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2G SPECTRUM SCAM

The 2G spectrum scam in India involved the issue of 1232 licenses by the ruling Congress-led UPA alliance[1]of

the 2G spectrum to 85 companies including many new telecom companies with little or no experience in the telecom

sector at a price set in the year 2001.The issue came to light after the auction of airwaves for 3G services which

amounted to 677,190crore (US$151.01 billion) to the exchequer.A report submitted by the Comptroller and Auditor

General based on the money collected from 3G licenses estimated that the loss to the exchequer due to underpricing

of the 2G spectrum was 176,379 crore (US$39.33 billion).The scam came to public notice when the Supreme Court

of India took SubramanianSwamy's complaints on record [With Case type: Writ Petition (Civil), Case No: 10, Year:

2011].

The scam involved allegations regarding

The underpricing of the 2G spectrum by the Department of Telecommunicationswhich resulted in a heavy loss

to the exchequer, and

The illegal manipulation of the spectrum allocation process to favors select companies.

Civil Servants, Politicians and Corporations Involved in scam bad

All the accused have been booked under sections 120(B) (criminal conspiracy), 468 (Forgery for purpose of cheating),

471 (using as genuine a forged document or electronic record), 420 (cheating and dishonestly inducing delivery of

property) and 109 (abetment if the act abetted is committed in consequence, and where no express provision is made

for its punishment) of the Indian Penal Code.

Politicians, Ministers and Parliamentarians involved

Andimuthu Raja, Union Cabinet Minister for Communications and Information Technology: TheComptroller and Auditor General holds Raja personally responsible for the sale of 2G spectrum at 2001 rates in

2008, resulting in the previously mentioned loss of up to Rs. 1.76 lakh crores (US$40 billion) to the national

exchequer.In August, 2010, evidence was submitted by the Comptroller and Auditor General (CAG) showing that

Raja had personally signed and approved the majority of the questionable allocations.

KanimozhiAravindhan, Member of RajyaSabha: On April 25, 2011 Kanimozhi was named as a co-

conspirator in the supplementary charge sheet filed by the Central Bureau of Investigation (CBI) in connection

with the 2G spectrum case. The charge sheet submitted before the Supreme Court establishes how Rs 200 crore

connected with the scam traveled from a partnership firm of businessman ShahidBalwa of Swan Telecom to the

Karunanidhi family-owned Kalaignar TV. She has been charged with section 7 and 11 of the Prevention of

Corruption Act. The sections deal with acceptance of alleged gratification.

Bureaucrats involved

Siddhartha Behura, Civil Servant (IASofficer of 1973 batch UP cadre) : He was the Telecom secretary

who served in the DOT at the time of the 2G allocation.

PradipBaijal, Civil Servant (IAS officer of 1966 batch MP cadre) : He is alleged to have recommended

policies that favored certain Telecom companies when he was heading the TRAI. Post retirement, Baijal joined

Noesis, a consulting firm. Raja has made references to Baijal's decisions in 2003 as the basis for his decisions in

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2008; something which has been attacked by ArunShourie and several media pundits. The houses and offices of

the bureaucrat were recentlyvisited by the Central Bureau of Investigationas part of their investigations.

[11] However, Baijal is expected to get a clean chit in this issue.

R K Chandolia,Civil Servant (IES officer of 1984 batch cadre): He was private secretary of Raja during

UPA-I when the licences were awarded. When Raja became the Telecom Minister once again in UPA-II, Chandolia

had been promoted to the Joint Secretary rank. Raja re-designated him Economic Adviser that gave him the

charge of all important policy-related work. Chandolia interacted with all the licensees. It is said that it was

Chandolia who, from DDG-access services A K Srivastava's room, had handed out letters of intent to

representatives of various companies.

Corporations involved

Allianz Infra

Aircel

Dishnet Wireless

Loop Mobile

SistemaShyam Mobile (MTS) Sistema Mobile Russia Reliance Communications

S Tel

Swan Telecom

Tata Tele Services

Unitech Group

Videocon Telecommunications Limited

Vodafone Essar

Virgin Mobile India

Corporate personalities involved

Anil Ambani - Reliance Group (ADAG)[15] -

Ratan Tata

ShahidBalwa - Swan Telecom (nowEtisalat DB)

VinodGoenka - Swan Telecom (now Etisalat DB)

VenugopalDhoot - Videocon Group

PrashantRuia - EssarGroup

Sanjay Chandra, Managing Director ofUnitech Ltd and Unitech Wireless

All of them have either been questioned by theCBI or are prospective suspects in the scam.

Impact on stock markets

The first casualty in Stock Markets once Raja was arrested was DB Realty.[36] 20% fall in the stock prices of DB Realty.

Sun TV had its shares fall by 10%.[37] Sun TV COO refused the allegations. Swan Telecom Chief Balwa was arrested on

Feb 8 [38] and this led to rumours of links with Anil Ambani's Reliance ADAG and it led to 20% fall of his stocks . Its

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reported that nearly 2 Billion USD was eroded from his stocks .[39] Spicejet stocks went down after reports of

investigation on Maran's recent takeover of Spicejet .

Media persons and lobbyists involved

NiraRadia, a former airline entrepreneur turned corporate lobbyist whose conversations with politicians and

corporate entities were recorded by the government authorities. The contents were later leaked by unknown

parties creating the NiraRadia tapes controversy

Politicans, Ministers and Parlimentarians involved

DayanidhiMaran, former Union Cabinet Minister for Textiles : The main allegation revealed by Tehelka

magazine and followed up in several other reports, is that Maran forced C Sivasankaran, owner of Aircel, to sell

the telecom company to Maran's Malaysia-based friend T Ananda Krishnan in 2006. The reports allege that Maran

deliberately delayed issuing spectrum licenses to Aircel's sister concern, Dishnet Wireless, when it was owned by

Sivasankaran. He issued the licenses soon after it changed hands to Ananda Krishnan who owns Maxis.[16]

P. Chidambaram, current Union Cabinet Minister for Home Affairs : SubramaniamSwamystates that

when the 2G Spectrum rate was finalised, P.Chidambaram was the finance minister of India and he had a major

role in deciding the spectrum price with A.Raja. Subramaniam alleges that Chidambaram had received kickbacks

and undervalued the spectrum cost.[17]

Petitioners to 2g scam

SubramaniamSwamy, activist lawyer and politician, whose letters to the Prime Minister demanding action and

affidavits and cases in the Supreme Court brought the issue into the public limelight.

ParanjoyGuhaThakurta, a journalist who was one among the very first to write on the irregularities in the

awarding of 2G spectrum allocation by the Telecom Ministry. He is also one of the petitioners in the 2G PIL

currently being heard in the Supreme court.[18]

PrashantBhushan, on behalf of the Centre for Public Interest Litigation.

Anil Kumar, on behalf of the civil society organisationTelecom Watchdog

Others:Several eminent people like former chief election commissioners J.M. Lyngdoh, T.S.

Krishnamurthyand N. Gopalaswamiand former central vigilance commissioner (CVC) P. Shankar are also

petitioners in the suits filed by civil society groups.[14]

Loss to Exchequer

The Controller and Auditor General of India used three different methods to assess the presumptive loss to the

exchequer resulting from not auctioning 2G spectrum. [19]

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The first method was based on the fact that S Tel, one of the licensees, explicitly offered to pay significantly higher

license fees for the spectrum. Based on the fees offered by S Tel, the CAG estimated the loss to the exchequer at

67,364 crore(US$15.02 billion)

The second method was based on the price recovered by the3G auction in 2010. The CAGreasoned that since 2G is

really 2.75G (EDGE), its price should be comparable to that of 3G licenses. Based on this method, the CAG estimated

the loss to the exchequer to be 176,000 crore (US$39.25 billion)

The third method was based on the fact that some of the licensees received FDI in the form of equity, shortly after the

spectrum allocation. TheCAG reasoned that this equity infusion was entirely due to the value of the allocated

spectrum; this can be construed as re-sale of the spectrum by the licensee, and hence was a valid basis for assessing

loss to the exchequer. Based on this method, theCAG estimated the loss to the exchequer to be anywhere between

57,666 crore(US$12.86 billion) (based on Etisalat's investment in Swan Telecom) and 69,626 crore (US$15.53

billion) (based onTelenor's investment in Unitech).

For its part, the Congress-party led government has publicly defended itself on this count and KapilSibal, who

replacedA. Rajaas the communication minister, has refuted the CAG reasoning.

[20]

He has also justified hisgovernment's decision not to auction 2G spectrum as being in line with the policy guidelines laid down by the 10th

Five-Year Plan.[21][22]

Relationship between media and government

Main article: NiraRadia tapes controversy

Media sources such as OPENand Outlook reported that BarkhaDutt and VirSanghvi knew that corporate lobbyist

NiraRadia was influencing the decisions of A. Raja.[23] The critics alleged that Dutt and Sanghvi knew about corruption

between the government and the media industry, supported this corrupt activity, and suppressed news reporting the

discovery of the corruption.[23]

Ratan Tata petitions over leak

The tapes leaked to the public include conversations between NiraRadia andRatan Tata. Tata petitioned the

government to acknowledge his right to privacy and demanded accountability for the leak, with the Minister for Home

Affairs, CBI, Indian Income Tax Department, the Department of Telecommunication, and the Department of

Information Technologyas respondents in the petition.[24]

On April 4, 2011 Indian Parliament's Public Accounts Committee (PAC)questioned Tata Sons Chairman Ratan Tata and

corporate lobbyist NiiraRadia regarding their roles in 2G Scam.

Response to scam

In early November 2010 Telecom Minister A Raja resigned.

In mid November the controller VinodRai issued show-cause notices to Unitech, S Tel, Loop Mobile, Datacom

(Videocon), and Etisalat to respond to his assertion that all of the 85 licenses granted to these companies did not have

the up-front capital required at the time of the application and were in other ways illegal. [26] Some media sources have

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ipedia.org/wiki/Department_of_Information_Technologyhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-23http://en.wikipedia.org/wiki/Vinod_Raihttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-fivetelcos-25

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speculated that these companies will receive large fines but not have their licenses revoked, as they are currently

providing some consumer service.[26]

In response to the various allegations, the Govt of India has replaced the then incumbent Telecom minister, A.

RajawithKapilSibalwho has taken up this charge in addition to being the Union minister for Human Resources

Development.MrSibal contends that the "notional" losses quoted are a result of erroneous calculations and insists that

the actual losses are nil.[20][21]

The CBI conducted raids on Raja and four other telecom officials - former telecom secretary SiddharthBehura, Raja's

personal secretary R K Chandolia, member telecom K Sridhar and DoT deputy director general A K Srivastava on 8

December 2010.Kanimozhi, DMK MP and Karunanidhi's daughter, was arrested and sent to Tihar jail by a Delhi court

which dismissed her bail plea in the 2G spectrum scam, saying there was a possibility of witnesses being influenced

considering the "magnitude" of the crime.[27]

Arrests and Chargesheets

On February 2, 2011, the Central Board of Direct Taxes arrested former Telecommunications Union Minister

Andimuthu Raja. The CBDT also arrested R.K. Chandolia, Raja's personal aide, andSiddharthBehura, the former

Telecom Secretary.[28][29]Both Raja and Chandolia are heard in conversation with NiiraRadia in the released Radia

tapes.

On February 8, 2011, the CBI arrested Mumbai based DynamixBalwas(DB) group managing

director ShahidUsmanBalwa in connection with the 2G spectrum allocation scam. The CBI has evidence from the

Income Tax department that ShahidUsmanBalwa, considered close to Raja, was instrumental in channelling the

kickbacks allegedly received by the former telecom minister.[30]

On March 29, 2011, in Delhi, the CBI arrested AsifBalwa (younger brother of the arrested former Managing Director

ofDB-Etisalat Group, ShahidBalwa) and Rajeev Agarwalfor their alleged involvement in money transfer to

the DravidaMunnetraKazhagam's (DMK) Kalaignar TVchannel.[31]

On April 2, 2011, the CBDT filed its first 80,000 page chargesheetin the 2G spectrum scam before a Special Court in

Delhi naming nine individuals and three companies. It said the wrongful acts of the accused deprived the government

exchequer of possible revenues amounting to INR Rs 30,985 crore (USD $ 6,983,322,233). The accused include the

following individuals:[32]

1. Andimuthu Raja, former Telecom minister

2. SiddharthBehura, former Telecom Secretary

3. R.K. Chandolia, Raja's former personal secretary

4. ShahidUsmanBalwa, former Director ofSwan Telecom (now Etisalat DB)

5. Sanjay Chandra, Managing Director ofUnitech Ltd and Unitech Wireless

6. GautamDoshi, Group MD, Reliance Anil DhirubhaiAmbani Group

7. Hari Nair, Senior Vice-President, Reliance Anil DhirubhaiAmbani Group

8. SurendraPipara, Senior Vice-President, Reliance Anil DhirubhaiAmbani Groupand Reliance Telecom Ltd

http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-fivetelcos-25http://en.wikipedia.org/wiki/A._Rajahttp://en.wikipedia.org/wiki/A._Rajahttp://en.wikipedia.org/wiki/A._Rajahttp://en.wikipedia.org/wiki/Kapil_Sibalhttp://en.wikipedia.org/wiki/Kapil_Sibalhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-OffenceDefence-19http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-SibalDefense-20http://en.wikipedia.org/wiki/CBIhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-26http://en.wikipedia.org/w/index.php?title=R.K._Chandolia&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Siddharth_Behura&action=edit&redlink=1http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-27http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-28http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-28http://en.wikipedia.org/wiki/DB_Realtyhttp://en.wikipedia.org/wiki/Shahid_Balwahttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-29http://en.wikipedia.org/w/index.php?title=Asif_Balwa&action=edit&redlink=1http://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Shahid_Balwahttp://en.wikipedia.org/w/index.php?title=Rajeev_Agarwal&action=edit&redlink=1http://en.wikipedia.org/wiki/Dravida_Munnetra_Kazhagamhttp://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-30http://en.wikipedia.org/wiki/Chargesheethttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-31http://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Sanjay_Chandrahttp://en.wikipedia.org/wiki/Sanjay_Chandrahttp://en.wikipedia.org/wiki/Unitech_Grouphttp://en.wikipedia.org/wiki/Uninorhttp://en.wikipedia.org/w/index.php?title=Gautam_Doshi&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Gautam_Doshi&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/w/index.php?title=Hari_Nair&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/w/index.php?title=Surendra_Pipara&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-fivetelcos-25http://en.wikipedia.org/wiki/A._Rajahttp://en.wikipedia.org/wiki/A._Rajahttp://en.wikipedia.org/wiki/Kapil_Sibalhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-OffenceDefence-19http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-SibalDefense-20http://en.wikipedia.org/wiki/CBIhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-26http://en.wikipedia.org/w/index.php?title=R.K._Chandolia&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Siddharth_Behura&action=edit&redlink=1http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-27http://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-28http://en.wikipedia.org/wiki/DB_Realtyhttp://en.wikipedia.org/wiki/Shahid_Balwahttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-29http://en.wikipedia.org/w/index.php?title=Asif_Balwa&action=edit&redlink=1http://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Shahid_Balwahttp://en.wikipedia.org/w/index.php?title=Rajeev_Agarwal&action=edit&redlink=1http://en.wikipedia.org/wiki/Dravida_Munnetra_Kazhagamhttp://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-30http://en.wikipedia.org/wiki/Chargesheethttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-31http://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Sanjay_Chandrahttp://en.wikipedia.org/wiki/Unitech_Grouphttp://en.wikipedia.org/wiki/Uninorhttp://en.wikipedia.org/w/index.php?title=Gautam_Doshi&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/w/index.php?title=Hari_Nair&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/w/index.php?title=Surendra_Pipara&action=edit&redlink=1http://en.wikipedia.org/wiki/Reliance_Anil_Dhirubhai_Ambani_Grouphttp://en.wikipedia.org/wiki/Reliance_Communications

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9. VinodGoenka, Director,Swan Telecom (now Etisalat DB)

The three companies named are:

1. Swan Telecom

2. Unitech Wireless

3. Reliance Telecom

In the first chargesheet, the CBI had named lobbyist NiiraRadia and 124 others as witnesses.

On 25 April 2011, in its second chargesheet in the scam, the Central Bureau of Investigation (CBI) named five more

accused individuals:[33]

1. Kanimozhi - RajyaSabhaMember of Parliament (DMK) and daughter of Tamil Nadu ex-Chief Minister M

Karunanidhi

2. Sharad Kumar ofKalaignar TV

3. KarimMorani ofCineyug Films

4. AsifBalwa ofKusegaon Realty

5. Rajiv B Agarwal of Kusegaon Realty

On 20 May 2011, Special CBI Judge O P Saini of the Delhi court ordered the arrest ofDMKMember of

ParliamentKanimozhi and Kalaignar TVManaging Director Sharad Kumar after rejecting their bail pleas in the 2G

spectrum case.[34]

Harshad Mehta ScandalHarshad Mehta was an Indian stockbroker caught in a scandal beginning in 1992. He died of a massive heartattack in 2001, while the legal issues were still being litigated. Early life Harshad Shantilal Mehta was born ina Gujarati jain family of modest means. His father was a small businessman. His mother's name wasRasilaben Mehta. His early childhood was spent in the industrial city of Bombay. Due to indifferent health ofHarshads father in the humid environs of Bombay, the family shifted their residence in the mid-1960s toRaipur, then in Madhya Pradesh and currently the capital of Chattisgarh state. An Amul advertisement of

1999 during the conterversy over MUL saying it as "The Big Bhool" (Bhool in Hindi means Blunder) Hestudied at the Holy Cross High School, located at Byron Bazaar. After completing his secondary educationHarshad left for Bombay. While doing odd jobs he joined Lala Lajpat Rai College for a Bachelors degree inCommerce.After completing his graduation, Harshad Mehta started his working life as an employee of the New IndiaAssurance Company. During this period his family relocated to Bombay and his brother Ashwin Mehtastarted to pursue graduation course in law at Lala Lajpat Rai College. His youngest brother Hitesh is a

practising surgeon at the B.Y.L.Nair Hospital in Bombay. After his graduation Ashwin joined (ICICI)Industrial Credit and Investment Corporation of India. They had rented a small flat in Ghatkopar for living.In the late seventies every evening Harshad and Ashwin started to analyze tips generated from respectiveoffices and from cyclostyled investment letters, which had made their appearance during that time.In the early eighties he quit his job and sought a job with stock broker P. Ambalal affiliated to Bombay StockExchange (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla.In 1981 he became a sub-broker for stock brokers J.L. Shah and Nandalal Sheth. After a while he wasunable to sustain his overbought positions and decided to pay his dues by selling his house with consent ofhis mother Rasilaben and brother Ashwin. The next day Harshad went to his brokers and offered the papersof the house as guarantee. The brokers Shah and Sheth were moved by his gesture and gave him sufficienttime to overcome his position. After he came out of this big struggle for survival he became stronger and hisbrother quit his job to team with Harshad to start their venture GrowMore Research and Asset ManagementCompany Limited. While a brokers card at BSE was being auctioned, the company made a bid for the same

http://en.wikipedia.org/wiki/Vinod_Goenkahttp://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Unitech_Wirelesshttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-32http://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Rajya_Sabhahttp://en.wikipedia.org/wiki/DMKhttp://en.wikipedia.org/wiki/M_Karunanidhihttp://en.wikipedia.org/wiki/M_Karunanidhihttp://en.wikipedia.org/w/index.php?title=Sharad_Kumar&action=edit&redlink=1http://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/w/index.php?title=Karim_Morani&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Karim_Morani&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Cineyug_Films&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Asif_Balwa&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kusegaon_Realty&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Rajiv_Agarwal&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Rajiv_Agarwal&action=edit&redlink=1http://en.wikipedia.org/wiki/DMKhttp://en.wikipedia.org/wiki/DMKhttp://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-33http://en.wikipedia.org/wiki/Vinod_Goenkahttp://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporationhttp://en.wikipedia.org/wiki/Swan_Telecomhttp://en.wikipedia.org/wiki/Unitech_Wirelesshttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-32http://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Rajya_Sabhahttp://en.wikipedia.org/wiki/DMKhttp://en.wikipedia.org/wiki/M_Karunanidhihttp://en.wikipedia.org/wiki/M_Karunanidhihttp://en.wikipedia.org/w/index.php?title=Sharad_Kumar&action=edit&redlink=1http://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/w/index.php?title=Karim_Morani&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Cineyug_Films&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Asif_Balwa&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kusegaon_Realty&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Rajiv_Agarwal&action=edit&redlink=1http://en.wikipedia.org/wiki/DMKhttp://en.wikipedia.org/wiki/Kanimozhihttp://en.wikipedia.org/wiki/Kalaignar_TVhttp://en.wikipedia.org/wiki/2G_spectrum_scam#cite_note-33

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with financial assistance from Shah and Sheth, who were Harshad's previous broker mentors.He rose and survived the bear runs, this earned him the nickname of the Big Bull of the trading floor, andhis actions, actual or perceived, decided the course of the movement of the Sensex as well as scrip-specificactivities. By the end of eighties the media started projecting him as "Stock Market Success", "Story of Ragsto Riches" and he too started to fuel his own publicity. He felt proud of this accomplishments and showed offhis success to journalists through his mansion "Madhuli", which included a billiards room, mini theatre andnine hole golf course. His brand new Toyota Lexus and a fleet of cars gave credibility to his show off. This inno time made him the nondescript broker to super star of financial world.During his heyday, in the early 1990s, Harshad Mehta commanded a large resource of funds and finances aswell as personal wealth.

The fall In April 1992, the Indian stock market crashed, and Harshad Mehta, the person who was all alongconsidered as the architect of the bull run was blamed for the crash. It transpired that he had manipulatedthe Indian banking systems to siphon off the funds from the banking system, and used the liquidity to buildlarge positions in a select group of stocks. When the scam broke out, he was called upon by the banks and

the financial institutions to return the funds, which in turn set into motion a chain reaction, necessitatingliquidating and exiting from the positions which he had built in various stocks. The panic reaction ensued,and the stock market reacted and crashed within days.He was arrested on June 5, 1992 for his role in thescam.His favorite stocks includedACCApollo TyresRelianceTata Iron and Steel Co. (TISCO)BPL

SterliteVideocon.The extent The Harshad Mehta induced security scam, as the media sometimes termed it, adversely affectedat least 10 major commercial banks of India, a number of foreign banks operating in India, and the NationalHousing Bank, a subsidiary of the Reserve Bank of India, which is the central bank of India.As an aftermath of the shockwaves which engulfed the Indian financial sector, a number of people holdingkey positions in the India's financial sector were adversely affected, which included arrest and sacking of K.M. Margabandhu, then CMD of the UCO Bank; removal from office of V. Mahadevan, one of the ManagingDirectors of Indias largest bank, the State Bank of India. The end The Central Bureau of Investigation whichis Indias premier investigative agency, was entrusted with the task of deciphering the modus operandi andthe ramifications of the scam. Harshad Mehta was arrested and investigations continued for a decade.During his judicial custody, while he was in Thane Prison, Mumbai, he complained of chest pain, and wasmoved to a hospital, where he died on 31st December 2001. His death remains a mystery. Some believethat he was murdered ruthlessly by an underworld nexus (spanning several South Asian countries including

Pakistan). Rumour has it that they suspected that part of the huge wealth that Harshad Mehta commandedat the height of the 1992 scam was still in safe hiding and thought that the only way to extract their share

of the 'loot' was to pressurise Harshad's family by threatening his very existence. In this context, it might benoteworthy that a certain criminal allegedly connected with this nexus had inexplicably surrendered justdays after Harshad was moved to Thane Jail and landed up in imprisonment in the same jail, in the cell nextto Harshad Mehta's.Mumbai: Just as the year 2001 was coming to an end, Harshad Shantilal Mehta, boss of Growmore Researchand Asset Management, died of a massive heart attack in a jail in Thane. And thus came to an end the life ofa man who is probably the most famous character ever to have emerged from the Indian stock market. Inthe book, The Great Indian Scam: Story of the missing Rs 4,000 crore, Samir K Barua and Jayanth R Varmaexplain how Harshad Mehta pulled off one of the most audacious scams in the history of the Indian stockmarket.Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood was spentin Mumbai where his father was a small-time businessman. Later, the family moved to Raipur in Madhya

Pradesh after doctors advised his father to move to a drier place on account of his indifferent health. ButRaipur could not hold back Mehta for long and he was back in the city after completing his schooling, muchagainst his fathers wishes. Mehta first started working as a dispatch clerk in the New India AssuranceCompany. Over the years, he got interested in the stock markets and along with brother Ashwin, who bythen had left his job with the Industrial Credit and Investment Corporation of India, started investing heavilyin the stock market. As they learnt the ropes of the trade, they went from boom to bust a couple of timesand survived. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange, who did verywell for himself. At his peak, he lived almost like a movie star in a 15,000 square feet house, which had aswimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to hisdownfall.Newsmakers of the week: View Slideshow The year was 1990. Years had gone by and the drivingambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in thestock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted

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attention were those of Associated Cement Company (ACC), write the authors. The price of ACC was bid upto Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theorybasically argues that old companies should be valued on the basis of the amount of money which would berequired to create another such company. Through the second half of 1991, Mehta was the darling of thebusiness media and earned the sobriquet of the Big Bull, who was said to have started the bull run. But,where was Mehta getting his endless supply of money from? Nobody had a clue.On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways ofHarshad Metha. The broker was dipping illegally into the banking system to finance his buying.In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State Bank of India, itwas his visits to the banks headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the

Lexus had just been launched in the international market and importing it cost a neat package, Dalal wrotein one of her columns later. The authors explain: The crucial mechanism through which the scam waseffected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loanfrom one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker

lends against jewellery.The borrowing bank actually sells the securities to the lending bank and buys themback at the end of the period of the loan, typically at a slightly higher price.It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel moneyfrom the banking system. A typical ready forward deal involved two banks brought together by a broker inlieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case inthe lead-up to the scam. In this settlement process, deliveries of securities and payments were madethrough the broker. That is, the seller handed over the securities to the broker, who passed them to thebuyer, while the buyer gave the cheque to the broker, who then made the payment to the seller.In this settlement process, the buyer and the seller might not even know whom they had traded with, eitherbeing know only to the broker. This the brokers could manage primarily because by now they had become

market makers and had started trading on their account. To keep up a semblance of legality, they pretendedto be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bankreceipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, theborrower, i.e. the seller of securities, gave the buyer of the securities a BR. As the authors write, a BRconfirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence thename - bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time,the seller holds the securities in trust of the buyer. Having figured this out, Metha needed banks, whichcould issue fake BRs, or BRs not backed by any government securities. Two small and little known banks -the Bank of Karad (BOK) and the Metorpolitan Co-operative Bank (MCB) - came in handy for this purpose.These banks were willing to issue BRs as and when required, for a fee, the authors point out.Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money toMehta, obviously assuming that they were lending against government securities when this was not reallythe case. This money was used to drive up the prices of stocks in the stock market. When time came toreturn the money, the shares were sold for a profit and the BR was retired. The money due to the bank was

returned.The game went on as long as the stock prices kept going up, and no one had a clue about Mehtas modus

operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did not have anyvalue - the banking system had been swindled of a whopping Rs 4,000 crore. Mehta made a brief comebackas a stock market guru, giving tips on his own website as well as a weekly newspaper column. This timearound, he was in cahoots with owners of a few companies and recommended only those shares. This game,too, did not last long. Interestingly, however, by the time he died, Mehta had been convicted in only one ofthe many cases filed against him.

KP

"All my lifetime's savings are gone. I don't know how to feed my family."

- A small investor hit by the Ketan Parekh scam, in April 2001.

THE CRASH THAT SHOOK THE NATION

The 176-point[1] Sensex[2] crash on March 1, 2001 came as a major shock for the Government ofIndia, the stock markets and the investors alike. More so, as the Union budget tabled a day earlierhad been acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex.This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) tolaunch immediate investigations into the volatility of stock markets. SEBI also decided to inspect thebooks of several brokers who were suspected of triggering the crash.Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to theircapital market exposure. This was after media reports appeared regarding a private sector bank[3]having exceeded its prudential norms of capital exposure, thereby contributing to the stock marketvolatility. The panic run on the bourses continued and the Bombay Stock Exchange (BSE) PresidentAnand Rathi's (Rathi) resignation added to the downfall. Rathi had to resign following allegationsthat he had used some privileged information, which contributed to the crash.The scam shook theinvestor's confidence in the overall functioning of the stock markets. By the end of March 2001, at

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least eight people were reported to have committed suicide and hundreds of investors were drivento the brink of bankruptcyThe scam opened up the debate over banks funding capital market operations and lending fundsagainst collateral security. It also raised questions about the validity of dual control of co-operativebanks[4] . (Analysts pointed out that RBI was inspecting the accounts once in two years, whichcreated ample scope for violation of rules.)The first arrest in the scam was of the noted bull[5], Ketan Parekh (KP), on March 30, 2001, by theCentral Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedlycaused one of the biggest scams in the history of Indian financial markets. He was charged withdefrauding Bank of India (BoI) of about $30 million among other charges.

KP's arrest was followed by yet another panic run on the bourses and the Sensex fell by 147 points.By this time, the scam had become the 'talk of the nation,' with intensive media coverage andunprecedented public outcry.THE MAN WHO TRIGGERED THE CASHKetan Parekh [KP] was a chartered accountant by profession and used to manage a family business,NH Securities started by his father. Known for maintaining a low profile, KP's only dubious claim tofame was in 1992, when he was accused in the stock exchange scam[1] . He was known as the'Bombay Bull' and had connections with movie stars, politicians and even leading internationalentrepreneurs like Australian media tycoon Kerry Packer, who partnered KP in KPV Ventures, a $250million venture capital fund that invested mainly in new economy companies. Over the years, KPbuilt a network of companies, mainly in Mumbai, involved in stock market operations.The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in early1999 led to a rise of the Indian stock markets as well. The dotcom boom[2] contributed to the BullRun[3] led by an upward trend in the NASDAQ[4].The companies in which KP held stakes included

Amitabh Bachchan Corporation Limited (ABCL), Mukta Arts, Tips and Pritish Nandy Communications.He also had stakes in HFCL, Global Telesystems (Global), Zee Telefilms, Crest Communications, andPentaMedia Graphics KP selected these companies for investment with help from his research team,which listed high growth companies with a small capital base. According to media reports, KP tookadvantage of low liquidity in these stocks, which eventually came to be known as the 'K-10' stocksThe shares were held through KP's company, Triumph International. In July 1999, he held around1.2 million shares in Global. KP controlled around 16% of Global's floating stock, 25% of AftekInfosys, and 15% each in Zee and HFCL. The buoyant stock markets from January to July 1999helped the K-10 stocks increase in value substantially (Refer Exhibit I for BSE Index movements).HFCL soared by 57% while Global increased by 200%. As a result, brokers and fund managersstarted investing heavily in K-10 stocks.Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10 stocks, andsaw their net asset value soaring. By January 2000, K-10 stocks regularly featured in the top fivetraded stocks in the exchanges (Refer Exhibit II for the price movements of K-10 stocks). HFCL's

traded volumes shot up from 80,000 to 1,047,000 shares. Global's total traded value in the Sensexwas Rs 51.8 billion[5] . As such huge amounts of money were being pumped into the markets, it

became tough for KP to control the movements of the scrips. Also, it was reported that the volumesgot too big for him to handle. Analysts and regulators wondered how KP had managed to buy suchlarge stakesTHE FACTORS THAT HELPED THE MANAccording to market sources, though Ketan Parekh [KP] was a successful broker, he did not havethe money to buy large stakes. According to a report [1] 12 lakh shares of Global in July 1999 wouldhave cost KP around Rs 200 million. The stake in Aftek Infosys would have cost him Rs 50 million,while the Zee and HFCL stakes would have cost Rs 250 million each. Analysts claimed that KPborrowed from various companies and banks for this purpose. His financing methods were fairlysimple. He bought shares when they were trading at low prices and saw the prices go up in the bullmarket while continuously trading. When the price was high enough, he pledged the shares withbanks as collateral for funds. He also borrowed from companies like HFCL.

This could not have been possible out without the involvement of banks. A small Ahmedabad-based bank,Madhavapura Mercantile Cooperative Bank (MMCB) was KP's main ally in the scam. KP and his associates startedtapping the MMCB for funds in early 2000. In December 2000, when KP faced liquidity problems in settlements heused MMCB in two different ways. First was the pay order[2] route, wherein KP issued cheques drawn on BoI toMMCB, against which MMCB issued pay orders. The pay orders were discounted at BoI. It was alleged that MMCBissued funds to KP without proper collateral security and even crossed its capital market exposure limits. As per a RBIinspection report, MMCB's loans to stock markets were around Rs 10 billion of which over Rs 8 billion were lent to KPand his firmsThe second route was borrowing from a MMCB branch at Mandvi (Mumbai), where differentcompanies owned by KP and his associates had accounts.KP used around 16 such accounts, eitherdirectly or through other broker firms, to obtain funds. Apart from direct borrowings by KP-ownedfinance companies, a few brokers were also believed to have taken loans on his behalf. It wasalleged that Madhur Capital, a company run by Vinit Parikh, the son of MMCB Chairman Ramesh

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Parikh, had acted on behalf of KP to borrow funds. KP reportedly used his BoI accounts to discount248 pay orders worth about Rs 24 billion between January and March 2001. BoI's losses eventuallyamounted to well above Rs 1.2 billion.The MMCB pay order issue hit several public sector banks very hard. These included big names suchas the State Bank of India, Bank of India and the Punjab National Bank, all of whom lost hugeamounts in the scam. It was also alleged that Global Trust Bank (GTB) issued loans to KP and itsexposure to the capital markets was above the prescribed limits. According to media reports, KPand his associates held around 4-10% stake in the bank. There were also allegations that KP, withthe support of GTB's former CMD Ramesh Gelli, rigged the prices of the GTB scrip for a favorableswap ratio[3] before its proposed merger with UTI Bank.

KP's modus operandi of raising funds by offering shares as collateral security to the banks workedwell as long as the share prices were rising, but it reversed when the markets started crashing inMarch 2000. The crash, which was led by a fall in the NASDAQ, saw the K-10 stocks also declining.KP was asked to either pledge more shares as collateral or return some of the borrowed money. In

either case, it put pressure on his financials. By April 2000, mutual funds substantially reduced theirexposure in the K-10 stocks. In the next two months, while the Sensex declined by 23% and theNASDAQ by 35.9%, the K-10 stocks declined by an alarming 67%.However, with improvements in the global technology stock markets, the K-10 stocks began pickingup again in May 2000. HFCL nearly doubled from Rs 790 to Rs 1,353 by July 2000, while Global shotup to Rs 1,153. Aftek Infosys was also trading at above Rs 1000.In December 2000, the NASDAQ crashed again and technology stocks took the hardest beating everin the US. Led by doubts regarding the future of technology stocks, prices started falling across theglobe and mutual funds and brokers began selling them. KP began to have liquidity problems andlost a lot of money during that period

It was alleged that 'bear hammering' of KP's stocks eventually led to payment problems in themarkets. The Calcutta Stock Exchange's (CSE) payment crisis was one of the biggest setbacks forKP. The CSE was critical for KP's operation due to three reasons. One, the lack of regulations andsurveillance on the bourse allowed a highly illegal and volatile badla business (Refer Exhibit III).Two, the exchange had the third-highest volumes in the country after NSE and BSE. Three, CSEhelped KP to cover his operations from his rivals in Mumbai. Brokers at CSE used to buy shares atKP's behest. Though officially the scrips were in the brokers' names, unofficially KP held them. KPused to cover any losses that occurred due to price shortfall of the scrips and paid a 2.5% weeklyinterest to the brokers.By February 2001, the scrips held by KP's brokers at CSE were reduced to an estimated Rs 6-7billion from their initial worth of Rs 12 billion. The situation worsened as KP's badla payments of Rs5-6 billion were not honored on time for the settlement and about 70 CSE brokers, including the topthree brokers of the CSE (Dinesh Singhania, Sanjay Khemani and Ashok Podar) defaulted on theirpayments. By mid-March, the value of stocks held by CSE brokers went down further to around Rs

2.5-3 billion. The CSE brokers started pressurizing KP for payments. KP again turned to MMCB toget loans. The outflow of funds from MMCB had increased considerably form January 2001. Also,

while the earlier loans to KP were against proper collateral and with adequate documentation, it wasalleged that this time KP was allowed to borrow without any security.By now, SEBI was implementing several measures to control the damage. An additional 10%deposit margin was imposed on outstanding net sales in the stock markets. Also, the limit forapplication of the additional volatility margins was lowered from 80% to 60%. To revive themarkets, SEBI imposed restriction on short sales[4] and ordered that the sale of shares had to befollowed by deliveries. It suspended all the broker member directors of BSE's governing board. SEBIalso banned trading by all stock exchange presidents, vice-presidents and treasurers. A historicaldecision to ban the badla system in the country was taken, effective from July 2001, and a rollingsettlement system for 200 Group Ashares[5] was introduced on the BSE.

THE SYSTEM THAT BRED THESE FACTORSThe small investors who lost their life's savings felt that all parties in the functioning of the market

were responsible for the scams. They opined that the broker-banker-promoter nexus, which wasdeemed to have the acceptance of the SEBI itself, was the main reason for the scams in the Indianstock markets.TSEBI's measures were widely criticized as being reactive rather than proactive. The marketregulator was blamed for being lax in handling the issue of unusual price movement andtremendous volatility in certain shares over an 18-month period prior to February 2001. Analystsalso opined that SEBI's market intelligence was very poor. Media reports commented that KP'sarrest was also not due to the SEBI's timely action but the result of complaints by BoI. A marketwatcher said[1] ,"When prices moved up, SEBI watched these as 'normal' market movements. Itignored the large positions built up by some operators. Worse, it asked no questions at all. It had toinvestigate these things, not as a regulatory body, but as deep-probing agency that couldcoordinate with other agencies. Who will bear the loss its inefficiency has caused?"An equally crucialquestion was raised by media regarding SEBI's ignorance of the existence of an unofficial market at

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the CSE Interestingly enough, there were reports that the arrest was motivated by the government's effortsto diffuse the Tehelka controversy.Many exchanges were not happy with the decision of banning the badla system as they felt it wouldrig the liquidity in the market. Analysts who opposed the ban argued that the ban on badla withouta suitable alternative for all the scrips, which were being moved to rolling settlement, would rig thevolatility in the markets. They argued that the lack of finances for all players in the market wouldenable the few persons who were able to get funds from the banking system - including cooperativebanks or promoters - to have an undue influence on the markets.

THE PEOPLE THAT THE SYSTEM DUPEDKP was released on bail in May 2001. The duped investors could do nothing knowing that the legal

proceedings would drag on, perhaps for years. Observers opined that in spite of the correctivemeasures that were implemented, the KP scam had set back the Indian economy by at least a year.Reacting to the scam, all KP had to say was, "I made mistakes."It was widely believed that more than a fraud, KP was an example of the rot that was within the

Indian financial and regulatory systems. Analysts commented that if the regulatory authorities hadbeen alert, the huge erosion in values could have been avoided or at least controlled.After all, Rs 2000 billion is definitely not a small amount - even for a whole nation.

Satyam

INTRODUCTION

Satyam fraud unfolded and so were the inherent weaknesses of Corporate Governance in India. Ramalinga Raju, once

a posture boy of Indias growing software sector who could find a seat beside Bill Clinton on the dais, has become a

villain in the corporate world for valid reasons.

His emotionally charged four and half page letter of startling revelations shook the entire corporate world when he

admitted of cooking the account and inflating the figure by Rupees 5040 crore. This scam is being equated with Enron

of USA because here also the scam was orchestrated by its Auditor, Arthur Anderson, in Satyam, Price Waterhouse

cooper. By the end of the 20th century, Satyam computers had made a name for itself on the globe and had emerged

as the 4th largest software in the country. The meteoric rise of the company can be substantiated by the fact that it

was established in 1987 as private company and got listed by BSE in 1991. In 2001 its share was listed in NYSE and

in 2004 it made its place in European stock market. According to companys statement, its revenue exceeds to 2 bn

USD in 2008. Similarly Rajus sons companies also were moving with leaps and bound. Maytas infra got the ambitious

Metro projects and bagged many tenders including one of construction of Technology Park.

CORPORATE GOVERNANCE IN INDIA- REALITY AFTER SATYAM SCAM

Interestingly Satyam has baggedGolden Peacock award for best corporate governanceby World Council for Corporate

Governance only a fewyears ago. The scam has raised many doubts about theclass of corporate governance in India

While speaking at a seminar on corporate governance organized by CII,Ministry of Company affairs and Nationa

foundation ofcorporate governance, C.B.Bhave, the chairman of SEBIsaid on 6th February, 2009 that the corporate

governance is an ongoing process. There is aretrospection everywhere that some concrete stepswith respect to it

should be done.There are few importance elements of corporate governance namely Auditing, Independent Directors, Regulators and

Finally the Board including CEO itself. If we examine these constituents one by one, it would be crystal clear that all

the constituents either failed or did not act as was required.

The role of Price water house Coopers (PwC), the Auditing firm of Satyam has been dealt. Institute of Chartered

Accountants of India (ICAI) constituted under Charter Accountants Act, 1949 is the regulatory body of all the

accounting and auditing firms across the countries. According to a report there is acute shortage of qualified chartered

accountants and auditors in India and around the world also. The number of CAs passing every year is hopelessly

small. It is apprehended therefore that the auditing firms out source unqualified or semi-qualified commerce

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graduates of Post graduates to do the auditing in the companies. The prestigious firms get the assignment by virtue of

their name and fame which they recklessly sell in the market by out sourcing the auditors at a very low remuneration.

In case of Satyam, the man who was supposed to do audit was incidentally executive member in ICAI.

The independent directors have also failed to discharge their duties properly. Section 49 of SEBI Act and section 229 A

of Company Act, 1956 provides for appointment of Independent Directors in the Companies for protecting the rights

of public at large in general and shareholders in particular. In the case of satyam T.R.Prasad, the retired Cabinet

Secretary Govt of India was one of the directors. It speaks a lot about the procedure of appointment of independent

directors. What kinds of people are being appointed in the company? Moreover, they are appointed by the Companies

themselves and pay hefty salaries and perks for virtually doing nothing. Under this circumstance is it thinkable that

these Independent directors would dare to peep into the affairs of the company against the wishes of the CEOs? There

are only two possibilities in Satyam with respect to Independent directors. Either they connive with Raju and knew

everything that was going on, or they did not know. In both the cases they failed miserably to discharge their duties.

What is the need of such Independent Directors if they cannot do anything in this matter? One unpalatable

justification is given that the Independent Directors participate in the meeting and are not concerned with autonomy

of the company. It should be bone in mind the Enron scam was exposed by Sherron Watkins, a women independent

director.

Thirdly,the SEBI and Ministry of Company Affairs too have failed in their assigned jobs. SEBI is the highest regulator

and keeps eagle eye on the activities of the capital markets. When the profits of this company were registering

abnormal growth, thereby the prices of the shares were soaring, what were these guys doing? There has been a lot of

hue and cry with respect to insider trading; a howl SEBI failed to listen to and it inflicted heavily on Satyam. Raju had

pledged almost all his shares so did many of the promoters. The newly appointed CEO Murthy is also said to have sold

about 3.14 lakhs shares including 40,000 in December itself belonging to him and his family members. These are the

insider trading. Although insider trading per se is not illegal but it is unethical, moreover when Companys high official

who were on share selling spree must had the idea of what was going in the company. All such transactions are

needed to be probed.

As a matter of fact the tax holidays for the IT-BPO companies also needs to be said goodbye. Had Raju to pay the

Income Tax according to the profits shown in the accounts, he would not have fudged it to this scale. The ministry of

Finance must deliberate upon the entire gamut of issues related to tax heaven provisions.

RECOMMENDATIONS:

Taxonomy

It is important to lay out the taxonomy of corporate frauds and governance failures. In jurisdictions such as the US

and UK, managers (such as the CEO, CFO and other senior executives) are compensated through stock options and

equity and hence there is a strong incentive to inflate earnings. On the other hand, in countries such as India where

there is concentrated shareholding, the critical actor is not the senior management but the controlling shareholder

(a.k.a. the promoter). In such a scenario, where fraud is involved, it usually does not result in an inflation of earnings,

but in related party transactions whereby assets of a company are siphoned out to other companies owned by the

controlling shareholder. In that sense, and in drawing international parallels, although the media has called Satyam

Indias Enron, this case is more akin to the Parmalat case which also involved affiliated transactions and

misstatement of financials. The regulatory response in terms of reforms will have to take into account the differences

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in the systems where diffused shareholding is the norm (US and UK) and where concentrated shareholding is the

norm (e.g. India).

Audit Process

There is clearly a case for reforms in the audit system.

- The appointment of auditors ought to be shifted from the purview of the controlling shareholders to the independent

audit committee so that auditors do not owe any allegiance whatsoever to the controlling shareholders, and that the

process of appointment and removal of auditors is effected in a manner that is truly independent of controlling

shareholder influence

- There is a case for the establishment of a body such as the Public Company Accounting Oversight Board (PCAOB)

(that was established in the U.S. a few years ago), as that body would review the intensity and the integrity of audits

by auditors on an annual basis

- There is need for auditor rotation as it prevents creation of any affinity between auditors and controlling

shareholders, and avoids capture of the audit process by insiders in companies

- Auditor liability is currently an unresolved question, and the affixation of liability for malfeasance needs to be clearly

defined. In some countries, the public regulatory authorities (such as the securities regulator) could directly initiate

action against auditors and the merits of such an approach require careful consideration.

- Other precautionary processes may help as well. This could include meetings between audit committee members

and auditors without the presence of management.

Independent Directors

Independent directors tend to be in an unenviable position. Unless there are any red flags or warnings in a companys

operations, it is difficult to pinpoint board failure per se. For example, a board that receives false information, without

any other warnings, is in a tough spot. Further, in controlling shareholder situations, the independent directors are

often appointed by the controlling shareholders, and may hence owe a sense of responsibility to those shareholders

Having said that, the current norms on corporate governance in India do not go far enough to deal with independence

of the board in controlling shareholder situations. Some of the possible reforms are as follows:

- Making nomination committees mandatory for Indian companies. Currently, there is no requirement to have

nomination committees, although several companies have established such committees voluntarily. When

independent directors are chosen by an independent nomination committee and without the influence of controlling

shareholders, there is a sense that it would instill greater independence of such directors from the controlling

shareholders

- Other processes relating to the functioning of independent directors may induce greater credibility in board decision

making. These include:

-The requirements of lead independent directors

- Executive sessions among independent directors without the presence of managemen

- Appointment of advisors (such as lawyers and accountants) by independent directors to advise them on significant

transactions involving a company. Such advice would be provided independent of the management or controlling

shareholders.

- More fundamentally, there needs to be a re-evaluation of who appoints independent directors. Under the current

system, they are appointed by the shareholder body as a whole, which is often considerably influenced by the

controlling shareholder. What is required is a reform to consider other methods of appointing independent directors

For instance, they can be appointed by a majority of the minority shareholders, whereby the controlling shareholders

do not have a say on the matter. Alternatively, there may be proportionate representation on boards of listed

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company where all shareholders have some level of say in appointment of directors and that the board is not

dominated by controlling shareholder nominees. For example, in such a system, the minority shareholders obtain the

right to elect such number of directors in proportion to the percentage holding of such minority shareholders. [Note

The system of proportional representation is already available under the Companies Act, in Section 265, but is only

optional]

- Moving from a regulatory perspective into standards of conduct and ethics, perhaps it would be useful for industry

bodies such as the Confederation of Indian Industry (CII) to draw up guidance for directors that would help

independent directors clearly determine what is expected of them in the boardroom.

Investor Activism

There is greater need for activism on the part of the investors directly. Often, that is not possible because of the lack

of coordination among various investors, referred to as the collective action problem. One method by which this has

been resolved in the U.S. is through the existence of proxy consultants such as Institutional Shareholder Services or

Risk Metrics who knit together coalitions of investors to actively play a role in significant decisions involving a

company. Similarly, an active business press would also play an important role in enhancing governance practices.

These are some of the key recommendations emanating from the panel discussion. Clearly, there is recognition that

none of these systems will be failsafe. However, the solution in these circumstances is that if a number of such

systems are put in place, it would reduce the statistical likelihood of things turning sour from a governance

standpoint.

Indian Coal Allocation Scam

Coal allocation scam or Coalgate,[1] as referred by the media, is a political scandal concerning the Indian

government's allocation of the nation's coal deposits to public sector entities (PSEs) and private companies. In a draft

report issued in March 2012, the Comptroller and Auditor General of India (CAG) office accused the Government of

India of allocating coal blocks in an inefficient manner during the period 2004-2009. Over the Summer of 2012, the

oppositionBJPlodged a complaint resulting in a Central Bureau of Investigation probe into whether the allocation of

the coal blocks was in fact influenced by corruption. The essence of the CAG's argument is that the Government had

the authority to allocate coal blocks by a process of competitive bidding, but chose not to. [2] As a result both public

sector enterprises (PSEs) and private firms paid less than they might have otherwise. In its draft report in March the

CAG estimated that the "windfall gain" to the allocatees was 1,067,303 crore (US$193.18 billion). The CAG Final

Report tabled in Parliament put the figure at 185,591 crore (US$33.59 billion) On August 27, 2012 Indian Prime

Minister Manmohan Singh read a statement in Parliament rebutting the CAG's report both in its reading of the law and

the alleged cost of the government's policies.While the initial CAG report suggested that coal blocks could have been

allocated more efficiently, resulting in more revenue to the government, at no point did it suggest that corruption was

involved in the allocation of coal. Over the course of 2012, however, the question of corruption has come to dominate

the discussion. In response to a complaint by the BJP, the Central Vigilance Commission (CVC) directed the CBI toinvestigate the matter. The CBI has named a dozen Indian firms in a First Information Report (FIR), the first step in a

criminal investigation. These FIRs accuse them of overstating their net worth, failing to disclose prior coal allocations,

and hoarding rather than developing coal allocations. The CBI officials investigating the case have speculated that

bribery may be involved. The issue has received massive media reaction and public outrage. During the monsoon

session of the Parliament, the BJP protested the Government's handling of the issue demanding the resignation of the

Prime Minister and refused to have a debate in the Parliament. The deadlock resulted in Parliament functioning only

seven of the twenty days of the session.

http://en.wikipedia.org/wiki/Coal_Mining_Scam#cite_note-0http://en.wikipedia.org/wiki/Coal_Mining_Scam#cite_note-0http://en.wikipedia.org/wiki/Comptroller_and_Auditor_General_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/BJPhttp://en.wikipedia.org/wiki/BJPhttp://en.wikipedia.org/wiki/BJPhttp://en.wikipedia.org/wiki/Central_Bureau_of_Investigationhttp://en.wikipedia.org/wiki/Coal_Mining_Scam#cite_note-CAG_report-1http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Coal_Mining_Scam#cite_note-0http://en.wikipedia.org/wiki/Comptroller_and_Auditor_General_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/BJPhttp://en.wikipedia.org/wiki/Central_Bureau_of_Investigationhttp://en.wikipedia.org/wiki/Coal_Mining_Scam#cite_note-CAG_report-1http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollar

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