A Dialogue with Sucheta Dalal



Sucheta Dalal an award-winning Business Journalist and Author. She was conferred the prestigious Padma Shri for journalism in 2006.

Her journalistic career began in 1984 with Fortune India, an investment magazine. She has subsequently worked with Business Standard and The Economic Times and then went on to become Financial Editor of The Times of India. She has been a columnist and consulting editor for The Indian Express Group until 2008. She is now a Consulting Editor for Money LIFE a personal finance fortnightly (www.moneylife.in). Her columns are also published by various publications including the Dainik Hindustan.

Known for her numerous investigative pieces in all these areas and most notably for breaking the ‘securities scam’ in 1992, India’s biggest financial scandal until then. She has co-authored a book on the securities scam with her husband Debashis Basu called “The Scam: Who Won, Who lost, Who got away (1993)”. This book, which was a best seller that year, has been revised, updated and re-released in 2001 and again in 2005 (It is now called The Scam: From Harshad Mehta To Ketan Parekh). In March 2000, she wrote a biography of A.D. Shroff, who was considered a financial genius in the 1950s. Pathbreakers—a book of 26 inspiring interviews with eminent Indians—by Sucheta Dalal and Debashis Basu was also released in July 2007.

She has been a Member of the Investor Protection and Education Fund set up by the Government of India under the Department of Company Affairs and a member of the Primary Market Advisory Committee of the Securities and Exchange Board of India. She is a Trustee of the Consumer Education and Research Centre of Ahmedabad, which is among the largest consumer and investor advocacy groups in India. She is also a Member of Bank of Baroda’s Standing Committee on consumer services and on the board of Credibility Alliance, which is a consortium of voluntary organizations committed towards enhancing accountability and transparency in the voluntary sector through good governance.

Mukul Lathar :  Ma’am, what’s your opinion about laws and if they exist, enforcement to control schemes like multi-level marketing running across the country ?

Sucheta Dalal : There are no laws of multi-level marketing schemes. In fact, we’ve been chasing this for the last 7 years and what we have discovered is that everybody in government passes the buck from one to another. So, we started chasing Gold quest, which has now come back as Qi. We started doing this about 5 years ago and at that time RBI showed some interest. We wrote to RBI, and after investigating it where we think they should, because with everybody there is an element where they can get in and look at it. For instance, Qnet (unclear company name at 1.16) is a foreign company, so money comes into India and going out. All that is monitored by the RBI. So, we felt that RBI should be the right body that looks at it and hence, we approached them. So, we went to the deputy governor back and forth, at that time and in the end, she washed her hands off and sent a letter to all the chief secretaries of all states saying that it’s your responsibility and please check multi-level marketing schemes. So end of the story, RBI has not done nothing.

After that, there was a big scam in Orissa, which has been a cover story of Money life, where they targeted the poorest section of the people. They used the banking system so that every single bank, they used to go and tell people, you deposit the money. They also lied to them and said, that bank is the partner. So people were borrowing from money lenders and depositing Rs. 10000 every month in these accounts. The people in poorest villages in Orissa, or the Bangladesh border were putting money and suddenly banks like ICICI were writing to the head office to say, we need to quarter  polar staff so they began to investigate and they realized all these cheques are post-dated cheques. The money is being transferred rapidly using systems like the RTGS and it is coming to Mumbai  and being used in the Film Industry and other things.. That was discovered by the ICICI bank. That became the cover story.

The RBI in Bhubaneshwar got involved, the police got involved but nothing happened because RBI wouldn’t do anything further. The police discovered, that there were no investors complaining because these guys had apparently given them cash for whatever returns and the police, I spoke to the IG at that time, and they were worried that the notes that they were handing out were..coz, when they confiscated their post-dated cheques and apparently went and gave them cash and the suspicion was the cash was fake and forged notes. A large number of them were coming into India. Even there, nobody did anything. All these reports were filed with the ministry of finance under the money laundering suspicious transactions, with the financial intelligence unit (FIU). FIU is important because even now when the cobra post has happened, what we are hearing is that everybody is filing reports of these large transactions to FIU and they do absolutely nothing. So just goes on online and piles up and basically, there is zero action, that is second. Now there is SEBI, where thanks to the fact that mutual funds are under SEBI collective investments and SEBI has taken the stand officially when we filed RTI with the government that we are not responsible.  But having said that, they have also taken action against some schemes. So, they have taken action against some good scheme, then this PSEL , which had collected some 20,000 croresrs. They’re a listed company, so they’re pretending to do something and I think, nothing really has happened. And we think, Sahara Real Estate with those artificial bonds OFCD, it’s not even a proper OECD that’s cleared by any regulator. So again that seems to be a synthetic product, which again SEBI has taken action. So, SEBI is partially taking action, when it wants  to. But it has fairly established that SEBI has no option, but being the regulator. But again, it is not, since we think the ministry of company affairs are responsible, they are doing nothing. They have written  a memorandum to the prime minister, which is there on our website. We’ve written to the ministry of Corporate affairs, we’ve had former review secretaries writing to them. They now pretend, that there is a multi-ministry committee and we know that it is a ministry because we think MLM’s include Qnet and tupperware thought of course the format is different  because we believe that the binary one 1:1 are the most dangerous and they cheat people the most, but things like 9:6:3 and 6:4:2 are also causing people to lose money and all that is cleared by the ministry of Corporate Affairs and every time they write the story and turn on the pressure from those organisations around the world keep coming to tell us that don’t write anymore and that we are good guys and we are doing great work and we are MNCs. Globally also, there is a scandal going on with Herbal Life and half of this works because they are so much into the political system. In fact, in most states in India, people are losing enormous amount of money because of MLMs, when it becomes a political scandal, there is that much of action. So you have Meghalaya, where they apart from the fact that these are the price  and money circulation act which is completely ineffective, they’ve got their own act. Kerala is pretending to tighten the rules but that will only strengthen the hands of bigger MNCs and MLMs. While Rajasthan and Jaipur in particular after PSEL has been trying to do something, but essentially to my mind, nobody wants to do anything because maturity of political funding is routed and laundered through MLMs, so everyone is backing them, all the political parties across India.

SA:  Coming on to the point of chit fund scam in Kerala. So how far does your research goes about it and did any government body take any  substantial action..?

SD : No, the Kerala government itself has taken action. Even today, that tightening of rules for MLMs has happened only in Kerala and Meghalaya. So, they’re trying to do something, whether it’s going to be effective or not, we’ll see. But from what I understand, it’s making the separation between the bigger direct marketing companies, which have a product, like Amway, Tupperware, where they are selling something, but again, the way to judge them is whether the revenue of the company is essentially from the sale of products or from expanding the distribution network and whether expanding the distribution network is an essential part of the returns that you get. So, this doesn’t change, but they’re making difference between the big powerful MLMs, global ones, which are like AVON, Amway, Tupperware, herbal life and they have a little club of their own. Most of them are Americans, so they have an American direct sellers association; they have its equivalent in India called the Indian direct sellers association; and they guard the club very closely. They don’t allow everyone to become the member.  I  know, Qnet has desperately been trying to become a member for past 7 years. And they have had enormous influence over policy makers and they say, we are the good guys… in fact, they say, we are with you to punish the bad guys, so take action against them and then make the rules clear and we are separate. The law as it stands in India today, every one of these companies is illegal. For that, the apple judgement is important, because apple judgement has said that, just because government does not act or the regulatory agency or the investing agencies don’t act against something does not makes something patently illegal into legal. And this is absolutely key because the argument you get it by anybody, whether it’s Speak Asia, or it’s Qnet is about the fact that government has done nothing. I mean, are you saying, the Ministry of Corporate Affairs won’t crack down on them, no they don’t. So just because there is no action, does not mean that what is illegal under Money Circulation Act. It simply means, they are illegal and again that Apple judgement has defined what is money regulation and they all fall under it. So, ab-initio, they should not exist in India but this is ‘Mera Bharat Mahan!’ that they continue to thrive for years to get.

SA:  But countries like Sri Lanka, they have taken a stern action against all these companies, for eg: Qnet, it is banned in Sri Lanka, why is India so apprehensive and defensive?

SD: Because, we are more corrupt, simple as that. This company Japan Life, when their director was arrested, he was a man named R.V. Pandit who is personal close friends with two prime ministers – Dr.Manmohan Singh and Atal Bihari Vajpayi, so who is going to take action? His son was running it and he was the director. He was finally arrested in Andhra Pradesh and he is out on bail and the case will go on forever.

SA:  How far do you think SEBI has has taken efforts since 1992 after  Harshad Mehta case came out? SEBI was established as a key organisation to regulate the capital markets and as we’ve been watching there are loop holes in many areas, the regulations, and company recommendations. How far do you suggest, they’ve played their role?

S: In general, I don’t think, SEBI is any worse than any other regulator in any other country. You’ve global financial crisis in a way the capital markets are structured. You have a system today where you have moved on and the route et al is universal banking. In America there used to be something called as the Glass Steagall Act which use to ensure they are traditionally they won’t get into investment banking hawk insurance property. They have scrapped it after two decades. They have adopted universal banking. It was effect of Wall street.  All types of synthetic derivatives selling happening through banks. A relationship manager encourages the schemes and persuades to invest you in all such lucrative schemes as, even in the cases of Insider Trading, we are little more corrupt and get away in India. Even, SEC could not curb it and even the policy makers are scandalous . In India we have peculiar problem of poor people, black money, trading class do not want automated into audiary. The moment we want US type automated system . For ten years we believed that NSE was the best thing happened to India. T+2 settlement and fastest switch to paperless trading. After ten years figures have came out all. All the trading is done by large Institutional investors…from 20 million investors there was fall to 8 million. I fore see this manipulated survey from 1992 till 2012. Regulation helped and how to bring retailers back in market by issuing Rajiv Gandhi equity scheme and Government .

SA : What is your Opinion about present Companies bill?

SD. In a nut shell, Company bill is going in a way exactly as any other regulations, you are pretending to make company bill is very concise but you are leaving every thing to the discretion to the officer in charge. So according to me having so much of discretion is just spelling out all the rules correctly, Because you have this pretense to make it concise, and putting more power in the hands of officers. This means I can pick anybody out of my discretion and harass them, because its my interpretation as government. We could have precedent, but when we have new bill, every thing is tried in High court in our country which takes 3 to 4 years, then they go to Supreme court and again takes another 3 to 4years.1992 scam cases are still going on after 20 years which is so bizarre, If Justice katju can argue that sanjaydutt can be pardoned, we can even say closeall the cases which are running for 20 yearsin special courts.

SA.How do you look at the regulations of Anti minority shareholders? 

SD : I was the member of Investor education and protection fund for 6 years, in fact I was one of the original member when it was originally set up under Sec: 305C under the then Companies Act Amendment. We looked for the vanishing companies of the 90’s. The companies came, made public issue, took the money and vanished. Every time when we identified the companies, the ministry would say there is no complainant. There is a law, but no complainant. This is a skewed justice system, for example the accident victims we don’t have witness. Who wants to go to court, stand there and being harassed? No one wants to get trapped in the courts. If an investor invests 1 lakh rupees, every time date comes, you drop every thing to go and stand there, case may not even come up on that day, might come next day. He lost a lakh of rupees, but by going to court, his time is lost and the extra money is spent. Unless there is justice delivery system that works, we don’t have people coming forward and we have these people getting away all the time. The small guy can’t fight because 1. Cases run very long, during which he has to spend on lawyer. 2. Even if the Advocate charges the success fee, the advocate tries to complete the case quickly and he wants most of the portion of money as we observed in USA.


SA. What should be changed, to make the tribunals work substantially?

SD. I think Mechanism has to change. In America, there are few things happened clearly, 1. Courts have lawyer systems which actually looks as to what actually needs to go up to the judge. They have the DM with some power, to decide who will be the approver. To chase the big guys, let off the small guys. (eg. In Rajat Gupta case: the guy who gave the evidence is one of the ISP directors). We don’t have such discretionary powers. We don’t have exemplary damages.  In consumer protection cases we don’t have proper courts. Once we have them, we say the cases will be done in short time, but that’s not true.  And the exemplary damages are petty with less interest.  For example the axle of Maruti Car broke on the 1st day of purchase of the Car. The damage was 35000/-.  The guy fought the case for 8 years, which no others would pursue it unless he is stubborn.  He got niggardly compensation. The judgments are so pathetic. If justice system works for you every thing will change.

ML. Does Class action suit work in India?

SD. Yes, It is. I hope they can make it workable. We push all class action suits under PIL. If we file it as PIL, the judge has the ability to throw it out. The problem of PIL is it is wide public interest. A class of People does not get benefit. There have been some consumer courts which ensured a class of people gets the benefit, as long as they join the complaint. There are some interesting cases filed by Mumbai Gram Panchayat which have gone to NCDRC, the class of people got it but only so long as they quickly register. We don’t have mechanism in India to distribute the punishment or the proceeds of the punishments, even though you have court orders because we have not defined class mechanisms at all.  If we did, it would work wonderfully.


SA. We have very less number of Consumer cases where the good amount of compensation was given to the aggrieved person. How can we raise the bar?

SD: It’s not like that. There are few illustrations like, there was an activist called Keval Samlani, who filed a case against the pollution caused by the Honda Diesel Generators.  They have settled it out of the court, and they have told that they will pay a certain amount of money to withdraw the case. The person was not willing to take the money, as it was not his motive. Then they negotiated to start a trust and you use the money, and the court encouraged him to settle it.

The same thing happened with Coke Soda fountains. The container was filled 50 Ml. less. CRC was able to discover it.  At first Coke argued its not possible, and when it was proved with photographic evidence, glasses etc., they agreed to compensate.  They gave 28 lakhs, which is not a small amount. But the real problem is how do we compensate all the buyers of Ahmadabad, who may have drunk coke from that particular Fountain. Whether they are restricted to Ahmedabad or all over the country. If we had a proper Class mechanism, then we could have the courage to publish it and convey it to public, help them claim their compensation.  The other example is the Investors of Kingfisher, if SBI has been dragged to court by Vijay Mallaya, shouldn’t the Investors be filing a counter or  an Intervention to say that they are suffering. After all they are the employees, and ensure by any means the company compensate them.  Both the above examples are Classes of People, but why is it not working, because of the cost, effort, and the likely result. We will still make the effort if we think that the likely positive outcome that will come out of it. If there is no guarantee then no one will waste the time.

ML:  When Harshad Mehta Scam broke out there was a foul cry in the market but when money-laundering scam broke out the market reacted positively, what do you think?

SD: The market was rigged down and somebody played it. I have fair guess who is responsible and people funding knowing Cobra Post knew that there is going to be a exposure. Some people here are huge players and used this opportunity to push it up and let it go. We have no control over trading and these people are Foreign Institutional Investors which have 50% money down-tripped and have money flowing through tax havens. It is 3-4 layer deep down, there are even politicians playing in the market. They have information about policy and regulatory practices and we don’t know who is final beneficiary.

SA: Hawala?

SD : It is the same money round tripped.

SA: What was the biggest learning for market and politicians from Harshad Mehta Scam and action done on behalf of the Government?

SD: Again we are in 1992 scam, foreign banks do not punish harshly. FBI and SEC came to India but I guess we were interested more in bearing the punishment .  Infact four days after I wrote the and found out that scam was 5000 crores  and RBI Governor organized a press conference and he said figures were exaggerated. His answer were under instructions of Finance Minister Manmohan Singh.

SA: Do you really feel globalization or you feel its just a way of opening market for the west and United States?

SD: It helped in curbing bunch of people who were alone craving for money. Politicians have figured out alongwith future politicians, super-rich class and oligarchs

Nipun Kedia: Are these politicians who are using their power to run business or businessman using their money to run the power?

SD: Good Question but difficult answer!!! I mean there has always been political influence. Even Harshad Mehta confessed that he bribed P.V. Narsimhan Rao when we think about it one crore is such a pathetic amount any top shot politician would have earned. In this aspect Harshad Mehta even surpassed Dhirubhai Ambani. He earned amount of money which Dhirubhai earned after ten years of slogging, betting, pleading sitting outside the office of beuareaucrats inflating the prices, the most biggest learning was “Itna banaya bas itna hi diya.” Even in the Nagpur coal scam all the industrialists were unknown guys, someone like driver or clerk, etc; are picked up and they earn huge amount of commission. They are loyal top politicians and they are promised a fair share of money through scam and investing money in Portfolio management and giving them large commission. They are fooling around on behalf of politicians. In mining related stuff, their politicians are calling the shots because here mineral resources are exploited. The system has been created so complex that it is tough to understand who is calling the shots. It’s always different to assess who was behind whom. But, sometimes it’s big industrialists who use their influence and politicians bid for them. Sometimes, beureaucrats becomes the scapegoats who just intend to keep the CM happy and get entangled in the scam without earning anything. Similar thing happened in Satyam case also, it was a decent software company but the moment it got into infrastructure and decided to pursue their fanciful dreams of earning money they started going down.


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