Crash, bang, collapse

The good news first. There has been no evidence so far of corporates in India hiding their losses by mis-classifying them, by window-dressing balance sheets, or by creating off-balance sheet entities to load the debt on to (as Enron did). Or, at least, no Indian corporate has done this on as massive a scale as Enron, Dynegy, Worldcom and Xerox are now accused of having done in the US. And certainly we haven’t had such a large number of the country’s top corporates being accused of fraud as in the US, and that too in rapid succession. Hardly a day seems to pass without some big corporation admitting to doctoring its balance sheets. Usually, this is accompanied — as in the case of Worldcom and Enron — by news of the sacking the chief executive or chief financial officer, and a Securities and Exchange Commission probe.

But having said that, here’s a question for all of us: were this to happen in India, would it get detected? And, if it did, what would happen next? There still isn’t a good regulatory system in India to catch such frauds and that is the bad news. This newspaper has, in fact, reported a host of instances of corporates siphoning off funds using the time-tested ‘sundry debtor’ route — essentially this is about giving loans to friends at very low interest rates and never asking for the money back. But very few company auditors have raised a stink about this. And even when these cases have been pointed out, the government (the Department of Company Affairs or DCA) hasn’t really followed it to its logical conclusion. In one case, a firm siphoned off Rs 300 crore, but the DCA gave it a clearance after fining it Rs 58,000 for technical violations, such as not getting the loans cleared by the shareholders. No action was taken against the promoters despite some DCA officials recommending criminal prosecution, nor was any action taken against the auditors who allowed the firm to get away with this. In another case brought to light by the Central Economic Intelligence Bureau, former finance minister P. Chidambaram had ordered that one of India’s top corporates be asked to bring back the Rs 250 crore it had siphoned off in a similar manner. But after he left, the case never got pursued.

So instead of gloating over failures of regulatory systems in the ‘decadent West’, let us examine and then revitalise our own investigative apparatus. To have your money stolen despite the best of policemen is bad enough, but not to even know that it has been nicked certainly takes the cake.