Tuesday, January 27, 2009
Satyam probe - will it be fair ?
The scandal about Satyam just refuses to die down. There are so many questions that remain open, and there is the major feeling that even though the Central Government took quick action once Raju had come out with his confessional statement, the state Government of Andhra Pradesh is not being so open. Before Raju had made his statement, the Chief Minister, Rajshekhar Reddy had made a statement to the effect that the aborted merger was over, and people should get on with their lives. No reassurance about watching out for a company that was the star of Andhra Pradesh and employed 50,000 people. And just a few days after the Chief Minister dismissed all warnings, the Satyam Chief went ahead and wrote his confessional note. And after this, the Chief Minister had nothing to say.
Now, there are so many open questions that it seems that there are so many mysteries to resolve, and the former Satyam Chief is sitting in jail, with some police investigators getting access to him. For some arcane reason, SEBI investigators are unable to get access to Raju, currently in jail (The Andhra High Court has refused SEBI the permission to do so even though a huge amount of investor money went down the drain).
- How many employees does Satyam have ? There are multiple reports about whether it has 53,000 employees or it has a lower number of employees with contradicting statements from the board and from the public prosecutor
- How did Raju divert money away from Satyam to the extent that a software company that has a large margin is very low on money ?
- What are the exact details of the Andhra Government support to Maytas (a company also run by Raju and his family) ? It has a huge amount of Government contracts that are now in jeopardy. In fact, the contract for the Metro was so controversial that the head of Delhi Metro (Mr. Sreedharan) stepped away as a consultant with a talk about this being an unfair contract (and the Andhra Government threatened him with a defamation lawsuit).
- Why has the investigation into this huge fraud case not yet handed over to a central agency with the ability to do a financial and criminal investigation both ?
- Will the money that has been diverted away from Satyam ever be recovered ?
- What was the level of interaction between Raju and the Congress Government of Y Rajsekhar Reddy ?
- What was the exact role of the auditors given that they appear to be grossly incompetent, and maybe involved in a criminal conspiracy ?
There are so many other questions, and yet there are no good answers. The investigation is continuing, but already questions are emerging about whether this is a fair investigation, or whether this is an attempt to try and protect Raju. For a scandal that is India's largest and casts a negative impression on the overall positive India story, the investigations needs to be time-bound and very thorough.
Tuesday, January 20, 2009
Power of arrest in India massively modified
In India, there are very few things most people dread higher than a sudden arrest by a police officer. And instances of policemen hauling away people to jail happen often enough (if you read newspapers, you will find enough stories of people being arrested and led to jail for being accused of various crimes). These powers of the police, typically without restraints or responsibility, have led to rampant misuse. The power of arrest is also used as a way to force people to take certain actions - so, for example, if they want to arrest a criminal, the police has in many cases arrested family members in order to force the accused to surrender; another case is the dowry and women laws, where the threat of police action forces settlements (and is in many cases used by women when they want to get settlements in their favor or harass their family members).
So, now there is a recent amendment to the law governing the power of police to arrest for crime where there is a sentence below 7 years (this includes a number of crimes such as outraging a women's modesty, the 498A, robbery, kidnapping, assaulting the President, and all offences where the applicable punishment is less than 7 years). What does this amendment actually do ? It prevents the police in normal cases from arresting the accused unless the crime was committed in front of a police officer, or if the police believe that the accused being out of prison could affect investigations. In all other cases, the accused will be presented with a notice to be present, and only if the person does not present himself / herself, then the arrest will happen:
Seven years or less is the maximum penalty for a host of offences, including attempt to commit culpable homicide, robbery, attempt to suicide, kidnapping, voluntarily causing grievous hurt, cheating, outraging a woman's modesty and death caused by negligence. The radical change in the CrPC has, however, drawn flak from a number of Bar associations across the country. Lawyers -- who also observed strike in various courts after the bill was passed in Parliament -- argue that the amendment (in Section 41) doing away with mandatory arrest provisions would remove fear from the minds of criminals who would misuse the provisions under the garb of personal liberty.
The law further says that a police officer arresting a person will have to bear his identification badge or tag. Besides, a memorandum of arrest shall be prepared, witnessed and countersigned. The person arrested shall be told that he has the right to inform a relative or friend.
Overall, this would be a good thing. It will remove the current ability of the police, when corrupt, to harass innocents. However, it is true that those who are powerful or wilful offenders will gain to some extent. And a resourceful police force can still utilize some of the discretionary authority they have under this amended law to decide whether a person should be immediately arrested or not.
Tuesday, January 13, 2009
Corruption in the judiciary
Corruption in the judiciary is a difficult issue for the Government and for other investigative arms such as the media to handle. The judiciary has a much higher respect that most other arms of the Government, and the judges are also armed with contempt laws that can scare most people. So it has been the stuff of rumors and whispers, this entire talk about corruption in the judiciary. It is exceedingly hard to remove a sitting judge, especially when the judges are in the higher courts. The first such case that reached the stage of Parliament was the case involving Justice Ramaswamy in 1990 (Parliament ultimately did not vote to impeach him since the Congress MP's decided to abstain).
Corruption in the judiciary takes 2 main forms - one form is when judges are accused of deciding cases based on extraneous factors or under some influence (and the related case is similar to the case in Chandigarh where a huge amount of money was delivered at the doorstep of a judge); the other case is when the judges are accused of misusing money to augment their lifestyle - consider this case where the judges misused the Provident Fund money (the hard earned money that goes towards the pension needs for workers)
The CBI has unearthed shocking details of how hard-earned provident fund savings of class III and IV employees of Ghaziabad courts were illegally spent on furniture, crockery, mobiles, gadgets, laptops, rail tickets, taxi fares and other luxury items for judges. The report shows that the district judges, who were heading the Ghaziabad judiciary during the scam period, not only made expensive purchases from the scam money, they also spent it on photography and video-recording of family functions and marriages.
The preliminary findings reflect the judges' weakness for electronic goods, especially mobile phones. "As many as 45 original bills have been seized from a Ghaziabad showroom denoting sale of many expensive electronic gadgets and appliances to various members of judiciary," the status report reveals. After a preliminary probe that tracked Asthana's mobile call details, the CBI chanced upon purchase of four laptops, miscellaneous computer peripherals including monitors, CPUs, cameras and printers. The probe was entrusted to CBI by the apex court after the UP police, which first investigated the matter, chickened out terming the task of investigating 35 judges as daunting.
The redeeming factor in this entire case has been the attitude of the Chief Justice of India who has apparently shown that he wants to try and take a much harder line of cases where judges have either been accused of corruption or of misuse. In this case as well, the CBI has been investigating the case after clearance from the CJI, and even though there are many other instances of judges feeling themselves to be above everybody else (case being where the judges refuse to let themselves come under the ambit of the RTI law), these cases of corruption are important to take to their legitimate conclusion.
Wednesday, January 07, 2009
The Satyam case: major fraud
India has seen corporate scandals in the past, but never one of this magnitude. A software company, touted as a success story, the 4th largest software company in India and one that services around 1/3rd of the Fortune 500 companies, the events of the past one month have been a total shock. They have called into question the entire range of issues related to ethics, corporate governance, fiduciary responsibilities, professional auditing, and so on. There will be a lot more soul-searching that will happen, a lot more inspection and suspicion of other companies, search for more skeletons in the cupboard, and so on.
What has Mr. Raju brought forward. Starting from the surprise news about Satyam trying to buyout the realty companies, Maytas (run by Mr. Raju's sons), this is almost like a film story. The news about Satyam using its huge estimated surplus of more than $1.2 billion to buy companies related to the promoter (especially when the promoter held only 8% shareholding in the company) was a huge blow to all norms of corporate governance and met with huge resistance. Seeing this resistance, the company decided to roll back this proposal, but things would not stop from that point onward.
The issue kept on snow-balling, and when a popular issue comes up in the press, they can push at all areas and get more secrets out. So, questions started being asked about respected board members such as Vinod Dham as to whether they asked the right questions and acted in the interests of the shareholders. Other news started disclosing that actually the promoters had already pledged all their shares and effectively could be actually holding no stake in the company. And then the World Bank announced that in continuance of an earlier investigation, Satyam has been found to have a great many security problems with their last work (including probable sniffer tools and a data hole), and hence Satyam has been banned from further World Bank contracts. By now the independent board members had started resigning.
There was a lot of news about how attractive Satyam could be because of its huge holdings of cash and high book value vs. the value of shares, and then there were even more reports questioning whether Satyam really did hold onto these reserves.
And now, finally the CEO of Satyam has revealed all. The company was cooking its books, and once started, there was no going back, and hence the company eventually has declared reserves to be $1.5 billion more than what they actually hold.
All this came as a huge shock to the people of the country; how can such respected promoters actually commit this huge fraud, can one really believe them now when they say that they did not benefit ? What were the independent auditors (Price Waterhouse Coopers) doing when they were doing audits since 2001 ? There are already too many jokes about lawyers and accountants, so maybe this was another reason why accountants cannot be trusted. Is it possible that only a few board members and CEO knew about this, and no one else ? This was money that was supposed to be coming into the company, how can senior management (besides the promoters) claim that they did not know ? There are too many questions, and one wonders as to whether all this will really become clear ?
Now what happens ? Well, it is not like Satyam is bankrupt - it still has a large number of clients (although some of them would want to bail out), it has a huge number of people on its rolls (50,000), it is a huge part of the reputation of Hyderabad as a big IT city, and there are still institutions who hold a huge amount of the company's shares. It is difficult to let such a company go out of business, and one expects that there will be pressure to ensure that while the investigation goes on, the company is retained as a going concern. However, the US has a law where auditors and the company's management are responsible for the accounts of the company, and this is a blatant violation.
Monday, January 05, 2009
Omar Abdullah brings forth a new arena in Kashmir ?
The Jammu and Kashmir issue remains complicated. The state was signed into the Indian Union in difficult circumstances, at a time when Pakistani invaders wanted to conquer the state for eventual integration into Pakistan. At the time, the Maharajah of the state finally changed his stance from trying to be independent and signed the instrument of Accession and the state officially became a part of the Indian Union. The State however had a status that was separate from almost any other state in the Union (some states have special status that prevent outsiders from being able to buy land and so on, but no other state has the level of autonomy that this state has), and which is something that continues to irritate many Indians. The basic question remains as to why the state has been granted the special level of autonomy ? It is proclaimed that it is so because it has a special character, but the basic doubt remains as to whether this is because it is the only Muslim majority state in the Indian Union. However, this is an endless debate, and just like many other issues, it is very doubtful as to whether these provisions will ever be repealed.
The last 1 year has seen many strange things happening in the Valley. The Congress was in command, with Ghulam Nabi Azad being the Chief Minister (as part of the agreement with the PDP of the Mufti where the Chief Minister's post revolves between the PDP and the Congress 50:50). However, like similar arrangements in many other parts of the country, this one also had its strains, with the PDP not particularly satisfied once it had to hand over the Chief Ministership to the Congress (and the PDP never liked Ghulam Nabi Azad). And then the Amarnath issue blew up.
At some time in the past, the High Court had ordered the Government to improve the facilities for devotees visiting the Amarnath shrine in Kashmir, and eventually the J & K Government under him made a cabinet decision in that regard by transferring some amount of land to the Amarnath committee for preparing temporary structures; however, this decision caused a major upheaval in the valley. Separatist sentiment got invoked, and even the PDP essentially backed away and Azad also resigned. However, once the transfer of land was put on hold, residents of the Jammu area launched a major agitation. For a long time, the residents of Jammu have felt like second class citizens. With the Kashmir valley being a political concern due to its Muslim majority, Jammu has always felt that it has been treated as an unequal partner. It was the cancellation of the transfer of land that somehow made these sentiments burst out (there must have been a lot of incitement, but there was a genuine display of anger by people as well), and an agitation that showed no way out for the Congress Government forced it to bend towards the Jammu agitators and transfer the land to the Committee.
In this environment, it was felt that elections would not be a good idea, what with separatist sentiment having been very vocal in the previous months, but the elections surprised everyone. Inspite of calls by the Hurriyat Conference and the separatists, people turned out to vote in large numbers. It is speculated that this voting should not be seen as an under-cutting of the sentiment towards freedom, but more about local governance issues. I believe that we should see this as a right step, since elections are meant to show that the will of the people is paramount in electing politicians who can govern, and the election of the National Conference young leader (and a former Central External Affairs Minster of State) Omar Abdullah is a step in the right direction. Even though the NC is tainted with having helped cause the rise in azaadi sentiment by having rigged the elections in 1987, it is a party that has always seen the future of Kashmir with India. If Omar Abdullah delivers good governance, it will go a long way in destroying the separatist sentiment.