to respond to the Committees’ requests for information on violations of the Foreign Corrupt Practices Act before the Committees release an investigative report on their findings. (Click here to read the letter sent to Wal-Mart CEO)

A New York Times report in April 2012 had this to report on the issue:

“In September 2005, a senior Wal-Mart lawyer received an alarming e-mail from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. In the e-mail and follow-up conversations, the former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance. In its rush to build stores, he said, the company had paid bribes to obtain permits in virtually every corner of the country.

The former executive gave names, dates and bribe amounts. He knew so much, he explained, because for years he had been the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico……….

…….The lead investigator recommended that Wal-Mart expand the investigation. Instead, an examination by The New York Times found, Wal-Mart’s leaders shut it down.”

Interestingly, according to an Economic Times report, “the India unit of Wal-Mart recently suspended its CFO and the entire country legal team as part of a high-profile, global investigation into potential violations of America’s anti-bribery laws”.

India’s Enforcement Directorate is also investigating Bharti Wal-Mart Pvt Ltd (Bharti Enterprises and Wal-Mart Stores) for alleged violations of FDI rules.

More suggested reading in to Wal-Mart bribery scandal:

HSBC’s ‘strange’ apology to Ambanis and Herve Falciani

India Against Corruption activist Arvind Kejriwal on Friday revealed details about black money and the names in the HSBC list handed to the Indian government by France. After he spoke, some journalists asked him a question: Why did HSBC apologize to Reliance Industries Chairman Mukesh Ambani?

‘Strange’. Few months back, the Swiss Unit of HSBC Plc expressed regret and apologized for involving Ambani in the investigations by the IT authorities in India because his name appeared in the list containing names of HSBC account holders.

“The bank in a letter to Mr Mukesh Ambani clearly stated that neither he nor his company, RIL (Reliance Industries Limited) have a beneficiary account with the private banking division of the bank,” media reports stated.

I mentioned the word ‘strange’ earlier because the list handed to the Indian government by French authorities was not a formal list prepared by HSBC.

According to available information, the Indian list may have been a part of HSBC-data, which contained the names of 130,000 tax dodgers from several EU countries. “The data was allegedly stolen in 2008 by ex-bank employee Herve Falciani, who was then fired by the bank and arrested. Falciani is said to have stolen the data in 2006 and 2007 and then attempted to sell it to several governments,” a report on Darker Net’s website stated.

“Sources said just as in the case of the LGT Bank in Liechtenstein, details of HSBC’s Indian account holders have emerged because a former employee stole data in 2008 and later handed these over to French authorities. Several countries including UK, Spain, Italy and France itself have used this data for tax evasion investigations,” a news report in The Indian Express dated August 7, 2011 stated.

According to another media report “HSBC in Geneva has a total of 100,000 accounts and it said no accounts outside the Geneva office of the bank were involved in the data leak”. The recent release of a partial list containing details of 2059 bank accounts allegedly secretly held by Greeks in a Swiss branch of HSBC  is also a part of that stolen HSBC-data.

So the ‘strange’ thing that begs attention is why would HSBC apologize to an Indian businessman if they had not officially given the list to anybody and that it was an allegedly stolen list? Also, if indeed Reliance and Ambanis have no account in HSBC, then did Falciani include their name in the list on his own? And if yes, why did he do that?

4-Herve Falciani

Meanwhile, here’s a timeline provided by HSBC and published by a Swiss portal Genevalunch.com on the entire data theft episode:

  • ​End 2006-beginning 2007: HF (Herve Falciani) works on a migration of client data between systems and takes the opportunity to steal data, probably over a period of months.
  • Summer 2008: The bank first becomes aware that the Swiss Federal Prosecutor investigates into a possible data theft and that an identified female subcontractor had tried together with an unidentified man to sell data to several banks in Lebanon.
  • 22 December 2008: a female employee is arrested for questioning; she denounces HF, who is then arrested for questioning. He subsequently flees from Switzerland to France.
  • Throughout 2009: Following a request for legal assistance sent by the Swiss Federal Prosecutor, the French prosecutor seizes the data at the residence of HF in France, but returns it neither to the Swiss authorities nor to the Bank.
  • Summer 2009: the Bank is shown an email of HF: a list of 7 names of individuals linked to accounts opened with the bank, containing errors.
  • Summer 2009: The French Government states that it is in possession of data but refuses to give its sources.
  • 9 December 2009: Le Parisien publishes a full story and first indications are made of a larger number of client accounts impacted. No evidence of these assertions is provided to the Bank. A press release is distributed.
  • January, 2010: The stolen data held by the French authorities is returned to the Swiss Federal Prosecutor.
  • 3 March 2010: Some copies of the stolen data which were held by the French authorities are returned to the Bank by the Swiss Federal Prosecutor. The full extent of the theft is now demonstrated for the first time.

Click here to read more about who is Herve Falciani

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