Caught On The Wrong Foot

DAWOOD is the Islamic equivalent for David, the mighty Biblical king of Israel who had just one fatal flaw: he coveted another man's wife and paid dearly for that. The same mistake has been committed by Sadruddin Daya, former sheriff of Mumbai, promoter of Dawood Shoes and prime accused in the fake cobbler co-operatives scam that has rocked Mumbai over the past month and more. But this time, it's hard government cash that rightfully belonged to cobblers and poor shoemakers, most of which has been diverted to Daya and two more—Rafique Tejani, Daya's former partner and promoter of Metro Shoes, and Kishore Signapurkar of Milano Shoes. And they are paying dearly. Of the 10 people initially arrested these three are still in jail. All their outlets and offices have been sealed.

Known in the tightly-knit, and extremely affluent Aga Khan sect of Muslims (which largely controls the Mumbai shoe trade) as a man with a golden heart and a generous purse, Daya heads the growing list of high-profile people who have coveted, and accessed, public funds for personal benefit. He owns several properties in and around Mumbai and maintain a fleet of 15 Indian and foreign cars. Starting with one shoe shop a few years ago, he built a chain of 25 retail outlets. Likewise, Tejani, son of a salesman, retails through 10 shops and owns four of them. Of the three, only Signapurkar was an uneducated cobbler but the police have reason to believe that his recent prosperity is not entirely a result of back-breaking work.

The Mumbai shoe market comprises about 300 retail outlets with a turnover of about Rs 200 crore annually. Metro, Dawood and Milano retail through 30 shops and account for nearly 40 per cent of the Mumbai business. They are the most powerful buyers. The other 270 are owned by almost as many people with their own workshops. Now, thousands of cobblers, workshop owners and even retail outlet owners (most of these outlets are franchises) are left without work and wage. Some of them are looking at moving back to their villages or setting up retail stalls around Mumbai.

It was a grand idea that eventually went bust for the shoe barons. Around 1987, the Maharashtra government floated the Modified Automated Refinance Scheme (MARS) which offered Rs 25,000 for individual cobblers at an interest rate of 14.5 per cent to set them up in business. About 50 cobblers' co-operatives, some listing up over 2,000 cobbler-members, helped themselves of the scheme. None of the actual beneficiaries were cobblers, but societies formed by influential people like Daya. Even leading politicians are involved in the Rs 1000-crore scam. BJP MLA Sadashiv Lokhande, Shiv Sena legislator from Dharavi Baburao Mane and Maharashtra Pradesh Congress Committee chief Sushil Kumar Shinde have been identified by the Economic Offence Wing, which feels there is enough evidence to initiate action, even arrest.

Police sources claim that the whole sordid affair dates back to the early seventies when city-based cobblers' cooperatives got approvals under the Khadi Village Industries Commission (KVIC)—the commission had to certify that the applicants were genuine artisans. Investigations suggest that such generous disbursement was done with the collusion of banks. A 2,000-member society can, by simple arithmetic, claim about Rs 5 crore (at Rs 25,000 loan per artisan). And the banks involved include the Mumbai District Co-operative Bank, Dena Bank, Bank of Baroda and foreign banks like Citibank and Oman International Bank.

Also involved is the Maharashtra State Finance Corporation, which sanctioned, among others, a Rs 50-lakh loan to Charmakar Yuba Kranti Co-operative Society, a brainchild of Shinde when he was state finance minister and set up by his personal assistant. The Congress state government had sanctioned another Rs 45 lakh to it. Mane is a director of the Mahacharmodyog Utpadak Sahakari Sangh of Dadar, while Lokhande has been a prime mover behind the launch of the Jai Bharat Cooperative Society.

That's how long the scam went on, unearthed and unchecked. Prompting cynics to accuse the government of floating the MARS to benefit those who mattered. "How many banks would entertain the neighbourhood cobbler?" asks a shoe-shop owner. "Nobody brought it out in the open because everyone benefitted".

IT was, at first glance, a simple operation. Smaller shopowners, who don't own workshops, find it difficult to source their goods. If they make a billed purchase from unregistered dealers, like the neighbourhood cobbler, they have to pay a sales tax of 8 per cent on value of the goods. But under MARS, the promoters of societies had access not only to cheap funds but also sales tax exemption on the shoes they made. So the shopowners sourced the goods on cash from the unregistered dealers and bought bills from these societies paying a 'fee' of 3 to 4 per cent to the society. And the societies made some more money without manufacturing any goods. The shoes were actually made in a few thousand small workshops, employing 10 to 100 cobblers, who lent their names to these co-operatives. In return they had jobs where they could earn upto Rs 200 a day. A small workshop owner could earn Rs 10,000 to 15,000 a month by supplying only about 400 shoes. The banks got good clients who paid up on time. Few cobblers would have been able to do that. And everybody was happy.

But investigations are now revealing loopholes, thick and fast. Tejani and Daya claim that most of their outlets are franchised, not owned. But many employees are found on Daya's payroll. One of the first to be arrested, Anwar Merchant, Daya's brother-in-law, not only headed the administration of Dawood shoes, but also worked as accountant of the bogus Jeevan Vikas Cooperative Cottage Leather Industries Ltd. He admitted to maintaining the records of the cooperative society and preparing salary slips and maintaining attendance registers for members, who existed only in name. Franchisees include names with dubious reputations like Rizvi Builders and wife of underworld man, Iqbal Mirchi. Loan applications show forged signatures. The societies have been unable to produce a single genuine cobbler or a workshop to prove actual shoemaking. Yet, Dawood and Metro show turnovers of about Rs 5 crore each.

Even as the families of the prime accused are tight-lipped on the affair, their supporters accuse that Daya got on the wrong side of an income-tax official and a police official, who in turn started the investigations to avenge his insult. But the shoe community has not reacted till now. "We are scared and trying to save our own skin, especially as we hear of them (the accused) being tortured in jail," says a source close to some of the accused. P.R. Vakil, defence counsel for Tejani, accused the deputy commissioner of police, Sanjay Pandey, in court of assaulting his client. But some of them have started to speak after considerable coaxing.

For one, they point out, the cooperatives had been filing their returns for about eight years. Saying that these books are wrong is tantamount to stating that a government inquiry has no value. Exclaims Asif Merchant, director, Catwalk Fashions Pvt Ltd: "It's like currency notes being invalid." To police accusations that all levies from sales tax to excise to octroi have been dodged, the shoemakers answer that only the government departments concerned are capable of deciding the extent of evasion, not the police. And how could the banks give lump sums to the societies and conduct no checks on the whereabouts of the money, they ask. "We are solvent and therefore the perfect sitting ducks," says one owner.

Even as speculation is rife about the fate of the money—the police believe it's been circulated in hawala channels, and even used to fund bomb blasts and property deals—the local shoe industry comes out as the worst loser. Says Adarsh Gupta, executive director, Liberty Shoes: "This scam reflects badly on the industry". While industry circles try to put up a brave front by asserting that the three prime accused will be freed—which may well happen, considering past experience—they can barely hide their worry. Now that the keeping-everyone-happy cooperatives have been clamped down, Asif Merchant believes that shoe prices will go up by up to 25 per cent in Mumbai. And, irrespective of the powerful Daya and his ilk, this will hurt every ordinary foot in Mumbai city.