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Journalism of Courage
Some time this week Parliament will discuss the question of the government8217;s executive responsibility for the sins of omission and commission uncovered in the JPC report on the stockmarket/UTI scams. Is executive responsibility limited to officials or does it extend to the ministers who presided over the debacle? The finance secretary at the time has been excoriated; chairman, SEBI, hammered; governor, RBI, pulled up; the investigative agencies CBI, enforcement taken severely to task; and chairman, UTI, sacked. Does that exhaust executive responsibility?
The previous 1992-93 JPC rejected the distinction sought to be made between ministerial responsibility for 8220;broad policy decisions8221; and 8220;overseeing the work of the ministry8221; but not for 8220;administrative failures or management deficiencies8221;. It held that 8220;such a distinction cannot be sustained by the constitutional jurisprudence under which the parliamentary system works8221;. Reiterating this doctrine, the 2001-02 JPC has agreed that 8220;ministerial responsibility in regard to this report flows from these principles8221;.
8220;Individual cases of financial fraud in themselves may not constitute a scam,8221; says the JPC. A scam occurs when repeated fraud is accompanied by 8220;persistent and pervasive failure8221; on 8220;issues involving good governance8221;. In this scam, 8220;there can be no escaping government8217;s responsibility to Parliament and the country8221; because 8220;regulators are responsible to the Ministry of Finance MoF which, in turn, is responsible to Parliament8221;. The scam occurred as the 8220;regulatory authorities were not able to foresee the situation leading to the scam. Nor was adequate attention paid in government circles, particularly the MoF8221;. The JPC further found: 8220;The events that culminated in the exposure of the scam in March 2001 started approximately 18 months earlier.8221; The NDA government took office in March 1998. Therefore, the entire period of the scam is covered by their term of office.
This unanimous JPC report hones in on the MoF, the department of company affairs DCA and CBI in highlighting the failures of governance. The MoF is indicted in at least 52 paragraphs. Its sins of omission and commission are written into virtually every dimension of both the scams, stockmarket and UTI. Can a ministry be so negligent and the minister himself blameless?
When, in the first flush of liberalisation, the office of the Controller of Capital Issues was abolished, the responsibility for regulating corporate entities under the Companies Act fell to DCA, which functioned as both a department of government and regulator. Yet, for its entire gamut of regulatory responsibilities involving lakhs of corporate entities, the minister was content to staff it with 8220;only about 18 inspectors in the whole country8221;. Little wonder then that corporate fraud had a field day 8212; 229 companies collected crores upon crores from investors, then vanished into thin air 8220;and are not available now at their registered offices8221;.
Not only was the quality of DCA inspections 8220;admittedly8221; poor, it failed to take 8220;timely action8221; against the 8220;promoters and corporate entities8221; who were 8220;playing a significant role8221; in the scam. Secretary, DCA, confessed to the JPC that it was the amendment to section 327-A made by Arun Jaitley in 1999 that was 8220;the major reason for huge transfers of money from companies to Ketan Parekh8221;, which lay at the heart of the scam. Moreover, DCA failed to act on legislative proposals pending for years from the Institute of Chartered Accountants seeking enhanced powers to discipline delinquent auditors. In sum, 8220;a liberalised regime should have been accompanied with effective regulatory provisions, but these are clearly missing in the Companies Act.8221;
As for the minister in charge of CBI, aka PM, it 8220;is really shocking8221;, says the JPC, that of the 72 cases registered by CBI in the wake of the previous scam, the CBI, a decade later, is still to even file chargesheets in as many as 25 of these cases. And of the 47 cases where chargesheets have been filed, only six have been adjudicated to a conclusion. Thanks to the Kumbakarna-like somnolence of the prime minister, 8220;there being no fear that swift and effective action will be forthcoming, the players in the financial world ignore the laid down rules, regulations and procedures without any fear of punishment8221;. Hence the scam.
As for the absurd argument that the JPC has not 8220;named8221; any ministers, the fact is that it has, specifically Yashwant Sinha with regard to misuse of the Mauritius route. Second, the doctrine of ministerial responsibility, adumbrated by the earlier JPC and endorsed by this one, clearly holds the minister responsible for the 8220;work of the ministry8221; and for the 8220;administrative failures8221; and 8220;management deficiencies8221; of those who report to the minister. Third, officials, government-owned financial institutions, government agencies and regulators are responsible to the minister, not Parliament. It is the minister alone who is answerable to Parliament. The JPC has presented its findings. It is now for Parliament to fix parliamentary responsibility. The guilty ministers 8212; in this case, particularly Yashwant Sinha 8212; must be punished.
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