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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
Government Frauds

SUBJECT
ECONOMICS 2

NAME OF THE FACULTY


Abhishek Sinha sir

NAME OF THE CANDIDATE


M. ESWAR
2017050
SEMESTER III

1
TABLE OF CONTENTS
1. Acknowledgement
2. Introduction
2.1 Post liberalization Period.
3. Gravity of the Problem
4. Measures Required to Stop Scams and other Economic Crimes
4.1. Notable list of top Scams
5. Government scams in recent times
5.1 Observation and Critical analysis.
6. Suggestions and Prevention of Public Sector Scams
7. Conclusion and Bibliography and References

2
ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Abhishek Sinha Sir who
gave me the opportunity to do this wonderful project on the topic economics and legal
analysis of “Government Frauds” which also helped me in doing a lot of Research and I
came to know about so many new things about the more white collar crime terms and
.Secondly I would also like to thank my friends who also helped me a lot in completion of
project within the limited time.

-----M. Eswar
2017050

3
Abstract

There are different types of scams and frauds takes place in various sectors such as
government and private sector and also in public sectors and various means. Most of the
major scams takes in the government sector.
Fraud has existed long before the advent of modern technology; however, we can
increasingly observe how this profit-driven enterprise is entering the cyberspace. Our paper
focuses on a case study of two scam schemes targeting international students at Penn State.
The scams have been perpetrated in either a physical (i.e., phone scam) or online (i.e.,
Craigslist scam) form. However, this dichotomy becomes blurry when examining the phone
scams more closely since they often employ cyber elements (e.g., phone spoofing, requests of
electronic payment) to mask the scammer's tracks and identity. Our study aims to better
understand the nature of the scams and how international students contextualize their scam
experiences.
We place particular emphasis on investigating what students' decision-making processes are
behind filing a report about their scam experiences. We also explore the predominantly used
reporting avenues by those international students who filed reports. In the first part of our
study, we present a qualitative analysis of Penn State campus police reports of scam incidents
covering three years of data (2014-2016). Aside from being able to understand the prevalence
and details of the experienced scams, the analysis of the data also helps to unpack the
motivations behind why international students file reports to entities like campus police
particularly in the event that an inchoate crime was experienced. Furthermore, working with
the data lays the groundwork for the second half of our study, a 16-person in-depth interview
series with international students who experienced a scam while studying at Penn State.
The results of our case study will show the fundamental impact of increased awareness in
preventing international students from falling victim to the scams they encountered.
However, opportunities still remain in terms of effectively increasing knowledge about how
such incidents can be officially reported to law enforcement and how currently existing
cybercrime reporting mechanisms can be improved to further bolster cybercrime reporting to
take place.

4
CHAPTER-1
Introduction1:
The advent of the Internet has brought some remarkable changes in the working of the
world. People have embraced this technology with such enthusiasm that it is hard to imagine
a world without Internet. If the invention of the radio and the television made the world a
smaller place, the arrival of the Internet shrunk the world to even more minuscule
dimensions. Today it is possible for an entire corporation to run its operations in a different
country, and not face any problems whatsoever in its functioning. Such freedom is offered by
this powerful medium known as the Internet. However, as is the case with every other
technology, the Internet can be used for harmful purposes as well. Along with the good,
comes the bad. This age-old adage is very much true in the case of the Internet. The past
decade has seen the rise of Internet scams, commonly known as online scams, which have
made the life of the citizens very hard indeed. These scams occur just like in real life – an
innocent person is tricked into revealing private and confidential information lured by some
kind of incentive. The only difference between real life scams and Internet scams is that the
speed of the scams on the Internet is much faster, and much more devastating. Tech-savvy
citizens soon realised that they could trick other users into revealing personal information like
credit card numbers, and bank account logins, if they could offer those users something
tempting, like a prize or a free gift. It all began as an innocent lottery scam, and soon turned
into something more dangerous. Today the Internet is rife with various kinds of online scams,
which have made it hard for the average citizen to have a normal browsing session. It has
become a serious problem indeed with thousands of people losing their hard earned money in
a matter of minutes. Such incidents take place every day, and the situation is very grim as of
today, with the future inclining towards the worse. Unless some definitive action is taken
against these scams, they cannot be stopped. But then, who can control faceless criminals
who hide behind their computers? This is theoretically impossible, and impractical. So where
does the solution lie?

Corruption in India has taken a widely virulent and deliberate form with scams
popping up almost every day. In our daily life, most of us must have been a witness to or a
victim of the corruption thriving in some or the other part of the country. The economy of
India was under socialist-inspired policies for an entire generation from the 1950s until the

1
Patibandla, Murali. “Economic Reforms and Institutions: Policy Implications for India.”

5
late 1980s. The economy was subject to extensive regulation, protectionism, public
ownership, leading to persistent corruption and slow growth. Greed is Good has become the
motto for India's Role Models in Sport and Military as well. India's Politicians are leading the
protagonists with Realty being the Main Theme.
Many like Real Estate companies in India are notorious for corruption with the sector
being avoided by Fund Managers. The Politicians of the States have made it the Corruption
Capital currently with Bangalore equally famous for Land Grabbing and Real Estate Scams
by Bureaucrats and Politicians. Mafia dons have become powerful enough to topple
governments with some heading the administration as Ministers. India's Image of Corruption
has become bleaker by the Day with the Commonwealth Games Scam, Adarsh Housing
Scam and the Multi Billion 2G Telecom Spectrum Auction Scam and so many in a row.
India's Political and Business Elite have scant regard for India's Justice System as hardly
anyone is prosecuted for Corruption. Only some small fish are made scapegoats while the
Ringleaders deliberately and openly indulge in manipulation and corruption. This is the
season of scams and the biggest ever corruption cases in India have been unearthed more
recently. So, I decided to dig deep to see which scams were the biggest and most damaging to
the country and its citizens alike.

Post-liberalization period2:
Indian economy has witnessed several scams like Harshat Mehta Scam in 1992,
Fodder Scam 0f 1996, UTI Scam of 2001, Satyam Scandal and most recently the 2G scam.
These scams have just not led to the loss of millions of rupees but have also affected the
economy in a major way. The scale of these economic crimes and the way in which these
crimes have been committed are a serious concern to the Government as well as to the
people.
Approximately 73 lakh crore rupees have been lost due to the economic scams since
1992.Indian economy lost almost 6,600 rupees in the fiscal year of 2012 alone. These scams
have affected all the sectors of the economy.
The Joint Parliamentary Committee on Stock Scam of 2001 defined scam as:-

2
Singh, Sandeep. “In One Month,Sebi Seizes Rs 1,544 Cr from Bank Accounts of Defaulters.” Indian Express 6
Nov. 2013. 6 Nov. 2013. Web. 3 July 2014. <http://indianexpress.com/article/news-archive/web/in-one-month-
sebi-seizes-rs-1-544-cr-from-bank-accounts-of-defaulters/>

6
“Individual cases of financial fraud in them may not constitute a scam, but persistent
and pervasive manipulation of public funds falling under the purview of statutory
regulators and involving issues of governance, becomes a scam.”
The regulation of financial market is one of the constant challenge which government faces.
The government established the Securities and Exchange Board of India in 1992 to protect
the interests of investors in securities and to regulate the securities market.The ever changing
nature of these scams have kept the SEBI on its toes and necessitated the need for its
empowerment. The government recently passed the Securities Law (Amendment) Bill, 2014
to empower the SEBI and to protect the interests of investors in a better way3.
These scams can affect the economy of the nation as a whole and in a globalized world where
all the countries are related by trade and other means these scams can damage the world
economy at large. For example, a systemic risk occurs when few brokers monopolize the
transaction of securities leading to a lack of liquidity in the economy.

3
http://zeenews.india.com/business/news/finance/lok-sabha-passes-bill-to-give-teeth-to-sebi-to-tackle-ponzi-
menace_105588.html

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CHAPTER-II
Gravity of the Problem4:
Economic offenders by engaging in various illegal trade practices and by way of scams have
swindled off millions and billons of money and have exploited all the areas of economic
activity. The various areas in which scams and frauds have affected the economy are:-
1. Primary Market Frauds:-

Primary market is that part of capital market wherein corporates issue new securities for
raising funds. These funds are generally raised through IPO’s (Initial Public Offers). There
have been several IPO frauds in which many operators and companies after collecting
thousands of crores of rupees from people have vanished. In November 2013, SEBI seized Rs
1,544 crores from bank accounts of peoples and companies who were indicted of the IPO
frauds.
2. Secondary Market Frauds:-

Insider trading is a common unfair practice in which traders who are insiders to an
organization manipulate and misuse the unpublished sensitive information. When the people
who are insiders to an organization trade using the information which is not public, it
becomes unfair for the investors who don’t have access to such information. Inside trading
violates the basic principle of fair trading and is an extension of asymmetrical information.
The Securities and Exchange Board of India imposes a prohibition on dealing,
communicating or counseling on matters relating to inside trading. This unfair practice is
quite common in India in which share prices are artificially rigged so as to profit the ‘insider’.
This leads to a loss to the common investors.
3. Fake Currency:-

“Large scale circulation of fake currency can undermine the economy as well as the national
security of a country.” The counterfeited notes are used by the terrorists to fund their
operations. Thus, this is not just an economic crime but also a threat to the security of our
country.
The other forms of economic crimes are listed below:-
 Import/Export Frauds
 Insurance frauds

4
Pathak, Bharthi V. The Indian Financial System: Markets, Institutions and Services. Pearson Education India,
2011. 136-138.

8
 Fake stamp paper
 Fodder scams
A case study of several economic scams and frauds is analysed below:-
1. Fodder Scam of 19965:

The Fodder Scam of 1996 was a corruption scandal involving the alleged embezzlement of
approximately Rs. 950 crore from the government treasury of the poor state of Bihar.
Although the report of the scandal broke in 1996, the theft had been in progress, and
increasing in magnitude, for over two decades. Apart from the money embezzled in this
scam, the scam glared the eyes of the public because of the involvement of the then Chief
Minister of Bihar whose party was one of the major allies of the Central Government. Thus,
the scam involved huge political consequences also. The New York Times then reported that
the scam had potential of bringing down the entire Government of India. Here is the excerpt
from its 2nd July 1997 edition;
“Barely 10 weeks after Prime Minister I. K. Gujral took office with a pledge to provide
India with ‘clean government’, he is struggling to hold his ruling coalition together in
the face of a corruption scandal that could send one of his most powerful political allies
to jail. ”Fodder scam,” so-called because it involves vast herds of fictitious livestock, has
stirred widespread concern, even in this country, which is weary of political corruption
and scandal investigations that rarely result in convictions.” Beginnings of the scam
This scam spanned over a period of two decades. It originated in small-scale by officials in
the state animal husbandry department withdrawing funds from the government treasury with
fictitious bills. The scam over a period of time grew in magnitude and created a nexus
between politicians and bureaucrats. The scam went on without attracting much notice until
1990. The first report which indicated involvement up to the Chief Ministerial level was
presented by then vigilance police inspector Bidhu Bhushan. He is now a witness in many of
the fodder scam cases. The scam involved many bureaucrats and elected officials and
“fabrication of vast herds of fictitious livestock for which fodder, medicines and animal
husbandry equipment was supposedly procured.”
Aftermath
The scam became a prime issue in the 90s as it involved role of the Chief Minister Lalu
Prasad Yadav and many other leaders. The scam became a symbol of corruption and the

5
F. BURNS, JOHN. “Fodder Scam’ Could Bring Down a Shaky Indian Government.” The New York Times 2
July 1997. 2 July 1997. Web. 1 July 2014.

9
criminalization of politics. “In the Indian parliament, it was cited as an important indicator of
the deep inroads made by mafia raj in the politics and economics of the country.” The
Supreme Court of India ordered CBI probe to investigate the irregularities after a PIL was
filed in the court. The CBI inquiry ultimately led to conviction of Lalu Prasad Yadav,
Jagannath Mishra and almost 500 other people.
The scam proved that the machinery of the government in the states as well as the centre was
tainted with corruption. The trial was conducted at very slow pace as is evident from the fact
that Lalu has been convicted after more than 17 years.
UTI scam of 20016
The Unit Trust of India, formed in 1964 through an act of the parliament, is the largest
mutual fund in the country. Mutual funds are financial institutions which give guaranteed
returns to investors who invest in various schemes offered by them- of which the US-64
scheme is the largest of them all. UTI was set up specifically for channeling the relatively
small savings that citizens have into investments by giving them back large returns. The US-
64 scheme, in particular, has over 2 crore such investors, the bulk of them being small savers,
widows, pentioners, etc.
Methodology and Reservation
The 1991 liberalization of the economy indirectly led to the liberalization of the UTI. The
US-64 scheme was converted from debt based fund into an equity based fund as a result. In
1997, when all the government nominees were removed by the government from the board of
the UTI, the scheme in contention did not come under the regulation of the SEBI, thereby
giving the chairman arbitrary power to decide investments up to Rs. 40 crore. Within one
year of the reforms to the UTI, in 1998, it crashed. The incumbent BJP government organized
a Rs. 3500 crore bailout package to save it. P.S. Subramanyum, who was appointed as the
new chairman, gave directions for channeling funds into business houses, political offices and
as well as into non performing bonds for commission. Thus, huge amounts of the UTI funds
were directed to the now infamous K-10 list of Ketan Parekh stocks. UTI, meanwhile,
continued to buy these shares even though their market value was beginning to crah in the
mid-2000s in order to prop up the value of these shares. Thus finally, US-64 lost more than
half of its 30,000 crore portfolio value within a year because of the fact that the ‘technology’
investments took place despite indications that the boom in that industry had ended. .

6
Kapila, Uma. India’s Economic Reforms. Vol. 1. Academic Foundation, 1996. 139.

10
In August 2000, UTI bought Rs. 34 crores worth of shares in Cyberspace Infosys Ltd at an
exorbitant price of Rs 930 per share. Today, the shares have almost no valus and the
promoters of the company are in jail. “Besides this, the UTI also invested in junk bonds like
Pritish Nandy communications (Rs. 1.5 crores worth ), Jain Studios (Rs.5 crores worth),
Sanjay Khan’s Numero Uno International (Rs. 7.5 crores worth), Malavika Spindles(Rs. 188
crores worth) etc. Thereby thousands of crores were siphoned off to big business and
prominent individuals, with the UTI chairman taking his cut.”
Two months before the freezing of dealings in UTI shares, a huge amount of Rs. 4,141 crores
was redeemed. These were again purchased at the price of Rs. 14.20 per share (face value Rs.
10) when the actual price was below Rs. 8. Because of this UTIs small investors further lost
Rs. 1,300 crores to the big corporates.
Aftermath
Out of all the capital market scams in the post-liberalization era, the Unit Trust’s US-
64 has been the worst. Its magnitude exceeds the stock market downswing of the mid-1990s,
which wiped out Rs. 20,000 crores in savings. This scam led not just to the loss of money but
also the loss of lives as most of the small investors who invested their life savings into what
they considered as a secured investment lost all their money. A majority of these small
investors belonged to the middle class, the retired, the widows etc.
The Joint Parliamentary Committee setup to investigate the scam concluded that the scam
took place due to the selfishness of a few individuals and negligence of management.
2. Satyam Scandal7:

Satyam Computers or Mahindra Systems, as it is called today, was found in the year
1987. The company was found by B. Ramalinga Raju and until recently, it was considered to
be one of the leading Indian IT companies After the scandal broke out which made it
impossible for the company to sustain itself, it was taken over by Mahindra Tech.
Methodology and Revelation
On 7th January 2009, the founder and Chairman of Satyam, B.R. Raju confessed to having
embezzled Satyam’s account and gave his resignation. The exposure of the scam commenced
with a successful attempt by the investors to deter the usage of firm’s cash reserves by the
minority shareholding promoters to buy out two companies owned by them, namely, Maytas
properties and Maytas Infra. The abortion of this attempt of expansion resulted in a fall in the

7
Pathak, Bharthi V. The Indian Financial System: Markets, Institutions and Services. Pearson Education India,
2011. 136-138.

11
price of the Company’s stock lead by the astonishing revelation of fraud and mismanagement
by the Chairman B.R. Raju. The promoters of the company had planned to inflate the
earnings and the profit figures of Satyam. In causing so, the company had to fill a huge gap in
its balance sheet which consisted of non-existent assets and cash reserves which were
recorded and many other unrecorded liabilities. According to Raju, this gap or shortfall in the
balance exceeded Rs. 7000 crores.
Even though the revenue of all the IT companies were increasing at that time at an estimated
rate of 30% per annum, the promoters of the Satyam took an illegal route of exaggerating the
company’s records and account. The probable reasons of this behavior can be:
1. The desire to drive up stock value, which in turn gave the promoters benefits which
allowed them to buy real wealth outside of the company.
2. The increased stock value helped the company meet the increasing competition and
diminish the threat of competition.
3. The promoters gained personal benefits as they siphoned off the funds from company
by using fraud tactics like creating 13000 ghost employees.
Mr. Raju and his family derived unfair benefits from mergers and acquisitions within the
family. For example, in year 2000 Satyam Computer merged with a related company, Satyam
Enterprises. Raju’s cousin, C. Srinivasa Raju, who held 800,000 shares, or 19 per cent, in
Satyam Enterprises, was reportedly allotted an equivalent number in Satyam Computer,
leading to criticism that relative prices did not justify the 1:1.This however was not the only
way by which promoters swindled off the money from Satyam Computers. The promoters
kept on increasing their share in the company and invested in other firms like Maytas
Properties. It is quite possible that the assets built up by the eight other Raju family
companies under scrutiny, including Maytas Properties and Maytas Infra, partly came from
the resources generated through these sales.
Furthermore, Promoters created fictional assets like 13000 ghost employees allowing them to
transfer money from the company to their pockets.
The fictional assets and hidden liabilities were as follows:-
1. The inflated figures of cash and bank balances was that of Rs. 5040 Crores as against
the Rs 5360 Crores which was reflected in the books.
2. An accrued interest of Rs. 376 Crores, which was non existent.
3. An overstated debtors position of Rs 490 Crores as against the Rs 2651 Crores shown
in the books.
4. An understated liability of Rs 1230 Crore.

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CHAPTER-III
Measures Required to Stop Scams and other Economic Crimes8
In the current running economy, the measures taken by the Indian government are not
sufficient enough to solve the problems of over growing scams and other economic crimes.
There is need of strict provisions to deal with such problems. The government is required to
bring out certain reforms to overcome these issues such as to govern the crimes of economics
the government should revamp the laws since the existing laws are not so harsh. Due to lack
of such reforms, the economics scams are increasing day by day and the same not only rip-off
the public money rather also affect the exchequer at high rates each year. Revamping of laws
can put limits on the commission of such economics crimes.
Also the enforcement agencies should try to keep bars on the benefits arising out of such
crimes by the offenders or scam. Further, the state authority should tighten up the scope of
bails provided to the offenders of scams. Along with these reforms, the judiciary also should
ensure fast and speedy decisions regarding the trials of economic offenders. In this matter, the
Indian reforms are much soft than of other countries. Side by side, all the private or public
agencies such as income tax department, custom offices, police departments, SEBI, etc.
should work in a coordination to quickly get rid of these economics crimes.
The government doesn’t telephone people or send unsolicited letters or emails to offer
grants9. If someone contacts you unexpectedly and offers you a grant, it’s a scam. Don’t
provide your financial account numbers, Social Security numbers, or other personal
information in response to such an offer. Crooks “phish” for that information to steal victims’
money and impersonate them for other illegal purposes. .

 Government grants never require fees of any kind. You might have to provide
financial information to prove that you qualify for a government grant, but you won’t
have to pay.
 Government grants require an application process. They aren’t simply given over
the phone and are never guaranteed. Applications for government grants are reviewed
to determine if they meet certain criteria and are awarded based on merit. If you didn’t
apply for a government grant and someone says you’re receiving one, it’s a scam.

8
Kapila, Uma. India’s Economic Reforms. Vol. 1. Academic Foundation, 1996. 139
9
Http://bhoolomat.com/case-detail.php?cid=23.” Web. 24 July 2018.

13
 Government grants are made for specific purposes, not just because someone is a
good taxpayer. Most government grants are awarded to states, cities, schools, and
non-profit organizations to help provide services or fund research projects. Grants to
individuals are typically for things like college expenses or disaster relief.
 Don’t be fooled by official or impressive-sounding names. Swindlers claiming to
provide or help get government grants often invent impressive-sounding names and
titles for themselves and the companies they represent. They operate under many
different names and phone numbers, take your money, then leave town to start all
over again.
 Beware of services offering government grant information for a fee or requesting
your personal information to provide it. Information about government grants and
other benefits is free (though there may be a fee for some print publications) and you
don’t have to give personal information to get it.

Notable scandals10:

Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
The Rafale Deal
Controversy is
a political conspiracy in
India related to the
purchase of
36 multirole fighter
aircraft for a price
estimated to be worth
Rs 58,000 crore (7.8
Rafale ₹580 billion dollar) by
deal billion The Defence Ministry of
2018 India Anil Ambani
controvers (₹58,000 India from
y crores) France's Dassault
Aviation. Origin of the
deal lies in the Indian
MRCA competition
Former French
President Francois
Hollande has been
quoted by an article on a
French Mediapart, an
online investigative and

10
https://www.consumer.ftc.gov/features/scam-alerts

14
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
opinion journal as
stating that the Indian
government had asked
the French government
to nominate Anil
Ambani's Reliance
Defence Ltd. as its India
partner in the Rafale
deal.
Contradicting Hollande's
claim, French
government issued a
statement mentioning
that French companies
have the full freedom to
select Indian firms for
the Rafale
contract. Dassault also
clarified that Anil
Ambani was Dassault
Aviation’s choice]
Punjab National
Bank Fraud
Case relates to alleged
fraudulent Letter of
Undertaking
worth ₹11,600
crore (USD 1.77 billion
dollars) that took place
at its branch in Brady
House, Mumbai, making
Punjab National Bank
Punjab ₹136 Nirav Modi, Ami
Brady potentially liable for the
National billion Modi, Neeshal
2018 House, Mumb amount. The fraudulent
Bank (₹13,600 Modi, Mehul C
ai transactions are
Scam crores) Choksi
allegedly linked to
designer and
jeweler Nirav
Modi of Firestar
Diamonds, against
whom a complaint has
been filed with
the Central Bureau of
Investigation. The
transactions were first
noticed by a new

15
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
employee in the bank.
The bank said that two
of its employees at the
branch were involved in
the scam, when the
bank's core banking
system was bypassed to
raise to overseas
branches of other Indian
banks,
including Allahabad
Bank, Axis Bank,
and Union Bank of
India, using the
international financial
communication
system, SWIFT.Three
Jewellers - Gitanjali
Gems Ltd and its
subsidiaries Gili and
Nakshatra are also under
the scanner of
investigation agencies.
Financial scam caused
by the collapse of
a Ponzi scheme run by
Saradha Group, a
consortium of over 200
private companies that
was believed to be
running collective
investment schemes
Kunal Ghosh, popularly but incorrectly
Saradha
Sudipto Sen, referred to as chit
Group
2013 2,500 West Bengal Madan Mitra, funds. As a result of this
financial
Mukul Roy and scam (Odisha and
scandal
many more W.B),Rajya Sabha
MP Kunal Ghosh (All
India Trinamool
Congress) is in jail since
November 2013 for
interrogations. Odisha M
P Ramchandra Hansda
(Biju Janata Dal)
MLA Pravat
Tripathy (Biju Janata

16
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
Dal) and
former Odisha MLAs
Subarna Naik (Biju
Janata Dal)and Hitesh
Kumar Bagarti
(Bharatiya Janata Party)
have also been arrested
for ponzi scam. Rajya
Sabha MP from West
Bengal Srinjay Bose
(All India Trinamool
Congress) has also been
arrested. West
Bengal transport
minister and All India
Trinamool
Congress MLA Madan
Mitra was also arrested.
Defense scandal caused
by an American attorney
who turned
whistleblower after
hacking into emails and
documents retained on
the US based servers of
arms dealer Abhishek
Verma who is globally
known as 'Lord of
War' and his
wife former Miss
Abhishek Universe Romania Anca
Abhishek
Verma Defense Verma's global weapons
2012 80,000 Verma, Anca
arms deals sector companies SIG
Verma
scandal SAUER and
GANTON. Leaked
documents were sent to
Indian
politicians Arvind
Kejriwal & Prashant
Bhushan who released
these to the press as a
result CBI and Enforcem
ent Directorate arrested
Abhishek and his wife
Anca in multiple cases
of defense sector

17
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
purchases related
corruption & money
laundering aggregating
to US$12 billion
(₹80,000 crores).
Presently, Abhishek and
his wife Anca are
incarcerated in Tihar
Jail Delhi awaiting trial.
It is estimated that out of
₹70000 crores spent on
the Games, only half of
the said amount was
spent on Indian
sportspersons. The
Central Vigilance
Commission, involved
in probing the alleged
Suresh corruption in various
Common
Kalamadi, Sheila Commonwealth Games-
Wealth
2010 70,000 New Delhi Dikshit - the then related projects, has
Games
Chief Minister of found discrepancies in
Scam
the State. tenders like payment to
non-existent parties,
wilful delays in
execution of contracts,
over inflated price and
bungling in purchase of
equipment through
tendering and
misappropriation of
funds.
Coal blocks allotted, not
auctioned, leading to
estimated losses as per
Coal ministry
the Comptroller and
Indian under United
Auditor General of
coal Progressive
2012 185,591 National India[ Supreme Court
allocation Alliancegovernme
cancels all 214 coal
scam nt. Sriprakash
blocks allocations since
Jaiswal
1993. Government to e-
auction the coal blocks
now.
Uttar Babu Singh Babu Singh
2012 10,000 Uttar Pradesh
Pradesh Kushwaha Kushwaha and IAS

18
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
NRHM Pradeep Shukla behind
scam bars for their
involvement in NHRM
scam.
There was No 2G scam
according to latest
judgement by CBI court.
Nira Radia, A. CBI court acquitted all
Raja, M. K. the convicted . A.
2G case 2008 176,000 National Kanimozhi, many Raja and M. K.
telecommunicatio Kanimozhi have been
ns companies in Tihar Jail for 15
months and 5 months
respectively. They have
been charge framed.
Arms Dealers Abhishek
Verma and Ravi
Shankaran compromised
senior defense officials
working in the Navy
War Room located
inside Prime Minister's
Secretariat in India &
obtained sensitive data
pertaining to military
purchases & ongoing
defence acquisitions for
securing lucrative
Abhishek
Navy War multibillion-dollar
Verma, Ravi
Room Defense contracts relating
2006 18,000 Shankaranassisted
Leak sector to Scorpene
by other defence
scandal Submarines deal of
personnel
the Indian Navyworth
US$6 billion. Ravi
Shakaran fled to United
Kingdom in 2006. Red
corner Interpol notice
was issued for
him. Even after 8 years
of arduous legal battle in
UK Courts, Indian Govt
failed in his
extradition. Abhishek
Verma was granted bail
in this case in 2008 by

19
Amou
Yea Person
Scam nt (in Place Notes
r Involved
crores)
Delhi High Court.
Food which the
Uttar
government purchased
Pradesh Mulayam Singh
2003 30 Uttar Pradesh to give to the poor was
food grain Yadav
instead sold on the open
scam
market.

CHAPTER-IV

Government scams in recent times11:

2018
 On 18 February 2018 it was stated in a CBI FIR that Rotomac had cheated a
consortium of seven banks by siphoning off bank loans of Rs2,919 crore. Including
interest, the amount comes to Rs3,695 crore. The agency FIR added that Rotomac had
diverted the sanctioned loans to another “fake company”, from where the money was
routed back to Rotomac.

2017
 Agd chopper scam - Chhattisgarh Chief Minister Raman Singh's son in the
multimillion-dollar deal., SC asked to provide documents.
 Noida Ponzi scheme- The officials of special investigation team (SIT) constituted to
probe the alleged Ponzi scam being run by Anubhav Mittal, managing director of
Ablaze Info Solution Private Limited, have now concentrated their probe on
suspicious transactions involving a core group of nearly 200 big gold and diamond
dealers.
 Maharashtra scholarship scam - A probe into allegations of swindling of government
scholarships meant for backward class students has revealed that hundreds of
institutes across the state pocketed several thousand crores by adopting different ploys
since 2010.
 On 5 April 2017, the CBI registered six separate cases against Winsome Diamonds
and Jewellery Limited, and Forever Precious Jewellery and Diamonds Limited, and

11
https://www.consumer.ftc.gov/features/scam-alerts.

20
their chief promoter Jatin Mehta for allegedly cheating three government banks to the
tune of Rs. 1,530 Crore.
 Adani group, Reliance ADAG, Essar accused of cheating in Rs 290 billion scam
2016
 Sunil Mantri of Mantri Housing of Pune and Bengaluru Scam- To this, Mantri said
that the money was paid as advance for a property and that he was ready to give him
the property.
Both parties filed consent terms after which all the cases were withdrawn and it was promised
that Mantri would pay Rs 1, 67, 25,000 through 21 cheques. Mantri also issued 21 cheques
but the remaining Rs 49 lakh was not paid. So Arora approached the court yet again. This
order from the court was issued after Mantri did not appear in front of the court (from
January this year).
2015
 National Urban Livelihood Mission (NULM) scam - only 208 houses were built
though the Centre had released Rs 1,078 crore to states to construct shelters for 9 lakh
urban homeless. Gurgaon MARENA GROUP Frauds in India along with CEO
Verawatkins and Delraharris.
 Delhi Jal Board tanker scam - (₹400 crores) Former Delhi chief minister Sheila
Dikshit is accused of floating very costly tenders. The ACB (Anti-Corruption Bureau)
has filed an FIR against former Delhi CM Sheila Dikshit and current Delhi
CM Arvind Kejriwal.
 Amethi Rajiv Gandhi Charitable Trust land grab case- A revenue court ordered return
of the land sold to Rajiv Gandhi Charitable Trust by an industrial house to Uttar
Pradesh State Industrial Development Corporation (UPSIDC).
 Delhi CNG scam (₹100 crores) - Former Delhi Chief Minister Sheila
Dikshit of Indian National Congress and Lieutenant Governor Najeeb Jung are
accused in the scam.
 Delhi power scam (₹8000 crores) - CAG has reported that Reliance Anil Dhirubhai
Ambani Group BRPL is accused of inflating their dues to be recovered from
consumers by almost ₹8,000 crores. As per the report, the CAG claimed that there is
scope for reducing tariffs in the city.
 Gujarat fisheries scam (₹400 crores) Gujarat ministers Purshottam
Solanki of Bharatiya Janata Party and Dileepbhai Sanghani of Bharatiya Janata

21
Party are accused of granting fishing contracts for 58 reservoirs to his favourite
parties and did not follow the mandatory auctioning process.
 GIDC plot allotments bribery case- Goa chief minister Laxmikant Parsekar brother-
in-law Dilip Malvankar, a field manager attached to Goa Industrial Development
Corporation (GIDC) was arrested while allegedly accepting a bribe of ₹1 lakhs to
allot a plot in Tuem Industrial Estate.
 Mizoram office of profit scam- Lal Thanzara of Indian National Congress, who is the
younger brother of the chief minister Lal Thanhawla, has resigned from Cabinet for
allegedly holding 21.6 per cent share in Sunshine Overseas, a road construction
company, which was getting government contracts in the last three years.
 Maharashtra Annabhau Sathe Development Corporation (ASDC) scam- ₹141
crores Nationalist Congress Party (NCP) legislator Ramesh Kadam, accused of
siphoning off ₹141 crores from a state-run body, has been arrested by CID.

 Uttarakhand liquor license scandal - Uttarakhand chief minister Harish Rawat of Indian
National Congress and his personal secretary Mohammed Shahid were caught in camera
negotiating with a liquor baron for a ₹100 crores bribe to change the state's policy on the sale
of alcohol.

 Nagpur Land grab case - High court of Maharashtra has fined Member of Parliament Vijay
J. Darda and ex-chief minister of Maharashtra Ashok Chavan, both of Indian National
Congress with ₹25,000 each and ordered an enquiry in encroachment by Jawaharlal Darda
Education Society, controlled by MP Vijay J. Darda and Rajendra Darda.

 Integrated Child Development Services (ICDS) "Chikki" controversy (₹206 crores) -


Maharashtra women and child welfare minister Pankaja Munde did not invite e-tenders in
awarding contracts to the vendors, though it is mandatory to e-tender for contracts over ₹3
lakhs.

 Bangalore illegal land de-notification scam B. S. Yeddyurappa of Bharatiya Janata Party,


former chief minister of Karnataka is the prime accused.
 Virbhadra Singh disproportionate assets case (₹6 crores) - Chief Minister of Himachal
Pradesh of Indian National Congress Virbhadra Singh has been booked by CBI for
disproportionate assets.

22
 NTC land scam (₹709 crores) - Former Gujarat CM Shankersinh Vaghela of Indian
National Congress has been booked by CBI.
.

 Lalit Modi money laundering case - Lalit Modi ex-Indian Premier League (IPL)
commissioner is accused of bid rigging, awarding contracts to his friends, accepting
kickbacks on a broadcast deal, selling franchises to members of his family, betting and
money laundering. He has absconded from India even as Enforcement Directorate is
investigating the cases. He has many political friends and has taken political favours from
Ext.

 Telangana Cash for votes scam- Revanth Reddy MLA of Telugu Desam Party is the prime
accused and currently on bail.

 Corporate espionage - Officials of Reliance Industries, Reliance Anil Dhirubhai Ambani


Group, Essar Group, Cairn India and Jubilant Energy were accused of stealing documents
from the Petroleum Ministry.

 Uttarakhand flood relief scam (₹100 crores) - When lakhs of people in flood-ravaged
Uttarakhand went hungry during the 2013 disaster, Government of Uttarakhand state officials
partied on Uttarakhand flood relief funds.

 NSE co-location scam (₹50,000 crores approx.) wherein select brokers were privy to price
sensitive information that allowed trade ahead of other brokers on the National Stock
Exchange of India (NSE). With the illegal speed advantage, the brokers under suspicion
carried out high-frequency trades for four years between 2010 and 2014. The case came into
light through a whistle blower’s letter in 2015.

 Mumbai International Airport Ltd (MIAL) scam (₹5000 crores) FIR’s have been registered
against GVK (conglomerate) and Airports Authority of India officials for cheating and
forgery. The project was deliberately delayed by 3 years to pass ₹5000 crores undue benefit
to GVK (conglomerate).

23
 Aavin scam - adulteration of milk supplied from various societies of Tamil Nadu State Milk
Union, resulting in a scam estimated to be ₹27 lakhs per day for 10 years. The investigating
agencies then traced the owner of the truck to be Vaidyanathan and arrested him in Chennai.

CHAPTER-V
Suggestions and Prevention of Public Sector Scams12

The banking industry in India, especially in the public sector, is in a mess, to put it mildly.
The Non-Performing Assets (NPAs) of banks have been rising quarter after quarter for the
last four years and have now touched a figure of about nine lakh crores. According to the
latest financial stability report of the RBI of December 2017, the gross non-performing
advances (GNPA) of all scheduled commercial banks increased in percentage terms (once
again) from 9.6 to 10.2 between March and September 2017. The banking stability indicator
showed that the overall risks to the banking sector remained at an elevated level weighed
down by further asset quality deterioration. Public sector banks have continued to record
negative profitability since March 2016. In other words, for the last two years, the public
sector banks have been running at a loss. .

Strangely, the RBI gave a certificate of stability in this report to India's a financial system. It
also asserted that according to the result of the latest systemic risk survey conducted by RBI
in October 2017, the risks were of a medium category. Only a month after this certificate was
issued by the RBI, all hell broke loose in January this year when the Nirav Modi/Mehul
Choksi scam broke out in the Punjab National Bank. More banking scams are coming to light
with monotonous regularity. It appears as if the entire system has been allowed to rot during
the last four years and the stench has now become unbearable. .

The present government's case is that all the advances which have now become NPAs were
given during the tenure of the UPA government and hence it is the UPA, which means the
Congress party, which means Rahul Gandhi, who is responsible for the mess as well as the
scams. This argument would have worked if the present government had not been in power
for the last four years. The UPA and specially the Congress party have already been punished

12
https://www.ndtv.com/opinion/how-to-fix-banking-crisis-stop-nirav-modi-like-scams-by-
yashwant-sinha-1819756. Last visited on 23-10-18.

24
severely by the electorate in the 2014 Lok Sabha election. The Congress party's own tally
came down from 205 to 44 in Lok Sabha. That was punishment enough for their failure while
in government. In 2019 or whenever the next Lok Sabha elections are held, it will be the
performance of the NDA, specially the BJP, which will be under scrutiny. When we go to the
electorate for their votes, we cannot tell them that they should punish the Congress party once
again for what they did between 2004 and 2014. We will be called upon to justify our own
record of governance before them. .

The banking sector did attract the government's attention during its early months in office.
The chairmen of the public sector banks, along with officials of the ministry of finance and
the Finance Minister, assembled for a three-day conclave and had many brainstorming
sessions on the various problems afflicting the sector. A plan of action was also drawn up.
The Prime Minister himself attended the conclave and shared his words of wisdom with the
assembled gathering. .

The government also took some other steps including the enactment of the bankruptcy law.
But all these steps have produced little or no results and the banking sector continues on its
downward spiral. The latest is that the government has ordained that all NPAs above 50
crores should be examined in order to find out whether they also represent a scam. In the
meanwhile, the morale of the bank employees is low. There is no doubt that all this will
severely affect banking operations in the country, specially advances by banks for genuine
economic activity. .

The banking sector is the lifeline of the economy which will grow only if banks lend money
to promoters for making fresh investments for genuine projects, specially in the private
sector. Productive activities in the economy will shrink if banks are reluctant to do so. On the
other hand, if promoters who take such loans become victims of circumstances, or cheat, then
the health of the banking sector will be adversely affected. So, it is two-way traffic; a healthy
banking sector is possible only in a healthy economy - and the sector will become its first
victim if the health of the economy deteriorates. This is exactly what has happened in India.

Despite our tall claims to the contrary, the Indian economy has been in poor health for some
years, which in turn has affected the health of the banking industry. I wish the government
had realized this umbilical relationship in its very first year in office and straight away taken

25
some of the steps it is taking so frantically now. .

In January 2016, more than two years ago, I had, in an article written in a Hindi daily, drawn
the attention of the government to the deteriorating health of the banking sector and made
some suggestions. Some of these were: .

1) We should stop pretending that everything is fine. Ever-greening of loans should be


stopped forthwith. An honest assessment should be made of the entire situation to understand
the full extent of the problem. .

2) Defaulters should be divided into three categories. In the first category we should place
those defaulters who have been compelled to default for none of their fault. This will include
promoters whose projects are stalled because they did not get clearances from the
government like forest and environment clearances or land was not acquired in time or
infrastructure facilities like rail, road or electricity connection were not provided to them.
These defaulters should be rendered all help so that their projects get going and the NPAs are
liquidated. In the second category we should place such defaulters who managed to secure
bank loans undeservedly. Either their projects were not appraised properly or they did not
have the necessary entrepreneurial or management ability or skill to bring the project to
fruition. The solution in such cases is to separate the project from its promoter and, through a
transparent process, hand over the project to another promoter for completion or operation.
The third category consists of willful defaulters. Such defaulters are criminals and should
face the full force of law. They deserve no consideration whatsoever. According to official
estimates, more than 1 lakh crore is involved in such defaulting. My own guess is that the
amount is much larger than the figure mentioned above. It is also important that such
defaulters are not allowed to flee the country. .
3) The asset reconstruction companies should be further straightened so that banks can
transfer to them the more difficult NPAs and concentrate on their core business. .
4) An independent body of experts should be appointment to study the appraisal system of
the banks so that projects are properly assessed before loans are advanced to the promoters. .

Conclusion
The security scams and the financial scandals which have been discussed above involve
thousands of crores of money which either belongs to small investors, the government or

26
cooperative banks. The offenders have comprehensive knowledge about the working of the
system and know how to manipulate the system to benefit from it. But such benefits to some
individuals come at the cost of loss of lakhs of rupees to millions of investors or the government.
It is clearly evident from the aforementioned cases that the occurrence and re – occurrence of
such scams can only be attributed to the weak financial regulations and a failure of corporate
governance in finance.
While the main aim of the corporate sector is to earn profit, it should not come at the cost of
sacrificing ethics and professionalism. The corporates should have a concern about the welfare
of the shareholders.
In all the drama that unfolds after every scam that is uncovered, ultimately it’s the honest man,
who puts all his life savings into the share market who suffers the most. And what agonizes him
more is that the perpetrators of his loss get away with a mere slap on their wrists.

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