India has witnessed many scams when it comes to finance and accounts. These scams were unearthed after years of embezzlement, and even today, we don't know how many such scams might exist in the system. The biggest problem is that the ones who should be preventing these are the ones behind it like politicians and bureaucrats.
Let's understand three of the most financial scams, how they were discovered and what all followed.
A name you must've heard in the world of diamonds and deceit. He was a big name in the diamond business and was once ranked 57 in the Forbes list of billionaires in 2017. He was born in Palanpur, Gujarat and was brought up in Antwerp, Belgium. When he turned 19, he joined his maternal uncle, Mehul Choksi's business.
Nirav's designs have been worn by many megastars. He was the first jeweller from India to be featured on the covers of Sotheby's & Christie's catalogues. In 2012, Nirav's solitaire collection 'Riviere of Perfection' was sold in Hong Kong in Sotheby's auction; it was a moment where all eyes were on him, and his fame was touching unknown boundaries.
PNB's complaint against Nirav Modi
Even after achieving so much, everything started slipping off. PNB (Punjab National Bank) filed a complaint with the CBI against the businessman on 28 January. According to the complaint, Nirav and his partners (Nishal Modi, Ami Nirav Modi, Mehul Chinubhai Choksi) obtained Letters of Undertaking by conspiring with several bank officials to make payments to the overseas suppliers and defrauded the bank of 28000 crores.
Letter of Undertaking
LOU is a provision that works as a guarantee from the bank. It's used in the international system of banking. With this, the bank allows its customers to raise funds from the branch of an Indian bank established overseas in the form of a short term credit. In case if the customer isn't able to pay back to the foreign branch, the bank which issued money is responsible for paying back the money. While providing LOU, the bank asked for a cash margin, and Nirav was given a no-margin cash limit. Nirav Modi was acquiring LOUs with the help of bank officials from 2011.
According to the reports, 1200 LOUs were used by Nirav Modi under the umbrella of PNB to obtain money from foreign branches.
It is a short term loan given to an importer by an overseas lender. After PNB's complaint, CBI started its investigation against all the accused in the case. As the CBI was enquiring, it found unauthorised transactions of a total of Rs 11,400 crore at the Mumbai branch.
On 16 January 2018, the accused foreign branches of banks gave import documents to PNB's Mumbai Branch, requesting buyer's credit to pay to the overseas lenders.
SWIFT is a messaging network used by banks and financial institutions all over the world. When the LOUs were issued, messaging was being done by SWIFT. However, PNB wasn't alerted about the scam from SWIFT as well because PNB's core banking system wasn't synced with SWIFT. If it would've been synced, then the scam would've been detected in the first transaction only. The officials from the bank helping Nirav would send the message to the foreign branch through SWIFT, but they didn't record it on the core banking system of PNB.
Nirav escaping to London
After committing a fraud of crores, Nirav ran away and flew to London on 1 January 2018. Later, Mehul Choksi too crossed India by air on 4 January 2018. He was removed from the Forbes list, and his companies Solar Exports, Stellar Diamonds and Diamond R US were named as accused in the case. Another company of Nirav, A. JAFFE was auctioned in May 2018, purchased by Parag Diamond.
Extradition appeal by India
He was arrested in London after Indian authorities made an extradition request against him. Nirav tried to get bail several times, but all of them were rejected straightaway. Finally, on 25 February 2021, the UK court considered the Indian Government's request to have Nirav Modi extradited to India.
However, it may still take months for India to bring him back. As of now, he's imprisoned at Wandsworth Prison in South-west London.
Vijay Mallya, the man who once owned Royal Challenger Banglore - IPL team, is today a fugitive. Be it politics or cricket, he was a well-known personality in both.
He was elected to the Rajya Sabha twice from Karnataka as an independent member, first in 2002 and then in 2010. Mallya was also the chairman of Sanofi India (previously known as Hoechst AG and Aventis) and the chairman of Bayer CropScience in India for more than 20 years. After the death of his father, he became the chairman of United Breweries Holdings Limited (UBHL) at the age of 28.
Mallya wanted to expand his business and that's what he did. In the duration of 1998-1999, he grew his company's turnover by 64% and acquired many companies. As his business grew, so did his greed. He launched Kingfish airlines in 2015.
Liquor and Airline business
Mallya was keen to expand his liquor and airlines business, and in order to do that, he sold a company his father formed.
Soon, Vijay Mallya's kingfisher became India's no.1 domestic airline company. Later, he was keen to fly international flights; he leveraged United Spirits or United Breweries to own Deccan Air. It proved to be a loss-making company and merged it with Kingfisher Airlines. As the company wasn't making any growth, by 2020, the business fell into a heavy loss.
Loans after loans
To compensate for the losses, he had to take loans of 9000 crores from 17 banks. He was so out of money that he couldn't even pay the salaries of his employees. SBI had already declared Mallya bankrupt, but because of his political position, other banks kept lending him loans.
Finally, In 2012, the company shut down its operation.
Looking at his position, the Company United Breweries forced him to resign from the post of chairman of United Spirits. The company paid him $75M for a severance payment. However, Indian courts blocked this payment. SBI filed a case against Vijay Mallya but before the case could proceed further, he flew away to the UK.
Purpose of the loans
According to some reports, he took loans for his personal use and laundered them overseas to several tax havens with the help of shell companies. He might have done this by placing fake directors for the purpose, and the companies weren't in use and didn't even have an independent source of income. These companies were located in Uk, Ireland, USA, France and three other countries.
The dummy directors would've done what they were asked to do by Mallya. While some said that the money he got from loans were used by him to fund his IPL team, Royal Challengers Bangalore, an F1 racing team and Force India.
Escaping from India
There was a time when he was known as the "king of good times" because of his luxurious lifestyle, but ever since 2012, his scandals have left everybody shocked. Mallya left India and moved to Britain on 2 March 2016, citing that he wanted to be close to his children.
The UN Metropolitan Police extradition unit arrested him after the Indian authorities accused him of fraud.
Fugitive Economic Offender
At the request of the Enforcement Directorate, Vijay Mallya was declared a fugitive economic offender by a special court in Mumbai. In 2019, the UK home secretary ordered his extradition. He was granted permission to appeal to London's High Court against his extradition, but the London High court rejected his plea.
However, due to legal proceedings, he has still not been extradited. The case is a live example that luxury and greed are short-lived.
The scam of 1992 is a very famous one that brought out the loopholes in the banking system of our country, and Harshad Mehta was the one behind it. He was an Indian stockbroker who came to be known as 'Amitabh Bachchan' of the stock market and 'Big Bull' of Dalal street.
In his early years, he worked as a salesperson for many companies. Later, he developed an interest in the stock market and joined a brokerage firm. The 1992 scam was about how Harshad smartly manipulated stocks by illegally obtaining money from banks using fake bank receipts. The banks which were involved included the State Bank of India (SBI) and National Housing Bank (NHB).
Everything turned upside down when SBI reported that Rs. 500 crore were missing from its records in the form of Subsidiary General Ledger at RBI's public debt office. Now, things got suspicious and led to a more extensive investigation by the Janakiraman Committee. It was a joint parliamentary committee appointed by the Central Bank.
In every scam, corrupt bank officials are involved, and Harshad used the same weak nerve of the Banking system.
Ready Forward deals
It's a way where a broker is the mediator between 2 banks. The broker is approached when one bank wants to sell securities to the other bank. However, as per RBI guidelines, it was mandatory for the banks to deal with one another in case of security dealings directly. Harshad was a renowned broker, due to which banks approached him for the dealings.
Instead of getting cheques issued for the banks, he used those for his purpose. During those times, bank receipts were used. They were given by a borrower bank to the lender bank for the exchange of securities.
Harshad had contacts in various banks. He knew officials at the Bank of Karad and Metropolitan Cooperative Bank; the officials helped him obtain fake receipts. Now, after getting the money, Harshad used to transfer it to the stock market.
After the scam, the Janakiraman Committee declared that bank receipts were the most flawed system.
Harshad was exposed in 1992
In 1992, journalist Sucheta Dalal exposed the scam. She saw Harshad arriving at the State Bank of India in a Toyota Lexus, which was just released internationally and cost more than Rs. 40 lakh. Since then, Sucheta became suspicious of him and started her investigation into the matter.
It was in January 1992 that RBI started inspecting the record of banks for irregularities in security transactions. RBI found some evidence which suggested a shortfall of Rs 649 crore in SBI's investment. Later, a security transaction between NHB and Grindlays, too, showed how Harshad was manipulating things.
Some also suggest that the Bear Cartel went up against Harshad Mehta and uncovered his scam. The scam involved banks employees, brokerage firms, bureaucrats and politicians. One of these politicians was R Sitaraman; he was the primary person responsible for irregularities at SBI.
After the CBI started its investigation, Harshad and his brother Ashwin Mehta were kept in prison. When the scam unfolded, he made some controversial claims. Harshad said that he had received support from the Government, and he paid Rs 1 crore to the then Prime Minister, PV Narasimha Rao.
Imprisonment and death
In September 1999, Harshad was sentenced to 5 years of imprisonment by the Bombay High Court. More than 600 civil suits and 76 criminal cases were filed against Harshad Mehta and his family members.
According to The Janakiraman Committee, the size of the scam was Rs 4024 crore. Mehta passed away on 31 December 2002 in Tihar jail due to a heart attack.
The aftermath of the scam
Many bank officials were arrested for being a part of the scam. The chairman of Vijaya bank committed suicide after the fraud was disclosed as he too was involved in issuing cheques to Harshad Mehta.
P. Chidambaram resigned as he was accused of owning shell companies that had a connection to the scam. Just after the scam was out, there was a sudden downfall in share prices and market index.
It was after this scam that changes were made in India's financial regulatory system. In 1995, The Securities Laws (Amendments) Act was passed, allowing SEBI to regulate depositories, FIIs, venture capital funds and credit-rating agencies.
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