Haridas Mundhra scandal – The first big financial scandal of free India

Haridas Mundhra was a Calcutta-based industrialist and stock speculator who was found guilty and imprisoned in the first ever big financial scandal of free India in 1957. The Mundhra scandal also exposed the growing rifts between the then Prime Minister Jawaharlal Nehru and his son-in-law Feroze Gandhi, and also led to the resignation of India's then finance minister T. T. Krishnamachari. Haridas Mundhra scandal is the biggest example - that the branches of corruption grows thicker if their roots are not destroyed at very beginning.

In 1957, Mundhra with his nefarious intentions got the government-owned Life Insurance Corporation (LIC) to invest Rs. 1.24 crores (about USD 3.2 million at the time) in the shares of six troubled companies belonging to none other than Mundhra: Richardson Cruddas, Jessops & Company, Smith Stanistreet, Osler Lamps, Agnelo Brothers and British India Corporation. The investment was done under governmental pressure and it also bypassed the LIC’s investment committee, which was informed of this decision only after the deal had gone through. In the series of events of the first scam of India, LIC suffered loss to most of the money.

During Investigations, the Justice M.C. Chagla (a one-man committee  for Commission of Enquiry) determined that the then Finance Secretary of India, Haribhai M. Patel, along with two Life Insurance Corporation of India officials, L S Vaidyanathan, may have colluded on the payment, and should be investigated. Subsequent inquiry committee headed by Retired Justice Vivian Bose cleared the names of two civil servants but passed strictures against finance minister for “lying”. The Finance Minister T. T. Krishnamachari, in his testimony tried to distance himself from the LIC's decision, implying that it may have been taken by the Finance Secretary, but Justice Chagla held that the Minister is constitutionally responsible for the action taken by his secretary and he disown his actions. Eventually, Krishanamachari had to resign. The Nehru government suffered considerable loss of prestige with the exposure of this incident.

Haridas Mundhra was arrested from his luxury suite at the Claridge’s Hotel in Delhi, and sent to prison.
It turned out that Mundhra’s manipulations were not restricted to LIC. The income tax department had curiously withdrawn certain notices pending against him having entered into “some understanding” about the payment of arrears.

In recent times, Mundhra is often noted as the forerunner of other financial scamsters of modern India, including Harshad Mehta and Abdul Karim Telgi, who also operated with considerable political connivance.

Reference : http://en.wikipedia.org/wiki/Haridas_Mundhra

Kargil Coffin Scam India

Post Kargil war with Pakistan in the Kargil sector of India. The CAG found abnormalities in the purchase of Coffins for the Martyrs of the Kargil War. The nature of the irregularities committed in clearing certain defense deals mentioned in the Comptroller and Auditor-General's report showed gross irregularities were committed in the purchase of coffins by the Army during the Kargil operation.  The caskets that were bought from US-based funeral service company Buitron and Baiza for the slain soldiers in the Kargil war were allegedly purchased at a price higher than the actual cost.

The Bharatiya Janata Party - led government decided to go in for emergency purchase of coffins following the action in Kargil that resulted in the death of more than 500 jawans and army officers. The scrutiny of records by the CAG showed that some middlemen made huge profit by supplying the coffins at highly inflated rates. The Indian government bought about 500 caskets for 2,500 dollars each, which is believed to be thirteen times higher than the actual price. The government incurred a heft loss of 1,87,000 dollars in the purchase.

Of course, the supplier on his own could not have been able to palm off substandard "imported" coffins without the help of willing insiders who must have been bribed for clearing the deal. The Army top brass is not usually involved in the purchase of defence material and equipment. The placement of orders is routed through civilian agencies.

The investigation was passed on to the CBI which filed a Chargesheet in 2002 following the Coffin scam related to the Kargil War netween India and Pakistani hired Islamic militants. The three Indian army officials named in the chargesheet are Major General (retired) Arun Roye, Colonel (retired) SK Malik and a serving officer Colonel FB Singh; along with the American manufacturer of the aluminium caskets.


Surprisingly, the name of the then Defense Minister George Frenandis was missing from the reports. He was given a clearance and a clean chit from the scam.

There was a huge uproar and rage in India after the Coffin Scam was unearthed, there is another aspect that needs to be explained in context to the India Pakistan Kargil War Coffin Scam. India is now counted among the fastest growing economies in the world. And yet it still does not have the wherewithal to produce body bags and aluminum coffins for meeting domestic needs! It is evident that all aspects of the coffin deal need be investigated by the vigilance and other concerned agencies. And the culprits should be awarded harshest possible punishment for their role in the despicable deal.

Mumbai Adarsh Society scam scandal

In 2010, the Indian media brought to public the alleged violations of rules at various phases of construction in the Adarsh Society. Questions were raised on the manner in which apartments in the building were allocated to bureaucrats, politicians and army personnel who had nothing to do with Kargil War and the way in which clearances were obtained for the construction of the building of the Adarsh Society. The Adarsh society high-rise was constructed in the Colaba locality of Mumbai, which is considered a sensitive coastal area by the Indian Defence forces and houses various Indian Defense establishments. The society is also alleged to have violated the Indian environment ministry rules. Activists like Medha Patkar had been trying to uncover the problems since at least 2004. It had led to resignation of the then Chief Minister, Ashok Chavan.

Several inquiries have been ordered by the army and the Government to probe into the irregularities. Some of the current occupants of the flats in the Adarsh co-operative society building have offered to vacate their flats at the earliest, denying allegations that they were alloted flats because they influenced or helped, in some manner, the construction of the society by violating the rules.

CBI Report in SNC Lavalin Scam

In the progress report filed before the CBI Special court by the CBI Chennai unit Dy SP, V Ashok Kumar, it has been stated that Pinarayi Vijayan, the former Electricity Minister of Kerala should be named and arraigned as the ninth accused in the SNC-LAVALIN Scam.

Claus Trendl, Senior Vice President of the Canadian firm SNC-Lavalin, has been named and arraigned as the 11th accused and A. Francis, former Joint Secretary (power) as the tenth accused.

During the course of investigation, Vijayan's involvement came to light apart from the other accused, CBI quoted in its report. Vijayan, while serving as Kerala's Electricity Minister between May 1996 and October 1998, colluded with K. Mohanachandran, Principal Secretary (Power) and joined criminal conspiracy which was already hatched in 1995 by R. Sivadasan, former KSEB chairman and others in the matter of awarding supply contracts of the electrical projects to Lavalin, the CBI stated. Vijayan had led a high level delegation to Canada in October 1996 and held discussions with SNC-Lavalin and Export Development Corporation International Development agency regarding the contract and took a decision in awarding the supply contracts to Lavalin at a fixed rate basis. The main consideration in the award of the contract, which was signed by KSEB on February 10, 1997 without Government approval, was the grant offered for establishment of Malabar Cancer Centre (MCC) at Thalassery in Kannur district.

The E. Balanandan committee, appointed by the Kerala government, in its report had opined that the complete replacement of the machinery need not be carried out for the hydel projects and essential parts and machinery alone need to be replaced for which the estimated cost will be around Rs 100.5 crores. This recommendation was overlooked and the supply contract was signed within a week after Vijayan received the report. CBI said Vijayan along with the then Chief Minister, the late E. K. Nayanar and the late Dr. V. Rajagopal, former KSEB chairman, again visited Canada during June 1997 where the grant amount to establish the MCC was decided at Rs 100 crores.

The CBI stated that Vijayan along with the other accused had, 'fraudulently with dishonest intention' of showing undue favour to SNC Lavalin, entered into only a 'non binding' memorandum of understanding on April 25, 1998 for MCC instead of a legally valid memorandum of agreement which facilitated SNC-Lavalin to back out from the commitment later, thereby 'cheating the government'. K. Mohanachandran and A. Francis signed the MoU and no Government order was issued authorizing K. Mohanachandran to sign the same, but there was concurrence of Vijayan.

Lavalin, taking advantage of the non binding agreement, backed out of the commitment after spending only about Rs 12 crore through its consultants, thus not financing MCC to the tune of Rs 86.25 crore.

As part of the criminal conspiracy, Vijayan, K. Mohanachandran and A. Francis and others placed a crucial note for approval before the Countil of Ministers on March 3, 1998, after suppressing various facts, including the fact that MoU route was dispensed with the Union Government, full report of the National Hydroelectric Power Corporation was not highlighted and concurrence of Central Electricity Authority, and obtained cabinet approval. Vijayan also had close contacts with SNC-Lavalin officials and by abusing his official position had exerted 'high pressure' on the staff of Kerala State Electricity Board and thereby favoured Lavalin in their official dealings with KSEB, Central Bureau of Investigation said. The investigations revealed that the supply contract for renovation and modernization of the Panniyar, Shengulam and Pallivasal hydel projects was given to SNC Lavalin at an exorbitant rate and the per MW cost for the same was the highest. This caused a loss to the Government of Kerala with corresponding wrongful gain to Lavalin.

CBI requested an order for prosecuting Vijayan and Government took a decision not to allow the prosecution later this was taken before the governor of kerala. on June 6, 2009 the governor ordered CBI to start prosecution of Pinaray vijayan.

Later CBI filed an affidavit in court giving a clean chit to Vijayan. The CBI filed the affidavit in response to a public interest litigation seeking to know the progress in the probe and alleging that Vijayan misused his position to amass wealth.

BL Kashyap EPFO Scam

One of India's fastest-growing construction firms has been charged with carrying out the country's biggest provident fund (PF) evasion. BL Kashyap and Sons Ltd — whose clients include Microsoft, IBM, Taj Hotels and Delhi's international airport — has been asked to fork out Rs 593 crore in PF dues and penalties.

The Employees' Provident Fund Organisation (EPFO) has warned that if the company fails to pay up by August 15, recovery proceedings will be initiated against it for evasion of workers' PF payments from April 2005 to December 2010.

Shares of BL Kashyap & Sons were down 20 per cent to hit a lower trading limit after ET's report. However, the company denied any wrongdoing, saying the EPFO order was "totally erroneous, misconceived and perverse on various grounds." At 9.29 a.m., shares of the company were down 20 per cent to Rs 15.20.

The country's retirement fund regulator has also filed a police complaint against top officials of the company for forging employee muster rolls and submitting fake records, after a forensic analysis revealed the same thumb impression had been put against the records of several employees.

BL Kashyap and Sons, however, denies any wrongdoing and says the EPFO order is "totally erroneous, misconceived and perverse on various grounds". "No employee has complained against us. Moreover, no beneficiary(ies), for whom the recovery is being made, have been identified," said a company statement.

"It can be verified that we are making more EPF contributions than many other construction companies though their turnover is more than us. We are examining the order and shall take appropriate legal recourse available to us at the earliest," the company said.

The provident fund rules stipulate that 12% of the basic salary of all employees earning up to Rs 6,500 a month must be compulsorily deposited in their PF accounts. The employer makes a matching contribution.

Last month, the Central Bureau of Investigation (CBI) had booked nine senior EPFO officials and top officials of the company for criminal conspiracy and forgery, estimating wrongful gains ofRs 169 crore for the firm. But the PF department has alleged the actual evasion could be nearly four times the CBI's estimate.

Between 2006-07 and 2010-11, BL Kashyap and Sons excluded nearly 71,000 workers from PF benefits, according to the EPFO order. The regulator received several complaints between 2005 and 2009 about the company denying retirement benefits to workers across its construction sites. The EPFO found huge variations in the wage payments booked by the firm in its audited balance sheets and the records submitted to the PF office, leading to suspicion that it employed more workers than it claimed.

Regional PF Commissioner Gautam Dixit, who is in charge of the Delhi (South) PF office, passed the order against the company on July 29 — after nearly six months of investigations and 20-odd hearings with the company. The Rs 593-crore notice served by the EPFO includes about Rs 437 crore that the firm should have paid into workers' retirement accounts, and penal interest of Rs 156 crore, as per the assessment order in ET's possession. Shares of BL Kashyap closed at Rs 19.15 on Wednesday.

The firm's employee costs amounted to Rs 544 crore in 2010-11, when it made a profit of Rs 48.8 crore on revenues of Rs 1,586 crore. The company's board is expected to meet on August 12 to approve its first quarter results.

According to the EPFO order, the company deprived workers of their PF benefits by claiming that all 'excluded' employees earned more than Rs 6,500 per month. However, wage payment records revealed that thousands of such workers got much less than Rs 6,500 per month.

This, the company argued, was because workers were proceeding on 'leave without pay', though it failed to back the claim with leave registers. "This argument can be true for some workers at some sites in some months, but not for thousands of cases every month across all sites... This implies that in almost every month work would come to a standstill or suffer heavily, since large numbers of workers were on leave without pay," the EPFO order noted.

Bogus records for employees excluded from PF benefits were nailed when they were sent to two forensic labs for verification, including the Central Finger Print Bureau under the home ministry. The analysis revealed that the wage rolls of several workers bore the same thumb impression.

In July, the CBI had booked an additional central PF commissioner and eight other officers for entering into a criminal conspiracy with BL Kashyap's top officials.

The CBI found that PF officials actively helped the company create false records in respect of certain employees and manipulated the firm's provident fund dues by 'inflating' the number of workers not eligible for PF.

Source: Economic Times

2G spectrum scam Radia Tapes Controversy

After getting authorization from the Home Ministry, the Indian Income Tax department tapped Radia's phone lines for 300 days in 2008-2009 as part of their investigations into possible money laundering, restricted financial practices, and tax evasion.In November 2010, OPEN magazine carried a story which reported transcripts of some of the telephone conversations of Nira Radia with senior journalists, politicians, and corporate houses, many of whom have denied the allegations.

The Central Bureau of Investigation has announced that they have 5,851 recordings of phone conversations by Radia, some of which outline Radia's attempts to broker deals in relation to the 2G spectrum sale. The tapes appear to demonstrate how Radia attempted to use some media persons to influence the decision to appoint A. Raja as telecom minister. In the recorded conversations between Nira Radia and prominent figures, referred to as the Radia Tapes, several prominent figures are heard in conversation with Radia:

• Politicians

• A. Raja, Telecom minister
• Kanimozhi, Rajya Sabha MP
• Businessmen 
• Ratan Tata, Chairman, Tata Sons
• Journalists
• Barkha Dutt, Group editor, English news, NDTV 
• M.K. Venu, senior business journalist
• Prabhu Chawla, editor of India Today magazine
• Rajdeep Sardesai
• Shankar Aiyar, then with India Today Group
• Vir Sanghvi, HT advisory editorial director

• Industry Heads
• Tarun Das, former CII head

• Others
• Ranjan Bhattacharya(foster son-in-law of former prime minister Atal Behari Vajpayee) 
• Suhel Seth, management guru and columnist

Were the few prominant faces that came to light in this controversy.

SNC Lavalin Financial Scam

In one of the scams in Kerela known as the SNC-Lavalin Scam, the Kerala State Electricity Board (KSEB) signed a memorandum of understanding (MoU) with SNC-Lavalin in August 1995. During this scam G. Karthikeyan of the Congress Party was serving his tenure as the Minister for Electricity. Under the provisions signed in the MoU, the funds for the renovation of Hydel Power Projects were to be arranged by SNC Lavalin from the Export Development Canada (EDC), Canada, and the Canadian International Development Agency (CIDA). The Board did as per according to the MoU, however it ignored the Central Electricity Authority's (CEA) recommendation that immediate replacement of the generating units at the Pallivasal power station was not called for as the plant was in fairly good condition. The Board undertook a feasibility study on the proposal only in September 1995, by a retired Chief Engineer of the KSEB, who later became a consultant to Lavalin.

Based on the consultant's report and further discussions, the Board signed contracts with SNC-Lavalin to provide technical services for management, engineering, procurement and construction supervision in February 1996, to ensure completion of the projects within the prescribed time of three years. Again durign this period G. Karthikeyan of the Congress Party was the Minister for Electricity for the State of Kerala, India. The so called consultancy agreement include the rates for various equipments to be purchased as part of the project. The consultancy agreements of the project were converted into fixed price contracts for the supply of machinery and technical services as part of the renovation at a cost of 67.94 million Canadian dollars (Rs 169.03 crores approx.) in February 1997. During this period Pinarai Vijayan was the Minister for Electricity for Kerala.

Computer and Auditor General of India (CAG, a government organization that audits and assists the state and central institutions on their accounts and accountability.) found that Lavalin was only a consultant intermediary and not the original equipment manufacturer and that the supply of goods and services was made by other firms at a much higher cost leading to excess expenditure on the project. According to the CAG, the absence of due professional care in negotiating the foreign loan proved to be a detrimental factor to the financial interests of the Board. The Board also could not ensure the quality of power plant renovation work in the absence of technology transfer and training of its engineers. Owing to various technical defects in the equipment, the generation of power could not be maintained even at the pre-renovation level and the Kerela Electricity Board had to spend on repairs.

According to the CAG, failure to exclude the fee for technical consultancy from fixed price contracts resulted in an avoidable payment of Rs 20.31 crores, and failure to negotiate and exclude the exposure fee from the loan agreement resulted in avoidable payment of Rs 9.48 crores and future liability of Rs 2.21 crores. In the opinion of the CAG, there was also an avoidable payment of Rs 1.20 crores as commitment fee despite there being committed but unavailed advance.

The CAG found that the Government did not receive Rs 89.32 crores out of the grant of Rs 98.30 crores that was promised for the Malabar Cancer Centre. On 16 January 2007, Kerala High Court ordered a CBI enquiry into the scandal.

On February 19, 2008, the CBI informed High court of Kerala that the investigation was progressing and said that former Electricity Ministers Pinarayi Vijayan and G. Karthikeyan would be examined at the appropriate time.

On 21 January 2009, the CBI filed a progress report on the investigation in the Kerala High Court. Pinarayi Vijayan had been named as the 9th accused in the case.