August 14, 2020
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Paying Their Dues At Last?

Bigger cases and names may follow the tough sentence on Hiten Dalal and Saranthan Mohan

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Paying Their Dues At Last?

ALMOST six years after the securities scam hit the country and the stockmarkets, the special court of Justice S.N. Variava proved last fortnight that justice delayed doesn't have to be justice denied. On August 14, the court announced its first conviction against broker Hiten Dalal and assistant vice president of Canbank Financial Services (Canfina), Saranthan Mohan. And on August 27, Justice Variava announced the sentence for the two: rigorous imprisonment (RI) for seven years in addition to a fine of Rs 1.5 lakh each.

The sentences are definitely tougher than expected. But while delivering them, Variava made his rationale clear, quoting from a Supreme Court judgement: "Offences which jeopardise the economy of the country should not be treated casually. Serious view must be taken of this act (by Dalal) who has shown scant regard for the law of this country."

This is the first criminal matter in the securities scam in which punishment has been awarded. But there are many cases, involving far bigger names than Dalal and Mohan, which could be coming up for judgement very soon.

 Of course, it may be a long time before Dalal and Mohan actually go to jail. Indeed, they may never end up behind bars. The sentences have been stayed for two weeks to allow the accused to appeal before the Supreme Court, and during this period, the accused will not be imprisoned. Says Manish Parekh, counsel for Hiten Dalal: "We'll be appealing to the Supreme Court. It depends on the apex court if they stay the sentence and accept the appeal."

If the Supreme Court does that, the accused will be free until the final hearing of the case by the apex court. In normal circumstances, once an appeal is admitted in the Supreme Court, it will take a minimum of six years for the case to come up for hearing and a few more years to complete it. So, even if the apex court finds them guilty, it could well be a decade before Dalal and Mohan start serving their sentences.

But according to lawyers and bankers following the case, whether Hiten Dalal goes to jail is not the issue. "I think the sentence is an attempt to bring economic offence at par with criminal offence. If the two accused really go for RI, it might act as a deterrent," says a banker. As Justice Variava thundered on August 27: "It has become very common to find cases of scams after scams. In several cases, public money is siphoned off.... This is done as there is no deterrent effect. It is time that the courts sent the message out that justice may be delayed but is sure to follow."

 Says Arup Patnaik, head of the economic offences wing of the CBI: "Finally we got a result for all the efforts made by our office. The verdict sends a message to the people that no one can escape the law of the land."

Now the CBI is hopeful that some more concrete proof of their labour will appear soon. Says Raja Thakre, counsel for the CBI: "This is only the first conviction and that too of an offshoot of the securities scam. Cases are going on one after the other. While the scam is six years old, the actual trial of some of the cases has been going on for over a year." Attention is now focused on Justice Rane of the Bombay High Court where all the hearings in the case of CBI versus the eight or nine main accused brokers are over. "This case involves all the main brokers—Harshad Mehta, Abhay Narottam, J.P. Gandhi, Bhupen Dalal and few others. Justice Rane has heard all the arguments and now the final arguments from the counsels are awaited. The court should be delivering its judgement anytime within the next two months," says Thakre.

In yet another case against the big bull Harshad Mehta and Bhupen Dalal, broker Abhay Narottam has turned court approver and has decided to give evidence against them. "Narottam claims he was manipulated by Mehta, Dalal and company and thus has turned a defence witness. This case also is in Justice Variava's court," says Thakre.

 As for the Hiten Dalal case, the court has convicted the two on a chargesheet filed by the CBI in Rs 33-crore transactions in Cancigo units issued by Canara Bank Mutual Fund. These units had been acquired by Hiten Dalal on behalf of Andhra Bank (Rs 11 crore) and Andhra Bank Financial Services Ltd (Rs 22 crore) and were held in the names of the bank and its sister financial company. Despite the fact that these units weren't transferable for a period of one year after allotment, Dalal had delivered them to Canfina, in order to clear his dues with the latter within one year. Canf-ina then adjusted a sum of about Rs 25 crore which was receivable from Dalal and paid him a balance amount of Rs 7.99 crore. The special court convicted Dalal and Mohan for defrauding Andhra Bank and Canfina.

PLEADING against the verdict, Dalal's counsel, Ramakant Owalekar and Manish Parekh, called Dalal's misdemeanour "a technical offence and not an economic offence", as Dalal had another case regarding Canfina running in the Supreme Court. "Cancigo units have been attached by the custodian as Hiten Dalal's assets while Canfina has claimed ownership of those units in the Supreme Court. If the Supreme Court decides that the units belong to Canfina, Hiten Dalal's conviction for dealing in stolen property would automatically be vitiated," said Dalal's counsel.

 Justice Variava, however, came down harshly on the accused. "This judgement sends a message that persons who commit economic offences like this one and who put the national economy to jeopardy will not get away with light sentences. The offences were committed by the accused in a calculated manner and not on the spur of the moment."

The CBI believes that this judgement—and the proceedings of the securities scam—may well become a new benchmark for other financial offences. "Increasingly courts are adopting a tougher stance on financial and economic misdemeanours. Now this money laundering bill will hopefully make the courts' job even easier," says a CBI officer. In April, the magistrate court in Chennai issued non-bailable arrest warrants against the directors of Kedia group on alleged charges of dishonouring cheques worth Rs 50 lakh to Sak Industries Ltd. The CBI has filed a chargesheet against seven Bharat Heavy Electricals Ltd (BHEL) and two businessmen, including a German national, for alleged criminal conspiracy and cheating to the tune of Rs 10.24 crore in the import of machinery from Germany.

The Mumbai High Court has also directed C.R. Bhansali, chairman of CRB Capital markets, to file a detailed affidavit disclosing the assets, bank balances and financial particulars pertaining to all the 138 companies of his group. The directions were issued by chief justice M.B. Shah and justice R.M.S. Khandeparkar on a writ petition filed by investors' grievances president Kirit Somaiya who sought action against the RBI, the SEBI and other regulatory bodies for their laxity leading to the multicrore scam. The Delhi High Court too has issued notice to SEBI and other regulatory bodies for their alleged failure to check illegal activities of plantation companies. The court has based its directive on doubts about investment worth Rs 10,000 crore which have "fallen under grave risk of total loss".

 Meanwhile, the law commission has also suggested enactment of a new section in the Indian Penal Code. "When two or more persons agree to defraud a public institution or a local authority fraudulently or dishonestly for wrongful gain to themselves or wrongful loss to such public institution or local authority, such an agreement is a criminal conspiracy to defraud. Whoever is a party to such criminal conspiracy shall be punished with imprisonment for life or with imprisonment of either description for a term which may extend to 10 years and shall also be liable to fine," says the Commission's latest report. It will be, of course, some time before the Commission's recommendations are notified into law.

Even as all these cases on financial offences move, at whatever pace, towards resolution, there's another new set of revelations related to the securities scam which threatens to open up a political Pandora's box. This new information came to light in Justice Variava's court recently, when the custodian started inquiring about the assets of Pallav Seth, one of the accused brokers who was raided last year. Documents which have surfaced in Variava's court reveal that Seth has lent a sum of Rs 5 crore in varying amounts to Laxmi-chand and Suman Shah, the father-son duo accused in the infamous Kini murder case, Raj and Sharmila Thackeray (Raj, the nephew of Shiv Sena supremo Bal Thackeray, is accused of involvement in the murder), Parvez Damania, Rajan Shirodkar, all senior Shiv Sena members. Other recipients include Ashutosh Rane, another accused in the Kini murder case, Shantanu Sheorey, fashion photographer, and Vijay Kalantari, chairman of All India Association of Industries.

While this might take another prolonged investigation and court proceedings, what is clear is that little of the money lost in the securities scam is recoverable. Says advocate Vishwas C. Gupte, senior counsel for the CBI: "There is no scope for getting the money back. However, the properties of the major stockbrokers involved in the scam are with the custodian who will start paying off the creditors in whatever way possible, at a later date."

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