Filtering The Scandal

MOST surprisingly, politicians are maintaining a low profile on ITC’s alleged $100-million FERA violation. In contrast to the usual practice of fishing in troubled waters and pontificating on issues of ‘national interest’, no party has come out with an official statement on the case. When Outlook attempted to probe what politicians had to say on the largest FERA violation to date, most shied away though a few did speak their mind. Politicians of the ruling United Front (UF) were especially tight-lipped about the ITC case. CPI(M) bosses evaded repeated calls. "I have nothing to say on ITC. The problem is, I belong to the UF," said Janata Dal leader Jaipal Reddy. Exceptions were Amar Singh, MP and Samajwadi Party general secretary, and Gurudas Dasgupta, MP and veteran CPI leader.

Is ITC being victimised? Obviously, there is no consensus on the pertinent question—whether ITC was being singled out and victimised at the behest of an ‘outside agency’. Says Praful Patel, Congress MP and bidi king, who is accused of being instrumental in the crackdown on ITC: "The ITC case is an 18-month-old story of irregularities and not the result of any outside agency trying to victimise the blue chip company. Action should be taken as the law is equal for everybody. One can understand technical lapses; but what about personal accounts in Swiss banks?" Says former finance minister Yashwant Sinha of the BJP: "That a professionally run firm like ITC should have indulged in such practices is shocking. A distinction should be made between technical and wilful violation. The ITC case is one of wilful violation. ITC is also the largest defaulter of excise duty. But as far as the victimisation charge is concerned, there is nothing on record to prove it," says Sinha. Amar Singh, who openly declares his friendship with ITC chairman Y.C. Deveshwar, differs: "ITC is a well-managed company. Many more firms like ITC may be violating the laws. I don’t want to name them. The Government should ensure that the law is applied universally and not selectively against ITC."

Is FERA a fair law? The one issue that politicians are unanimous about is that the outdated FERA should be amended. According to Patel, FERA could be scrapped altogether. "We already have current account convertibility and are heading for capital account convertibility and export liberalisation. FERA rules are acting as impediments to free and fair trade," he says. However, Sinha feels that FERA cannot be scrapped as long as there is no convertibility on the capital account. Pramod Mahajan, former defence minister and BJP leader, agrees: "First let us review FERA. The pendulum should not swing in the opposite direction. An amendment to FERA is the only solution in the new era of liberalisation and globalisation. FERA is the product of a controlled economy. Now we are in an age of a decontrolled economy, liberalisation and globalisation." Singh feels that more than FERA, it is the Income Tax Act that should be amended. Says he: "All other economic laws should be simplified in such a manner that the incentive to hanky-panky does not remain". If FERA is amended, would ITC be let off the hook? Far from it. Says Patel: "An amendment can’t have retrospective effect." Singh adds that even if FERA is amended, ITC should be punished if it flouted the law.

What about the swadeshi angle? Most politicians are also not willing to view the ITC saga as a long-drawn-out battle between the swadeshi company and the videshi BAT. Says Sinha: "As long as BAT has a 30 per cent stake, it is wrong to say that ITC is a swadeshi company. The regime now allows foreign companies to raise equity even beyond 51 per cent. Under the liberalised regime, any partner with a major stake can continue to take active interest in company affairs. And as Government policy permits foreign companies to increase stakes, the swadeshi angle does not really fit in." Gurudas Dasgupta, however, looks at the matter differently. "There is no reason for a foreign company like BAT to exert such influence on an Indian company that it derails the entire executive structure of a company of ITC’s stature. If BAT is exerting its influence on ITC, it is because of the shortcomings in the Indian management," he says. "In fact, it is now the duty of the Government to back the Indian management and take the company out of the present crisis. It is also the Government’s responsibility, as its own nominees in the form of financial institutions’ representatives are sitting on the board. The Government, the RBI and Indian FIs should work closely to take care of the situation and avert the danger of a multinational takeover of ITC.More so, when this is not the first time BAT is trying such tricks. They had tried earlier too and failed and now in time of the company’s crisis, they are trying it again." "Why should there be even talk of hiving off a popular wing of the company—ITC Classic Finance—to BAT?" asks Dasgupta. "The RBI should intervene and stop any such sale even if there is a cash crunch in the company. I would back the Indian company to come back into prominence." Patel says the ITC case has thrown up issues of corporate governance: how should professional managers of corporates conduct themselves? Who should they be accountable to? There should be accountability to shareholders and to the Government when the law is violated, he states.

Economic offenders as criminals? Taking a softer line, Mahajan suggests that before framing charges against industrial houses,the case should be put up for judicial scrutiny. The system is such that a lower division clerk puts it in a file that a particular corporate is to be raided and none in the bureaucracy dares challenge it as they fear they will be accused of being in league with the firm under investigation. Singh claims currently there is panic in the corporate world: the sharemarket is low, the investment climate is not friendly and there is an unhealthy fear psychosis. He favours a dialogue between the corporate world and law enforcement agencies with the corporate world coming forward to help identify lacunae in law. A police-raid culture will definitely not help, he adds. Endorsing Singh’s views, Mahajan says that there is a crisis of confidence among investors: "I hold no brief for economic offenders and I’m not suggesting that they be let off the hook. But the point is that after eight to 10 months of investigation, when the alleged offenders are cleared by the courts, the news appears in a corner of a newspaper. Meanwhile, their reputation is damaged." But Sinha does not have sympathy for corporates flouting the law with impunity. The tendency on the part of corporates to take advantage of loopholes in law to avoid taxes is well known, he says. That they were flouting other laws too has come to light after cases like ITC and Shaw Wallace. Should criminal and economic offenders be treated differently? Patel feels it’s wrong for ITC’s top executives to be treated like common criminals. Former ITC chairman K.L. Chugh and others, he says, should be granted bail, as it is wrong to hang anyone before being proved guilty. Mahajan feels it doesn’t create a good atmosphere when you put a CEO of a company behind bars for economic offences. But Singh is of the opinion that economic and criminal offenders should not be treated differently—an economic offence, he adds, is a bigger transgression, as it has a more serious impact. The time has come when the nation is demanding greater transparency, says Sinha. That is why the unearthing of cases of both political and corporate corruption are raising cheers from the nation. But will the so-called representatives of the people reflect the will of the electorate or blend their loyalties to suit their party’s vested interests, like ice-cream in a cone? n