The 20:80 formula

Yet, when you look at the list of defaulters to whom these top banks and financial institutions have sent takeover notices to, and you8217;ll find none of these top names in them.

IFCI, for instance, has non-performing loans that8217;s what default-loans are called in banking jargon of Rs 6,200 crore, but JCT Electronics is the only name that you8217;ll readily recognise in the list of firms it8217;s taking action against. IFCI has not sent takeover notices to the Rai8217;s Koshika Telecom or to Malvika Steels, even though both firms are huge defaulters. Nor, by the way, does this apply to only IFCI 8212; it applies to almost all public sector banks and financial institutions.

What of the spate of newspaper reports in recent weeks giving details of all manner of corporate frauds in India, who are these people? You guessed correct, it8217;s the same top corporates 8212; the Reliance Group, the Tata Group, the Essar Group 8212; that we keep reading about.

Reliance is accused of publishing incorrect balance sheets and diverting funds from one project to another. Essar is accused of much the same thing, with the added twist that, unlike Reliance, it has regularly defaulted on loans from financial institutions.

As for the Tatas, they really shot into the limelight with their decision a few months ago, to get newly-acquired public sector firm VSNL to invest Rs 1,200 crore in group firm Tata Teleservices at an exorbitant valuation. And while that8217;s yet to die down, comes the controversy over auditor A.F. Ferguson withdrawing its report on the scam in Tata Finance Limited, and a senior partner of the audit firm quitting over the withdrawal of the report.

But what8217;s most shocking about all the scandals, is the absolutely cavalier manner in which the authorities are dealing with them.

In the Reliance case, for instance, all the allegations of publishing of incorrect balance sheets and reversing entries in the books of accounts are being tackled as one-off frauds for which minor penalties are to be levied 8212; there is no attempt by the Department of Company Affairs to piece them together, to see if there was a larger purpose of funds diversion.

In the case of the Ruias, despite Finance Minister Jaswant Singh promising to investigate the allegations of diverting funds, and to examine whether group chief Shashi Ruia should be allowed to continue on the prime minister8217;s task force despite being a loan defaulter, there has been absolutely no action.

In the case of the Tatas, it has been close to nine months since the group itself gave information to stock market regulator SEBI about the insider trading and other scams perpetrated by the managing director of Tata Finance Limited managing director Dilip Pendse, but no action has been taken so far.

Reports available close to a year ago show that Tata Finance8217;s books of accounts were rigged, with or without the knowledge of the then auditors S.B. Billimoria 038; Co. The audit report of Ferguson also pointed out to various other discrepancies, including fake transactions to show higher profits in group firms like Telco. Yet, it8217;s only now, after the Ferguson report was leaked to the press, that SEBI, the Institute of Chartered Accountants of India ICAI and the Department of Company Affairs, have woken up, and are now promising to investigate matters. Ferguson8217;s reputation has come under a cloud now, but the confessions received by Ferguson from Tata Finance officials over a year ago, cast doubts on the role of Billimoria as the firm8217;s auditors 8212; surely that8217;s something ICAI should have taken action on much earlier?

If the government is serious about tackling the problem of increasingly rampant corporate fraud, it has to seriously investigate and take action against just 20 firms. And 80 percent of the problem will be taken care of. It8217;s as simple as that. Just as my journalist-philosopher friend explained.