India has always been a favourite place for the corrupt. It is not as if the British rule produced paragons of virtue. Robert Clive was indicted by the British Parliament. Post independence the discovery of corruption has resulted in inquiry commissions, a brief pause and then business as usual. The case of Tendu leaf scandal, Biju Patnaik and Dharam Teja were a part of the continued spate of scandals. A Google search will throw up all the scams which have been reported, but has it made a difference?

We wring our hands and bemoan the corruption when it affects us, yet we are ready to pay a bribe when it suits us. How many of us paid money to get a super tatkal passport. Haven’t we tried to bribe a traffic cop to look away?

State institutions which had the power to bestow benefits were easily corrupted. Control of cars, steel, cement, sugar was opportunity for easy pickings. The Chief Controller of Imports and Exports favours could result in immense profits.

But in this who benefits more? The bribe taker doesn’t always know the value of his favours, but the beneficiary does. Industrial empires were built on profits from shortages.


Corruption is authority plus monopoly minus transparency


It is easy to identify government corruption since it all pervasive, but is the Corporate Corruption something to be ignored?

In 1997, Central Economic Intelligence Bureau targeted corporate malfeasance. A select study of 4-5 companies threw up interesting facts,

1.   The accounts were doctored.

2.   The bank borrowings were deflected to subsidiaries at zero rate of interest.

3.   The institutional nominees never bothered to attend the Board meeting.

4.   The money was siphoned off as loans and advances and sundry debtors. In one case a five year grandson of the promoter was shown as debtor.

5.    Over the next 3-4 years, advanced amount was written off as bad debt.

Confronted with damning evidence, the RBI was compelled to issue a circular banning such practices and prohibiting corporate at lending money at a rate of interest lower than their borrowings. Sadly, the circular of October 1998 had a very short life and faced with Corporate pressure, the circular was missed out when RBI issued a master circular sometimes in 2002. 

A survey of 1000 companies made by KPMG revealed that 87% admitted that they had incurred losses of at least Rs. 10 lakh due to fraud in 2009. The previous survey, carried in 2008, had only 47% complaining on this count. At least 75% of Indian firms said instances of fraud had increased over the past two years.

A lack of objective and independent audits, inadequate oversight of senior management’s activities by the audit committee, and weak regulatory environment were pinpointed as culprits for the spike in financial statement frauds.

The 10th biennial India Fraud Survey Report 2010 reveals that 81% of the companies surveyed feel that financial statement fraud is the biggest threat in India, with at least 60% of them saying inadequate enforcement of regulations has increased such fraud.

The findings of the report suggest that weak internal control systems, eroding ethical values and lack of legal action against fraudsters create an environment conducive to such crimes.

The survey, conducted by KPMG’s forensic wing in India, covered leading Indian firms from the public and private sectors. The respondents included Chairman and Managing Directors, chief operating officers, chief financial officers, internal auditors, heads of investigation divisions and other senior management officials.

The frauds covered in the survey included anti-corruption compliance. Almost 42% of the companies strongly believed bribery is an acceptable behaviour in India while 38% said it is an “integral feature of the practices in their industry”.

It is unbelievable that the hundreds and thousands of "whistle-blowers'' from Board Directors to corporate insiders and the accounting firms and the credit-rating agencies were kept in the dark about the goings-on in the Indian financial world. Whether things will change post Satyam is a matter yet to be discovered.

There was a change in the economic environment of the country post 1991 and the results were immediately available. Instead of the politicians/ bureaucrats the new participants in the corruption sweepstakes were market players aided and abetted by leading corporate players.

Securities Scam –Harshad Mehta– This is perhaps the most well known of all financial scams – probably because it happened in a highly visible period – economic reforms had just been started in 1991. Harshad Mehta was quick to understand the weaknesses of the banking system, and exploited these.

CRB– This scam took place in the years 1992-1996, the period immediately following the Harshad Mehta fallout. This makes the scam even all the more daring and surprising. CR Bhansali, the perpetrator of this scam, floated more than 100 companies, such as CRB Mutual Funds and CRB Capital Markets. The primary purpose of these companies was to attract huge funds from the public by promising high rates of interest. This interest was later paid form further borrowings, and so on.  In 1995, the stock market collapsed, and this proved to be the undoing of CR Bhansali. He was investigated, and later arrested. After a brief 3-month stint in jail, he has disappeared without a trace, and nobody is asking!

UTI Scam– The UTI scam involved the flagship US-64 scheme of UTI, which was meant to channel the funds of small investors into instruments bearing high returns. Gradually, US-64 developed an investor base of around 2 crores investors. The economic liberalization in India, coupled with the absolute opacity in the operations of UTI, led to the Government to announce a huge bailout of about Rs 3,500-4,000 crores in an order to prevent default in payments to the investors. The consequences of such a situation are unimaginable. But the story does not end here. Later, it turned out that the UTI Chairman appointed at this time, Mr. P S Subramanyam, along with a couple of executive directors, acted wrongly to selectively benefit a powerful coterie of brokers and industrialists, while at the same time, jeopardizing the interest of lakhs of small investors.

Securities Scam –Ketan Parikh– That our system never learns its lessons were proved by this scam. Ketan Parekh, a qualified CA, and a stock broker, identified a number of stocks (popularly called the K-10), and took up huge positions in these. For this purpose, he used a large number of Benami accounts and smaller stock exchanges, such as the Kolkata and Ahmadabad stock exchanges. He also borrowed heavily from banks such as Global Trust Bank and Madhavpura Mercantile Cooperative Bank. Unfortunately, he was stuck in a bear cartel, and was soon pounded to pulp on the stock exchange. The extent of the scam was estimated to be around Rs 1,500 crores.

DSQ Software – Though this scam was modest in terms of money involved (only Rs 600 crores!), and did not affect the general public to a great extent, yet it is notable for how it came into being. The main player in the scam was Mr. Dinesh Dalmia, who was the MD of DSQ Software Ltd. This company issued around 1.3 million shares in 2001, and these shares were allotted to four companies on a preferential basis. NSDL, a stock depository, dematerialized and helped in delivering the shares. Nothing wrong in that, except that the shares were not even listed on any stock exchange!

Satyam –Ramalinga Raju Chairman of Satyam Computer Services, admitted to falsification in the company accounts and various other irregularities, and sent a chill down the collective spine of the Indian financial system. Coming on the back of the global recession, this incident promised to bust the Indian outsourcing industry and the stock market, but the system was yet again bailed out by some deft work by the Government. The matter is still under investigation and litigation, and the true extent of the scam will be known in the future, perhaps. Mr. Raju himself had admitted to irregularities worth around Rs 12,000 crores.

An analysis of the scams reveals a common script – greed, corruption, unscrupulous brokers, colluding bankers, irresponsible authorities and hapless investors, who refuse to learn their lessons. But then, these are the essential ingredients of a worthy financial scam! Another reason for picking up the scams mentioned above is the role of Corporate players in aiding and abetting the scams. In the case of Ketan Parekh, the prices were manipulated by the delay in return of the shares lodged for transfer, delay in dematerializing the physical shares. The SEBI technically connived in the scam by refusing to put the shares in NO TRADING LIST. Another major fall out was the active connivance of Mutual Funds in the scam. The overvalued shares were dumped on the schemes of the Mutual funds. A similar disaster had visited Canara Bank because of the collapse of the markets post Harshad Mehta since the Canara Bank was left with the favoured shares of the “Big Bull”


Institute of Chartered Accountants of India (ICAI) made a glib statement, Corruption in the corporate world, the ones like the Satyam scam that shook the Indian corporate sector, happens due to the greed of the people at the helm and not due to any procedure.


There can be many other reasons for these financial scams like GTB, Satyam, and LIC etc. The first question which comes in mind is, whether the auditors who have been assigned with their respective job are capable? Sometimes, lack of knowledge, not being technically equipped may result in misrepresentation of the financial statements. But look at in another manner, Can the chartered accountant afford to annoy the management and risk losing his business?

                                                                                 To be continued