Why aren't scamsters in India made to repay what they loot?

By S. Murlidharan

The trial court that convicted the former Bihar Chief Minister Lalu Yadav in fodder scam condemned him to prison for five years and slapped a penalty of Rs 25 lakh.

The size of the scam was guesstimated at Rs 950 crore. Nobody knows the true size. It may be egregiously exaggerated given the Indian fascination for hype.

The CAG itself has been accused of exaggerating the notional loss in assorted scams the country has been a witness to. The auditing profession's smug and self-serving defence against inaccurate valuations is auditors are not valuers though they are intimately concerned with values and that they are in any case trained to overstate the anticipated losses and understate the anticipated profits. Thus the CAG can wriggle out of the criticism of exaggeration if ultimately the size of the loot turns out to be smaller. Be that as it may but courts cannot similarly do an incomplete job because the buck stops with them.


Lalu has been convicted in connection with the fodder scam. AFP

They ought to meticulously compute the true extent of loss and ideally ask the perpetrator(s) of the scam to disgorge, or return all the ill-gotten wealth through malpractices to the public. Unfortunately Indian courts are willy-nilly remiss in doing this sacred duty.

There are broadly three justice dispensations - retributive, restorative and reformative. A person who has been convicted of looting must be asked to disgorge. This is restorative justice, the one that meets the ends of justice when the crime is misappropriation or swindling especially when the fence eats the crop. In the event, Arvind Kejriwal of the Aam Aadmi Party is entirely correct when he instigates people humorously to merrily indulge in financial crimes taking a cue from L'affaire Lalu and taking comfort from the fact that the worst that can happen to them is a brief incarceration in prison coupled with a fine that is just a slap on the wrist.

In the US, Rajat Gupta was called upon to pay up $15 million though the quantum of profits he made through insider trading or helping his friend Rajaratnam in insider trading was only $5 million. The difference in the justice system of the two countries, both democracies, cannot be lost on the discerning - in India the penalty is a tiny fraction of the loot but in the US the penalty is several times the loot with the loot itself being asked to be disgorged.

It is another matter that there could be some merit in the contention that the US justice system is harshest on black and brown skinned people. It must be, however, conceded that another scamster Kenneth Lay, an unadulterated Caucasian, was called upon to disgorge $250 million that he made by unloading the shares of Enron to unsuspecting employee welfare funds after ratcheting up the profits of the company and its market valuations by booking future sales as current. Unfortunately, he did not live to serve his sentence. Neither could he vindicate his innocence through an appeal against the sentence.

Both the Indian company jurisprudence and political saga have very little to offer by way of deterrent tales on disgorgement. Harshad Mehta, who tinkered with the share market in early nineties with singular nonchalance, too died like Kenneth Lay. Perhaps, with due respect to the departed souls for the black if not macabre humor, it would be more accurate to say that Kenneth Lay died like Harshad Mehta except that he, unlike Mehta, didn't set his foot into the prison.

The special court appointed for retrieving the loot, mainly belonging to banks that succumbed to Harshad Mehta's blandishments and wile and guile, could retrieve only a part by freezing his bank accounts.

The Indian courts' reluctance to pass disgorgement orders has perhaps something to do with the dawning realization that their orders would remain largely unimplemented what with benami holdings frustrating them. Intuitively, therefore, it can be said that they do not pass disgorgement orders where one is warranted to spare themselves the blushes.

In fact, the market regulator Sebi made no secret of this when it passed a disgorgement order in the 2006 IPO scam. The Sebi had asked the depositories and banks to cough up the money made by a wily investor in multiple names so as to be able to get maximum allotments under the retail investor quota. The regulator found in the banks and depositories a convenient whipping boy, a fall guy whose coffers contained enough to disgorge albeit vicariously.

That was vigilante justice, the kind meted out to me when I was a callow youth and found allowing my seat mate to copy from my answer sheet. The invigilator slapped me across the face even while leaving the copier with a mild reprimand. The irrationality of the order was palpable so much so that SAT (Securities Appellate Tribunal) quashed the disgorgement order, leaving the public bemused and the trickster laughing all the way to bank.

Disgorgement orders can work only in a milieu where benami holdings simply do not work. Otherwise it can turn out to be meaningless and a butt of joke. Late Prime Minister Rajiv Gandhi's attempt at institutionalising machinery for confiscating properties held benami was thwarted by vested interests. Benami properties defy both administration and justice.

Another uniquely Indian factor frustrating meaningful disgorgement orders being passed is the touch-me-not status accorded to political parties through a conspiracy of silence and all-round acquiescence.

It is common knowledge that the major beneficiary of every scam in the country is the ruling dispensation. Imports come handy for the political class because the attendant over-invoicing and kickbacks remain outside the pale of investigation with our CBI finding itself out of its depths in unravelling scams having their epicenter in foreign countries.

The Bofors scam has defied unravelling thanks largely to the intransigence of the Swiss authorities and the CBI's bumbling. The cognoscenti also know that the coal blocks allotted gratis was in fact done for a quid pro quo - in return for hefty political donations in cash to the ruling dispensation.

One only hopes the Supreme Court goes after the culprits in the Coalgate and retrieve the loot for the benighted citizens of this country with the same zeal it displayed way back in 1990 when it retrieved the loot perpetrated by promoters of Skipper Construction Ltd. The company had collected as much as Rs 11 crore from flat buyers in advance even while thumbing their noses at DDA, stalling payment of the cost of land of about Rs 9 crore after making only 25 percent down payment.

The Apex Court used to the hilt the power given by Article 142 of the Constitution - doing complete justice in the manner it deems fit in the circumstances of the case in hand. This judgement remains till date the only serious effort made to make the swindlers disgorge.

One hopes the 2G and Coalgate verdicts take the Skipper verdict as a worthy precedent and thereby send a stern message that what you gorge ravenously has got to be disgorged one day in addition to incarceration and monetary penalty.

Restorative justice is the most apt form of justice for paper or financial crimes though it is carried to ridiculous levels in certain parts of Africa even today - a woman freshly widowed must be married by the man who brought about the widowhood on her. We should, however, take it to mean disgorgement and nothing more.

Updated Date: Dec 21, 2014 00:51 AM

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