Stanchart’s exaggerated claims are grounds for closure: Justice Variava

Justice Variava’s indictment follows Stanchart’s inability to prove the loss/shortfall of a whopping Rs 1253 crores it claimed to have suffered on account of broker Hiten Dalal. The brokers assets have all been seized by the Custodian, appointed under the act dealing with the scam. Stanchart had made a claim to the Custodian for this amount and was asked to seek direction from the special court after proving its claims in the court. This forced it to file the application No. 17 in 1994 making the Custodian and Hiten Dalal respondents.

According to the judge, “the evidence that the senior management (of Standard Chartered Bank) did not know what was happening (in relation to the securities scam and an arrangement with the broker for an assured 15 per cent returns) was totally unbelievable.

During the 52 day trial, the judge says, the bank’s case was built mainly on admissions and acknowledgement of liability by the broker. “It is now proved that the alleged claim of loss/shortfall in the sum of Rs 1253 crores is a highly exaggerated one”, he says and adds that in respect of several items there was no loss at all.

This is the case in which Justice Variava had ordered senior Stanchart officials — who are no longer in the bank’s employment or in the country — to be brought before the court for cross examination.

The judgement documents admissions by several of Stanchart’s former senior employees such as Ravi Iyer and R Kannan that the bank had at least on two occasions `manipulated ‘ its books and that a Rs 400 crore bankers receipt from Metropolitan Bank (now liquidated) in respect of IRFC bonds was “obtained as a cosmetic cover to hide the hole from RBI inspectors”.

Justice Variava states that all senior managers (including country head Pesi Nat, Kannan and Iyer, none of who are now with the bank) knew of the arrangement between the bank and Hiten Dalal but are not admitting it because it establishes the “breach of RBI regulations and against the principles of prudent banking”.

Following the evidence and cross examination, the judge says, it is “totally unbelievable” that Pesi Nat did not know of the “15 per cent arrangement” (this was an arrangement that the bank will virtually hand over its treasury operations to Hiten Dalal and he would ensure that it earned a 15 per cent return on the transactions entered into).

The trial established that there was regular stock-taking by the bank and it knew that several bankers receipts (BRs) had remained outstanding since October 1991. The judgement also documents at length the evidence of Pesi Nat, and his `feigned ignorance’ of events as well as his `prevarication’ on facts which would establish that senior management was completely in the know of shady deals at the bank. He says that Nat would have been “incompetent or a fool” if he approved budgets and targets for securities transactions without finding out or understanding the basis of projected returns.

Justice Variava emphatically states that `greed’ made the bank flout Reserve Bank rules and play “fast and loose” and “falsify records”. Saying that “truth has a habit of creeping out”, the judge documents the bank’s own witnesses had admitted to creating false records with respect to Rs 400 crore of transactions with respect to 9 per cent IRFC bonds and purchase of Rs 205 crores worth of Cantriple units. This, he says, shows “complete lack of morals and principals” and makes it difficult for the court to accept the books, records and statements of the bank.

The judgement documents the admissions of several witnesses that Stanchart had made no payment for Rs 50 crore of six per cent government securities as well as 12 per cent ICICI 2011 bonds to the Metropolitan Cooperative Bank in respect of which it had made claims. In the case of Cantriple the judge wonders how the bank could have made a claim when it knew that “its own records were false and bogus”.

Justice Variava notes that not only was no action taken against the officers for transactions beyond prescribed limits, but transactions were instead regularised. It is believed that the meticulous documentation of evidence and the manner in which Justice Variava’s judgement disproves the banks’ claims will force the Reserve Bank of India to re-examine action taken against the bank so far.