Chapter-3

Judicial Study of
Economic Crime
 CHAPTER-3
JUDICIAL STUDY OF ECONOMIC CRIMES

3.1 History of Judicial Cases

The first known instance of (economic crime) (economic crime) monetary
wrongdoing is in fifteenth century in England. Case is known as Carrier's instance of
1473-in this the individual who transport fleece, took some fleece for individual use.
For this situation Exchequer Chamber of English Court of Law adopt a doctrine
named ‗breaking bulk„

The fundamental explanation of expanding of number of cases in (economic

crime) monetary wrongdoing is quick creating economy and modern development.
Because of such fast development in wrongdoing one can say that India is under
hold of Economic wrongdoing.

'Vivin Bose Commission of Inquiry' report which exploring undertakings of

'Dalmia Jain gathering of organizations (1963) revels that finance managers
entertain themselves with (economic crime) monetary wrongdoing like imitation,
misrepresentation, distortion of records, changing information for individual use and
tax avoidance and so on.

These perceptions were likewise made by Hon'ble Justice M.C Chagla if

there should be an occurrence of financial specialist Mundhra who set up his
business by utilizing unscrupulous means. There are around 124 indictments against
every one of the organizations claimed or constrained by him during 1958 to 1960 in
which 113 are demonstrated as conviction. Legislature of India passed Fugitive
Economic Offenders Act, 2018

CBI has reported and revealed 6533 cases in 10 years related to financial
crimes involved. A huge increase was reported according to CBI information in
Maharashtra this is very sensational expansion in the quantity of digital wrongdoing
(digital crime) cases.
Judicial Study of Economic Crimes 80

Almost 62% of the cheats in India are submitted in intrigue as prefer to

worldwide patterns. According to KPMG International reports 2016 named Global
profiles of the fraudster in conspiracy cheats 45% ladies required when contrasted
with 66% of guys. Arrangement including at least 5 than five individuals expanded
from 9% in 2010 to 20% in 2015.42

3.2 Leading cases of Economic Crime

3.2.1 Vijay Mallaya
“Vijay V. Mallaya utilized ruler fisher carriers in submitting the extortion of
9990 crore. The authorization directorate charge sheeted Vijay Malaya in 2016. He
was the CEO of kingfisher aircrafts restricted which turns out to be undermined in
2012. Vijay Malaya charged in tax evasion act 2002 for PoC for example creating
the returns of wrongdoing and hiding and suing it.

Vijay Malaya got the property straightforwardly or by implication through

crimes. His business as usual for wrong doing was over invoicing lease and different
instalments. He over invoiced the import of administrations up to 60%. He likewise
gave bogus affirmation for the cash transmitted abroad announcing functional costs
then, at that point redirecting to sister concerns.

Vijay Malaya has made a consortium of banks to 9990 crore rupees. Vijay
Malaya was in dynamic cooperation u/s 3 of avoidance of tax evasion act 2002
which furnishes 3-7 years detainment with 5 lakh fine. As of now the alcohol noble
Vijay Malaya is under the care of UK court and CBI is attempting to get the
guardianship of Vijay Malaya under removal settlement.

DRT requested in January 2017 together and severally responsible for 6203
crores with 11.5% premium. Vijay Malaya on the substance of late financial
violations in gave the discussion of town and he is ex resident of India for UK has
been presently changed over into political dramatization too.

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Judicial Study of Economic Crimes 81

He, at the end of the day, is an extraordinary dramatization entertainer over

twitter and online media. Such countless tweets he does which has no solid
implications like, I am prepared to pay the obligations yet Indian government isn't
tolerating. Take the cash 100% and lift every one of the charges and so forth.”

3.2.2 National Herald Case

“This Case falls under the debasement classification and it is as yet
continuous case. Subramanian Swami is an Indian market analyst and government
official who recorded an argument in the Delhi court against Sonia Gandhi and
Rahul Gandhi.

Realities of the case-Associated Journals Limited (ALJ) acquired without

interest advance of 90.25 crores from the Indian National Congress. After that
another organization named Young Indian was begun in 2010 with a capital of Rs
50 lakh. The central matter is this organization obtained the portions of ALJ. Also,
the value of these offers was Rs 5000 crore. Requirement Directorate forever
appended the properties of Gandhi's.

Choice in 2019,
Besides, an organization named Young Indian was begun in 2010.

Furthermore, it had a capital of 50 lakh rupees. Not just the capital of 50

lakh rupees is astounding yet in addition the point that this organization obtained
the portions of ALJ. The value of these offers was 5000 crore rupees. At long last, in
the year 2019 Enforcement Directorate forever joined the properties of Gandhi‟s.
These properties were worth 64 crore rupees. Along these lines, it is in reality one of
the middle class violations in India including a gigantic measure of cash.

Also, an association named Young Indian was started in 2010. Likewise, it

had a capital of 50 lakh rupees. Not simply the capital of 50 lakh rupees is stunning
yet likewise the point that this association acquired the parts of ALJ. The worth of
these offers was 5000 crore rupees. Finally, in the year 2019 Enforcement
Directorate everlastingly joined the properties of Gandhi‟s. These properties were
Judicial Study of Economic Crimes 82

worth 64 crore rupees. This financial crimes in India involving very large amount
of money.”43

3.2.3 Harshad Mehta Scam: Year 1992: The greatest Share Market Scam of
India
Indian security and share market saw the biggest share scam in 1992.
Harshad Mehta was main accused who wrote the background of scam. It was as very
well thought and a systematic scam. It was a stock market fraud. In this scam bank
receipt was used to commit the scam. In this mass scam stamp paper was a big way
and tool to commit the scam by which market crashed. In the year 1992, he funds of
banks were diverted in a systematic way by the perpetrators Harshad Mehta and over
1000 crore rupees were involved in this scam. The scam had a great impact of the
Bombay stock exchange and over the whole stock markets. There was no household
remained in India who did not suffer with this scam. Harshad Mehta„s modus
operadi in this scam was via state bank of India, used the forged cheques issued by
perpetrator officers of SBI and no security were delivered against this cheque. The
reconciliation of non-delivery of securities was holding on corrupt bank officials.
Harshad Mehta used these thousands of crore rupees to dump into the share market
to manipulate the price script of various scripts and index of Bombay stock
exchange reached to 4500 in low time in 1992 and a loss of one lakh crore rupees in
market capitalization was estimated due to this fraud. National housing bank
suffered a loss of Rs. 1199 crore State bank of Saurashtra Rs 175 crore SBI Capital
market Rs 121 crore, Standard chartered bank Rs 300 crore

Harshad Mehta opened the eyes of the government and security market
regulators of the country to keep an eye on share script vales price variations in more
investigating manner always instead of a passive regulator only. O that the penny
stock holders, the small investor are safeguarded. SEBI was very new at that time
and was at its initial stage and was just trying to regulate the market and it happened.
Since then we have seen the SEBI has larger and sharp teeth developed so far on
such non repetition of such incidences anymore.

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Judicial Study of Economic Crimes 83

Harshad Mehta was a symbol of small investors hope to earn the money from
this new emerging field which was encashed by Harshad Mehta at very early stage
of his new hope. Fake bank receipts were used in banking system and Harshad
Mehta used small non-banks like bank of karad, metropolitan cooperative bank etc.
one example we may quote that ACC share rose from 200 to 9000 per share, 4400%
increase. Harshad Mehta earned by increasing the share price and sold the shares at
the peak thereby crashing the market.

3.2.4 Ketan Parekh Scam 2001

Ketan Parekh was stock broker from Bombay. He was the biggest stock
market scam perpetrator in liberalized case of Harshad Mehta. He left many
investors without chaddi baniyan. Ketan Parekh was used ten stocks widely known
as K10. Ketan Parekh used these ten scripts to commit the fraud. Ketan Parekh was
chartered accountant by profession. In that Era, investors were mad to follow the
every move of him. He played in the scripts of manly in entertainment,
Judicial Study of Economic Crimes 84

communication and information. He mainly traded in Calcutta exchange and he

ruled the market in 1999-2000. Calcutta stock market was less regulated at that time.
The modus operandi of Ketan Parekh was circular trading and pumps and dump
schemes. Ketan Parekh used to invest in 20 to 30% of the scripts by pumping the
money and when it reaches to his desired heights, he used to dump the show.

Circular trading was his second strategy in which he developed some junior
traders and amateur person in the market. Ketan Parekh asked these traders to invest
in the scripts as per his call that leads to the traded volumes significantly and by this
move, other investors may develop the notion that these scripts are the active script
and they invest in these.

Once the prices of such scripts shoots up to the desired level of Ketan
Parekh, he come out by the script by making the profit by letting the rice to the
earth. This is of activity was popularly known as ―Badala System‖.

The question arises as to how does Ketan Parekh managed the investment as
it requires a lot of money, how did he get it. Ketan Parekh used Madhavpura
commercial bank (MMCB) for his fraudulent activity. He arranged huge loans from
MMCB in the form of payment orders. He used this money to acquire the scripts of
his choice and acquired scripts were pleased in the financial institutions like UTI and
HCFL.

Ketan Parekh was such a great perpetrator that he could manage MMCB and
its official to issue a whopping 1,3 million pay orders for this fraudulent activity, his
loan amount reached from MMCB to the tune of 75 crore. Ketan Parekh also
managed the promoter of fraudulent intention of some less known companies as his
support in his malicious practice who came into the support of Ketan Parekh to
operate his game.

Some of the share scripts in which Ketan Parekh played were DSQ software,
Zee tele-films, Silver line technologies, Himachal Phueturistic, Zee tele film shot up
127 per share to 2330, and visual soft went 625 to 8448 in no time.
Judicial Study of Economic Crimes 85

Ketan Parekh was arrested in March 1st 2000 and prohibited for trading in
the stock market. He was prohibited for 15 years to trade and involve in the market.
He was barred till 2017 from the market.

He was sentenced to jail in 2002. But this was could not stop him as it was
reported that he was managing the market from the jail. In the year 2008 many
corporate and companies were questioned by SEBI and were barred in allegation of
supporting the bull Mr Ketan Parikh in mala fide practices in share market.

This incidence shows that in Indian law system jails are not the right solution
to stop the culprits but more improved mechanism is to be required to be introduced.

3.2.5 Satyam Scam: the Great Corporate Scam: 2008 Rs. 5000 Crores Scam
Satyam scams was carried out between 2003 and 2008 and were allegedly
involving 5000 crore fraud. Chairman of Satyam Mr. Ramalingam Raju was
perpetrator of fake cash balances, fake revenues and margins. In April 2009, Raju
and other 9 were sentenced to jail and Mahindra group acquired the satyam and it
was merged with Mahindra tech in 2013.The modus operandi of Raju was fake
balance sheet and FDRs, managing with the auditors, playing with the fake balance
sheet figures in the market.

3.2.6 Saradha Scam

Ponzi scheme was the modus operandi by Chit Fund Company, Saradha
group and its chairman Sudipta Sen. It is said and reported that Saradha scam
cheated not less than 1 million people of west Bengal in this scam. Not only Bengal
Judicial Study of Economic Crimes 86

but other states were also involved in the scam such a Jharkhand, Assam and Orissa
.T his scam was got news in the month of April 2013. We cannot say that scam had
its root in the stock market but still it was having a great impact on stock market and
because of this it is covered under stock market influenced scam. Many foreign
investors took step after this scam. They were back in their investment particularly
FIIs. It was mainly due to unregulated Ponzi market of India. Small investing
scheme always loots lot of small investors with big dream in their minds to have
multiplication of their small money in small time or in no time all has dream of their
good wealth and to live a wealthy life some time they need to repay debt or to do
marriages of sisters and daughters and some time building a small house at their
villages makes them got in to such conspiracy by these smart fraudsters in
unregulated Ponzi market of india., they are left unattended in these market in the
hands of these big lions as deer‟s.

3.2.7 The mass scam: NSEL Scam

“National spot exchange limited was formed by Jignesh shah and shree
kantjavalgekar. These perpetrators procured the funds from innocent investors as
Offered fix return to the investors in the contact of the commodities. 5500 crore
scam along with 300 brokers were taken into the record by investigation authorities.

In Probir Kumar Misra v. Ramani Ramaswamy it was held that get-togethers

Depositories Act, 1996, such contributors who are holding value share capital of the
organization and whose name is entered as useful proprietor are likewise considered
to be individuals from the organization, consequently making them individuals
under the Act.

On account of Northern Projects Ltd. v. Blue Coast Hotels and Resorts Ltd.
it was battled that solitary people holding value offers can be individuals from the
Company as far as Section 41(3) of the Act. This was dismissed by Court and it was
expressed that Sub-segment (3) of Section 41 is thusly just notwithstanding Section
41(1) and Section 41(2) and not in disparagement or replacement of the initial two
subsections. The word 'investor' and 'part' is utilized in a similar implication under
the Act and the Section covers the third class of value investors who are neither
Judicial Study of Economic Crimes 87

endorsers as examined by Sub-segment (1) nor whose names are entered in the
register of individuals as thought about under Sub-section (2) of Section 41.”44

3.2.8 DHFL Scam

Rs. 31000 crores public money was allegedly siphoned off by DHFL as
multiple shell companies were formed to transfer the loans and investment without
declaration to corporate ministry.

3.2.9 Some Other Important Cases

1. “All India Council For Technical Education (AICTE) v. Rakesh Sachan
Details-
The case had litigation for expiation as to whether appellate AICTE had
centre to protest application of respondent .This was involving section 320 of code
and 420 of IPC. The case was in front of SC.

Decision- The allure is permitted. In the decision the Supreme Court held
and observed as in details herewith. .the apex court held that the investigating
agency The CBI has started the procedures suomoto. It is unmistakably referenced in
the Final Report and 56the charge sheet documented by them, that the Respondent
No. 1 with the help of known authorities of AICTE had delivered fashioned and fake
reports to acquire acknowledgment of the previously mentioned foundation from
AICTE, and, subsequently conned the AICTE."

2. “Allahabad Bank and Anr. Vs. Deepak Kumar Bhola 13 march 1997 AWC
(Supp) 1429SC Details- The litigant Allahabad Bank, requested before the
SC, This is an allure from the judgment of the Allahabad High Court which
had permitted the writ appeal documented by the respondent and suppressed
a request for suspension which had been passed forthcoming arraignment
dispatched against him.
Decision- SC put away the allure, the reviled judgment of the Allahabad
High Court and excuses the Writ Petition which has been documented by the
respondent. SC held that, the High Court was not legitimized in suppress the orders

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for suspension and said that If a representative is accused of an offense, then, at that
point it can't be a ground for suspension.

3. Ashok Mehta and Anr. v. Ram Ashray Singh and Ors (2004) 13SC C705
Details- The litigant offered before the SC for the explanation that whether
the insight can be taken on the objection petitioned for the arraignment of appealing
party.

Decision- The allure is permitted. SC held that the thinking of the High
Court was deceptive, yet completely obscure to law and it was not in the least
legitimized in meddling with the request passed by the preliminary Court.
Consequently, the criticized request passed by the High Court is saved and that
delivered by the preliminary Court is re-established.”

4. “Anil Kumar and Ors. Vs. M.K. Aiyappa and Anr 2013X AD (S.C.) 386.
CRIMINAL APPEAL NOS. 1590-1591 OF 2013
Details- The litigant claimed before the SC for the explanation that whether
the uncommon, appointed authority has the locale to give the choice working on this
issue under sec.19 of the anticipation of defilement Act.

Decision- The claims need merit and are in like manner excused. SC held
that the law on the issue of approval can be summed up such that the subject of
assent is of central significance for securing a community worker who has acted in
accordance with some basic honesty while playing out his obligation. All together
that the local official may not be superfluously bothered on a grievance of a
deceitful individual, it is compulsory with respect to the chief position to ensure him
if the law requires authorize, and the court continues against a community worker
without endorse, the community worker has an option to raise the issue of purview
as the whole activity might be delivered void abdominal muscle initio. Subsequently
the SC held that the standards set somewhere near this Court in the above alluded
decisions soundly apply to current realities of the current case, hence, discover no
blunder in the request passed by the High Court.
Judicial Study of Economic Crimes 89

5. Asstt. Commissioner vs. Velliappa Textiles Ltd [2003] 11 SCC 405

Details- The appellants for this situation has claimed before the SC for the
subject of award of Sanction u/s 19 of the demonstration.

Decision- The allure is permitted.

SC held that the award of approval is just an authoritative capacity; however

the facts really confirm that the denounced might be burdened with the risk to be
arraigned in a courtroom. What is material around then is that the fundamental
realities gathered during examination establishing the offense must be set before the
endorsing authority and it needs to consider the material at first sight, the authority is
needed to arrive at the fulfilment that the applicable realities would comprise the
offense and afterward either award or decline to allow authorize. The award of
approval, hence being regulatory demonstration the need to give a chance of hearing
to the blamed prior to agreeing endorse doesn't emerge. The High Court, in this way,
was unmistakably in mistake in holding that the request for authorize is vitiated by
infringement of the standards of regular equity.”

6. “Avinash Sadashiv Bhosale (D) Thr. L.Rs Vs. Union of India (UOI) 2012 13
SCC 142
Details- The litigant has requested before the SC for the explanation that
whether his demonstration will be viewed as culpable u/s 5(1) of the prevention of
corruption act.

Decision-The SC discover no legitimacy in this allure and the equivalent is

therefore excused. SC held that The Disciplinary Authority had thought about every
one of the significant material and really at that time presumed that the charges have
been properly demonstrated against the appealing party. Moreover, it involves
record that the litigant was properly provided a duplicate of the Inquiry Report and
he had submitted point by point issues with something very similar. These protests
were set before the Disciplinary Authority along with the Inquiry Report.
Consequently, the litigant can't in any way, shape or form guarantee that there has
been a break of rule of regular equity.
Judicial Study of Economic Crimes 90

7. Ayyasami Vs. State of Tamil Nadu on 29 November, 1991

Details: The litigant requested before the SC on the grounds that the Guilt of
Appellant had not been demonstrated without question in the HC, henceforth he
made an allure before the SC.

Decision: The allure succeeds and is permitted. The conviction and sentence
passed against the litigant is saved. His bail bonds are released. SC held that the
blame of the litigant has not been demonstrated without question and as such the
advantage should go to him.”

8. Manish Trivedi v.State of Rajasthan on Oct 2013

Details: Mr Manish Trivedi who was appellant in the case. In this case the
meaning of community worker was in main question and for this was it was
requested.

Decision: This case was excused as needs be. The apex court the Supreme
Court observed that the word office in its deep sense. The apex court said and
commented that the word office would mean is of endless undertone. Further the
apex court the Supreme Court remarked that the word office would mean a position
or spot where certain obligation are connected or settled. And further this place is
free of the individual who is required to fill it.

In Rajasthan municipalities act councillors and individuals position in board

exit. Subsequently, the court held that it is free of the individual who fills it. They
perform different obligations which are in the field of public obligation. The
appealing party who is a counsellor and furthermore an individual from the
Municipal Board is thusly a community worker inside S. 2(c) of Act.

9. Y.S Jagan Mohan Reddy v. Central Bureau of Investigation

Details: in this case YS Jagan Mohan Reddy application was denounced by
High court and the matter presented before the Supreme Court. The bail was
dismissed by the honourable High court.
Judicial Study of Economic Crimes 91

Decision: In this case the apex court, SC, this case was excused. The SC
dismissed the bail appeal of appellant. It was held by the apex court that monetary
offenses establish a class separated and should be chatted with an alternate
methodology in the question of a bail. The monetary offense having profound
established intrigues and including gigantic loss of public finances should be seen
genuinely and considered as grave offenses influencing the economy of the nation in
general and consequently representing a genuine danger to the monetary strength of
the country. While conceding bail, the Court needs to remember the idea of the
allegations, the nature of proof in support thereof the seriousness of the discipline
which conviction will involve, the personality of the blamed, sensible fear of the
observers being altered, the bigger interests of people in general/State and other
comparative contemplations.

10. State v. k. Narasimhachary

Details: in this case Mr K. Narasimchachary went to the supreme court . He
appealed in the apex court as HC rejected the plea .

Decision: “SC doesn‟t meddle with the reproved judgment of the HC”. The
allure is excused as needs be. SC with respect to current realities and conditions of
the case, SC are of the assessment that two view are conceivable and the perspective
on HC can't be supposed to be entirely unrealistic; it can't be said, taking into
account the conversations made hereinbefore, that the materials welcomed on
records would prompt just a single end, i.e., the blame of the charged. The
reprimanded judgment, subsequently, is maintained.

11. The State v. A. Parthiban

Details: The appellant submitted before the apex court. The honourable
High court submitted a grave mistake in law, in which expanding the advantage of
probation much under the code.

Decision: The allure is appropriately permitted. The court held that, the
learned Single Judge in the High Court submitted a grave blunder in law broadening
the advantage of probation considerably under the Code. The sentences of
Judicial Study of Economic Crimes 92

detainment will be a half year under Section 7 and one year under Section 13(2) of
the Act, both the sentences to run presently. So exceptionally far as the toll of fine in
extra made by the learned Trial Judge with a default provision on two separate
checks are concerned, they little unaffected and thus affirmed.

12. Naresh Kumar Madan V. State of M.P

Details: In this case the facts were submitted before the apex court SC, as to
who can be considered as local official under the relevant act. Mr. Naresh Kumar
Madan was the litigant in the case.

Decision: No benefit was granted to appellant as the apex court observed this
and in this allure, which is appropriately excused. The apex court, SC saw that the
meaning of 'Local official' should be interpreted having respect to the arrangements
of the 1988 Act. By offering impact to the meaning of 'Local official' in the 1988
Act, the lawful fiction isn't being stretched out past the reason for which it was made
or past the language of the part in which it was made.

3.2.10 UTI SCAM: The Great PSU scam of India

Unit trust of india US 64 is known for its great scam .UTI was govt mutual
fund big player in the share market in early 90 and till mid 90s.being the biggest
fund manger of mass public lot of faith was entreated on UTI but it was not up, to
the mark as UTI scam came into the existence. A Rs 20,000 crore was gone from
the market. Thousands of investors particularly small investor‟s savings were wipe
out due to some bad minded person.

This scam led to many suicides of small investors who had dream upon their
savings and many had marriageable age daughter exp planning others might having
planning of house purchase some might be having planning of child education.
Many retired person was also extended faith on this UTI 64 and lost their money. It
was very strange as this instrument was delivering safe return since 1964. This US
64 was deemed as super Safe instrument till date which lost faith of thousands of
investors.
Judicial Study of Economic Crimes 93

The US64 failure opened the mismanagement possibilities in the public

sector under takings at large. This failure taught us that PSUs is under great
mismanagement of public funds and more and more regulation is needed.US 64 was
launched as a steady income fund at its start. But it couldn‟t remain on its starting
basics. Technically US64 should have invested in debt especially it should be
invested in low risk fixed interest bearing securities only which the fund manger of
US64 could not maintain the basic object of this fund. Its fund managers invested in
high risk equities of the companies‟.

The high risk securities are always double edge sword. It may operate in any
way. At that time in late 1980s UTI was also politicised. The political parties and big
poetical tycoons were interested to guide UTI to invest as per their way n as per tier
inter instead of basic principle of investing and fund management. Like other public
sector big investors like GIC, LIC, UTI was also forced to invest in favoured scrip‟s
instead most suitable fundamental scrip‟s. In late 1990s equities exceeded debt in its
portfolio. The FIIs also took this opportunity and they also tend to boost the market
artificially. The FIIs termed this artificial boosting as endorsement of controversial
economic policies in early 90s.

UTI also got influenced from the favourite scrip of Ketan Parikh like
Himachal futuristic, along with DSQ software and also global tele. All these were
more or less technology companies which Ketan Parikh was operating. There was
clear indication that technology boom is about to end even though UTI was keep
investing in the scrip of Ketan parekh.US 64 lost half of its portfolio of Rs 30000
crore in just one year at that time.UTI sank Rs 3400 cores in 6 months in just 6
scripts out of 44 portfolio scrip‟s. This year saw NAV of US 64 unit below from the
face value of Rs 10. After that it remained on 8.30 per unit. This was a massive loss
to the 13 million investors of the UTI.

It is indigestive that UTI has not taken this decision without Finance ministry
interfere. Insider of UTI has reported that sustainably interference was there from
finance ministry at that time. It can be said Harshad Mehta and FIIs and top officials
of various influential ministries did all this scam. After the UTI scam opened UTI
Judicial Study of Economic Crimes 94

chairman resigned. It is said that he was just scapegoat only to whole of this
incidence the main perpetrators were staying in some sound tomb. UTI gave us a
severe lesson. It taught that when a well managed organisation cannot handle the
public savings at large than we should not encourage to keep pension sort of amount
in this type of organisation as this involve hopes of millions of small investors
across the county particularly old age person with no source of income except
savings.

It is worthwhile to mention that such high risk instrument is banned even in

capitalist European countries. In India banning is more desired being a poor nation
with very low investing education and awareness among masses. All masses are
driven by news and TIPs not strong education is imparted to them. Here in India we
see extremely volatile, share market since the times of Harshad Mehta and Ketan
Parikh and CR Bhanasali and other operators. The corruption at regulators of market
should be intolerable like inside SEBI or in ministry of finance etc we wish to stop
such repletion of crimes in future.

3.2.11 BCCI: The Bank of Credit and Commerce International: Year 1991
The BCCI was an international al bank. It was founded in 1972. The founder
person was Agha Hasan Abedi. He was Pakistani financer a this bank was registered
in Luxemburg. In this case perpetrators were 2 brothers. Names of these two
brothers were Gokal brothers. These were in shipping business. The BCCI bank was
having its head office at London and Karachi with its 400 branches all over the
world. Nearly 78 countries were this BCCI bank was having its branches. After 10
years of tits opening the bank the BCCI was under scrutiny radar of the investigating
agencies. This is talks of 1980s.

The investigating agencies revealed that the bank was under ambit of the
money laundering activity. Money laundering is such an activity that very few
person may escape out of this. Money launderings is such a economic crime that a
very few person who has ease of money laundering is capable of keep it away from
their greed.ht banker comes very early under this greed of money laundering. In
Judicial Study of Economic Crimes 95

many parts of the world every day money laundering cases are reported at large and
many are founded guilty of this economic crime.

The BCCI management was under investigation besides money laundering in

ambit of other financial crimes also. On 5th July of 1991 the BCCI was locked down
with its branches all over the world. The investigators of USA and UK found that
affairs of BCCI were extraordinarily complex. The auditors of the bank were suited.
The liquidators of the bank BCCI filed a suit against the bank auditors PWC and EY
the premier world auditing firms. The auditors were required to pay 175 million
USD in the year 1998.

The brother‟s owner of BCCI loans through owner shipping business in

fraudulent manner .the fraud went on for a decade. In addition to violation of the
lending laws the BCCI was involved in money laundering the modus operandi was,
opening the accounts of Saddam Husain, Samuel Due and for other international
criminal organisation such as Medellin cartel. It was also allegedly opened the
accounts of Abu Nidal also. This was very severe case by a bank. In March 1991 the
case started opening when bank of England at its discretion asked PWC the global
auditing firm to carry our inquiry .It used the secret name and code for this enquiry.
The name secret was „sandstorm”. The PWC reported that BCCI was widely
involved in fraud and money manipulation.

1992 USA senators gave a report in this BCCI scandal was declared disaster.
The UK government also set up an independent enquiry in which its chairman lord
Justice Bingham hold that bank was guilty of misfeasance in public office and a suit
of 850 million UK ponds was filed against the Bank. The suited lasted up to 12
years and got ended in 2005; the Deloitte Touches paid 73 Million UK ponds. It was
most expensive case in UK legal history. The case of BCCI is great eye opener on
the part of our law makers as to strong surveillance is need in the economic offence
matter.
Judicial Study of Economic Crimes 96

3.2.12 The Enron Corporation: A USA based corporation: the Accounting

scandal case 2001
The Enron was public company which was listed on New York stock
exchange: it was founded in 1985 by Mr. Kenneth Lay in Omaha; Nebraska USA
.this Company was having its interest primarily in energy sector. Enron became
defunct company in the year 2001 and went to the bankruptcy. The other key people
in the company were Jeffrey skilling COO and president, Andrew fastow CFO,
Rebecca Mark Jusbasche Vice chairman. The scandal detail which happened in The
Enron was a accounting scandal.

This case was come in to lime light in the year 2001 in the month of October.
The company declared itself bankrupt in 2001. It was having its accounting firm
among 5 top accounting firms of the world m/s Arthur Anderson was declared
dissolved. The Enron and its audit firm failure and bankruptcy were the biggest
bankruptcy and biggest audit failure in the USA at that at time.

The modus operandi in the scandal of the Enron was use of accounting
loopholes to manipulate the funds. The normal fraud way was also used in Enron
case. Poor financial reporting was the main way to commit the crime. Like many
other economic crimes when a break is taken from strong financial principles cases
like Enron happens to be there. The Enron used billions of USD by way of failed
deals and projects.

The top officials like CFO of Enron other top notch executives of the Enron
misguided the audit committee of the board about high risk practices. This later on
turned into the failure of the company. The CFO and other top notch officials also
pressurised the audit firm Arthur Andersen to ignore such type of illegal practices
beyond the legitimate way of accounting. The Enron share holders take it very
seriously as soon as the failure and scandal came to their notice. The share holders
filed a suit against the company amounting 40 billion. The share prices of The Enron
came down from USD 90.75 per share from mid 2000 year to USD 1 only in
November 2001. This was clear cut crashed of the Enron which dissolve billion of
wealth of the various share holders across the globe primarily in USA. The demise
Judicial Study of Economic Crimes 97

of Enron said to be creation of the shell companies, and partnership with the shell
companies that induced the scandal .These shell companies was primarily set up by
the top notch executives of the Enron to take the monetary benefits by illegal
manner. These executives allowed to write off billions of USD write off in Enron
books debts related to shell companies primarily owned by them. As soon as the
story of Enron started public it was came to the notice of the journalist and other
person and now it was talk of the town which discovered the whole great scandal.

The investors stated taking money out from the Enron. All confidence in the
stock of the company was about to loss. .The was a severer cry in the stock market.
Reputation of big houses came on the stake. There were lot of claim and counter
claims by the various interested parties and stake holders in the courts of law. Many
big names were also in the issue like CITI group, Deutsche Bank, JP Morgan chase,
CIBC; all were big tycoons in the world finance name. These names were
somewhere directly involved or somewhere indirectly involved. The share holder
suited to the company with the amount USD 40 Billion. As result of the scandal new
regulation was enacted.

These new law and legislation was aimed to take into account the more
accurate financial reporting .This will stop new Enron should not happen. We can
see the enactment in US Sarbanes Oxley act after the Enron issue. This enactment
gave and put more liability on auditing firms and on their partners and officers so
that auditor should give more independent reports without biased of any company or
object for better protection of all stake holders of the company.

3.2.13 The Baring Bank: The great failure of old bank the year 1995
The Baring bank was a UK based bank. This was a London based bank. It
was founded in year 1762. After its failure and Bankruptcy in the year 1995 it was
succeeded by ING group.th is was an oldest bank in the category of merchant bank
in England. Only the famous Berenberg Bank was used to be old to this merchant
bank in England. This shows the goodwill of this bank. The founder of the bank was
Mr Francis Baring. The Baring Family was German and British both its nationality.
Mr. Francis was born in the Britain.
Judicial Study of Economic Crimes 98

In the year 1995 this bank was collapsed. A big loss was reported. The
amount was reported 827 Million British pounds. It comes 1.6 billion in the yea
r2019.the loses was resultant due to the fraudulent and mala fide investments in the
other companies. The primarily reason of the losses was future contracts. Future
contract stands to be the high risk investment at any time because future is never
predictable and this tends to increase the risk whosoever is the investment county
and in any manner.

The future contracts were said to done by one of its employee Mr. Nick
Leeson. This employee was stationed in Singapore and these contracts were done
their only. The baring bank was such a reputed that it issued a circular letter of credit
in 1892 to the US senator George Hoar. It was valued at that time in the yea r1892
British pounds 1000 which can be valued at British Pounds 109550 in 2016, that is
100 times more. During the Second World War a war generated decision was taken
a British Govt ordered to Baring Bank to liquidate its asset into USA to help finance.
it was basically the war efforts by the Government twist happened to the baring bank
after the war when it was taken over by other banking players , but still it was a great
player till 1995.

In 1995 The Baring Bank was collapsed due to heavy future contacts it was
225 contacts. And it was done in January 1992. This investment was completely
unhedged contacts which created unbearable losses. Mr Leeson who was head of the
Baring bank at Singapore was supposed to earn profit during the process of
arbitrage. He was trying to make profit out of Nikkei 225 future contacts. These all
future contracts were listed on Osaka securities exchanges. This stock exchanged
was basically from Japan. Mr Leeson was aiming through Singapore intentional
Monetary Exchange to make profits.

The fault committed by Mr Leeson was that he couldn‟t hedge the contracts.
Hedging the contracts is primary practise of future contracts. In hedging of future
contracts we purchase in one market and sale in another market. Bur this small
practice Mr. leeson could not follow he kept on holding the shares in its hand. This
was not primarily investment nature in future contract. It was treated as gambling
Judicial Study of Economic Crimes 99

purely and he was aiming the fluctuation in Japan markets and wanted to record high
profits. Mr Leeson did this in January 1992 and kept doing and this unhedged future
contracts losses increased rapidly due to son internal and external events. This was
analysed by then governor Mr. Eddie George, of Bank of England. Mr. Leeson was
General Manger at Baring Bank. After the collapse of the bank many expert raised
the question about the internal control of the bank and declared a complete failure of
internal supervision and control on the part of the bank.

It was reported that number of person had reported about the suspicious
activity of the lee but no on no one noticed it on internal control unit of the bank
which tended to the failure of this hundreds of years old bank on account of
economic crime which is very sad as it loses the confidence of investors and such
type of huge reputed bank are not easy to be formed all of as sudden, the law
makers should be more vigilant in making the law and it implication well in the
interest of the society and in the interest of the investors. After bankruptcy of
Baring bank the Dutch bank ING purchased the Baring Bank 1995 at a nominal
price of 1 British pound and assumed all assets and liabilities. The ING formed a
subsidiary to hold Baring ING Baring in 2001.

3.2.14 CR Bhanasali Case: Mr Chain Roop Bhanasali Rs 1200 crores scandal:

1996
Mr. CR Bhanasali was ironic in his business. He was very clever. He floated
as high 133 companies. The main purpose of these companies was pull the funds and
wanted to enter in mutual fund market. Cr Bhanasali rise was very fast at that time
India was witnessing a very rapid boom in NBFC in 90s and CR Bhanasali was also
rising but his fall was at great speed. NBFC means non banking finance companies.
Mr Chain Roop Bhanasali who happens to be accountant by profession was sp smart
and clever in his business that forget about small investor CARE also rated his
deposits „AAA‟ rating . It is unbelievable that this rating was given CARE when the
company was going down. This creates some suspicion in mind of the investors.

CR Bhanasali was born in Rajasthan. He was then shifted to Kolkata. He was

raised in west Bengal, Kolkata only. He became like „DADA‟ of finance capital of
Judicial Study of Economic Crimes 100

India Mumbai as soon as he reached the age of 40. He floated a company namely
CRB capital markets. He extended his vision by launching the company CRB
mutual funds. MR. Bhanasali was very much ambitious. He did not stop at this. He
further launched the company CRB share custodial services. He was so ambitious
that he wanted to enter into the banking field also and he almost did it.

The modus operandi of Chain Roop Bhanasali was to collect the money from
the public. It was primarily through fixed deposit. He also collected the money from
debenture and bonds also. He floated many companies and a huge impressive
number was 133 and all were subsidiaries companies. Here the manipulations take
place. All of the money collected from fixed deposits from the various small
investors in the form of fixed deposits and debenture sand bonds were invested in
these group companies by the violation of the laws of the market. A record of Rs
176 crores was raised by the flagship companies from the public during the period
1992 to 1996. He did not stop even after this and raised the money through it another
companies like Arihant Mangal growth Rs 230 crores deposits. He also raised Rs
180 crores through another amount totalling Rs. 180 cores extra above to all narrated
before herein above. Mr Bhanasali in post Harshad era the market was in bearish
form he could mange Rs 900 crores from the market.

The fall of CRB started as his investment was not paying off him to obey his
interest obligation. He took money from market at high interest cost fixed deposits
up to 24 percent yearly which was not easy to maintain the payment of interest. His
property market was also under slump and all this circular effect CR Bhanasali as
into the „CAPE „ and once cape is caught to any perpetrator it is the end of the
criminal.

The game of cap giving and cap game tends to end one day because all the
cape may not be in your hands and one has to fall. Mr. Bhanasali tried to borrow
from the market to repay his interest obligation and principle payments to regain the
confidence of the depositors and the investors. He also tried to invest in bollywood
but all went failed. It was said the RBI etc did not act fast on the scam otherwise
Judicial Study of Economic Crimes 101

crores of investors‟ were not to be put on this crime. This was failure of regulators
also.

Bhanasali was sent to the jail and he spent 3 years in jail 1997. Caught in a
trap does not pay. We lost a intelligent mind as criminal and it happens always when
a intelligent mind tries to earn fast beyond it competence he opens the back door
which in real is death door always in any case always. Investors‟ should also learn
that criminal are given energy by our greed also as greed of any one lead the
criminal minded people to commit the crime. So investors‟ should also keep track of
their mind set not to earn early in this volatile market. We have to always abide with
basis fundamental of the investment market. CR Bhanasali is a name only it will be
coming, if we investors do not stop our greed and regulators keeps eye close. No one
knows where is Mr. Chain Roop now what he is doing but all went waste the money
and the time and the growth. Responsibility is to be identified.

3.2.15 Dinesh Dalmia Case: Year 2004: DSQ software: RS.595 crore stock
market Scam
DSQ software was an Indian Company. It was founded in the year 1992 in
the city of Chennai, in the Tamilnadu sate. The founded was Mr. Dinesh Dalmia. It
was listed on BSE and NSE that is Bombay Stock Exchange and National Stock
Exchange. The company went as defunct company in the year 2004. This company
was played by Stock broker Ketan Parekh in the year 1999 stock market scam.
Ketan Parikh and promoters of the company made huge crime against the investors
and all stake holders by playing with share market price of the company. The DSQ
software was primarily an IT company as its name implies.

DSQ was having its software clients in Middle East US, Europe, and Asia
pacific. It was having revenuer to the tune of 150 million USD in the year 2000 and
nearby years .It was valued at that time 1 billion USD Company as per some reports.
Investigation after the crime opened showed the 1.30 crores share of the company
never listed in any stock market. All of the money of the investors gone wasted. The
regulators again was kept eye opened and comes into the picture a when fraudstar
makes crimes and lots the money of the poor unaware investors. Dinesh Dalmia was
Judicial Study of Economic Crimes 102

sent to jail in the year 2006 from various charges of economic crimes. Now it is said
that he may be somewhere in USA living luxury life the hard money of the
investors. Dalmia group was also included the HULDA Properties and Traders Ltd,
Power flow Holdings and trading P Ltd. This was all made to make money through
the partly paid shares of holding company DSQ software Ltd. The episodes of DSQ
will not stop till there is strong law and legislation and control and strong will to
stop Economic crimes.

3.2.16 Cobbler Scam: 1995: Fraud involve USD 600 Million that is Rs 1600
crores
This was a classic case of son of sheriff of Mumbai. Mr Sohin Daya was the
main culprit in this case. The history and facts of the case shows that GOI had
designed a scheme of loan for the poor section of the society of cobblers. The
interest rate was very low. The scheme was designed as the cobblers belong to the
poorest part of the society and they ends with Rs.80 to 100 per day income at that
time which was not sufficient to their livelihood. Unfortunately not a single paisa
reached to them.

The case was came in to the public notice when octori dept of BMC reported
to the police that a very high qty of raw material is coming to Mumbai and duty is
considerable less on this material. This was being in the name co operative society
of cobblers in the city. The officer of the co operative dept of the city investigated in
to the matter. the survey of all the cobbler cooperative society was done in the
Mumbai city and it was reported that this society was not in the place and all was
fictions just take the benefit of the concessional duties in the name of cobblers
society of poor nature and to take benefit the government scheme. At the same time
Bicycle Manufacturing Company also reported to the police that material used in
shoes is coming in to the city unnaturally. This was declared a worth of Rs.2 crores
by the company.

The economic offence wing of the Maharashtra police dept filed 7 charge
sheets in the case at the 37 metropolitan courts. In this case not only political parties
person were involved but also so many other officials of various financial
Judicial Study of Economic Crimes 103

institutions were also involved .the govt has keep a close watch on such govt
schemes so that malice intention people should not take benefit of such amounts.
The regulators have to keep close watch on this also. This is very serious issue as
exchequer money is involved at large and parliament is responsible to use the money
in public interest and for the public at large.

3.2.17 Viren Rastogi case: 600 million USD scam: Year 2002
Viren Rastogi was a business man. He was UK based business man. He used
to be in metal trading word wide His business was spread across the Globe. Viren
Rastogi was Charge sheeted for the fraudulent activity. He was detained in
fraud with nearly 20 banks. These 20 includes LB JP Morgan, and Dresdner Banks.
This also includes some banks from India also. Viren Rastogi was sentenced for Jain
.he was sent to Jain for 9.5 Years. Viren was owner of RBG group. The UK based
court held that Viren Rastogi was responsible for fictitious trade and
bogus international trades and all this was done by sister concerns of RBG group.
All his activities were deterrent to the interest if the exchequer and society as a
whole. Narendra Rastogi who happens to be brother of Viren Rastogi was allegedly
having allies concerns which were operated to manipulate the funds of RBG group
in fraudulent manner.

CBI of India also initiated the investigation against Viren Rastogi and 3
others namely Narendra Rastogi, Ravindra Rastogi, and 4 the one was Subhash.
Ravindra happens to be brother of the two culprit brothers Virden and Narendra.
Illegal export of scarp from India was also one of the charges by a court OF USA, in
which US requested to India for support in panel. The Rastogi brothers got a light
speed growth in their business. These brothers committed the crime to become
billionaire in short span of time. All there fraud was around fictitious buying and
sale of metal around the globe and money of lending banks was misused by
the shown as used to purchase the metal for industry a d business purpose. From
1996 the Rastogi Empire reached to the height of a turn over 1 billion USD which is
huge success.
Judicial Study of Economic Crimes 104

The opening of fraud was a mistake committed by the perpetrators office

paper work. In this some fax was sent to be sent to Hong Kong office and these
papers were mistakenly sent to the office of the Price Waterhouse Copper‟s.
(PWC).The CBI under its joint director Neeraj Kumar submitted the charge sheet in
which all 4 Rastogi brothers were detained in charge of over invoicing of bills to
avail higher duty and custom draw backs in the year 1995-8l96. These were related
to cycle parts mainly which were exported to Russia and Hong Kong. CBI arrested
Viren Rastogi also. The details of such economic offence cases always raises a
universal question as to be regulators has to be more Vigilant and bell should be
rang before committing the crime instead after committing the crime as it leaves
thousands of investors unattended and in loses.

3.2.18 Sahara India Pariwar case 2010 Rs 24,000 crores involved as per SEBI
November 2010 SEBI barred chief of Sahara Pariwar and 2 of companies
SIREC and SHIC to raise money from public as thousand of crores was raised from
3 crores investors on OFCD form. This was deemed illegal by SEBI.SEBI says to
return 24,400 crores to investors. In 2015 SC said that amount involved with interest
has reached to the tune of 40,000 cr. Sahara india CEO Mr. Subrato Rai was behind
the bars of Tihar in 2014 for a considerable time in the case in which SEBI ordered
Sahara group to return the money to the investors. Sahara issued optionally
convertible debentures in 2 of its group companies. These 2 companies were Sahara
India Pariwar and one other. SEBI declared that it has jurisdiction over this
company.

SEBI questioned the Sahara group as to why these instruments were issued
without its permission. There was conflict between Sahara group and the SEBI as to
who has jurisdiction over issuance of such type of instrument. Sahara contended that
said bonds are sort of hybrid in the nature. By virtue of its nature of hybrid the
ROC the registrar of companies has jurisdiction over these bonds as far as the
permission etc is to be taken which as per Sahara group has always been taken. This
ROC office falls under the ministry of corporate affairs. Sahara submitted that it has
already submitted to the office of ROC red herring prospects regarding issuances of
these bonds.
Judicial Study of Economic Crimes 105

SEBI didn't admit the plea of Sahara Group. SEBI in reverse ordered the
Sahara group to refund the money to the investors. The Supreme Court was in to the
picture on various appeal matter by Sahara group. In 2012 the Sahara group
presented its financial to the Supreme Court. Sahara claimed in SC that it has
already refunded 93 percent of money, which comes Rs. 23500 crores, and now only
a meagre Rs. 2260 crores is left to be refunded. Meanwhile the market regulator
SEBI advertises 4 times in 144 news paper in the nationwide to ask the investor to
claim the refund with SEBI. Only a meagre, Rs 64 crores could be refunded while
16000 crores are lying with SEBI. Only 4600 investors came to claim the refund
with SEBI as per the reports said. In 2015 SEBI cancelled the licences of Sahara
company mutual fund business.2016 Sahara chief was released on bail from jail after
2014 arrested. We can draw a conclusion that case is controversial in the nature and
lying to the apex court for decision.

3.2.19 Dubai dry fruit company: 200 crores scam of dry fruit 2021
Mohit Goyal the main culprit of Dubai dry fruit company and MD Om
Prakash Jangir were arrested by police in alleged scam of dry fruit. The modus
operandi of the fraudstar was that a company was opened in sector 62 in Noida. This
company had contact with 1000 person about buying of Masala and dry fruit. They
used to give advance to win the confidence of the party but never paid the full
amount of consignment of dry fruit and Masala. The culprit has formed 4
companies in Gurugram and Noida to commit the fraud.

As per police fraud may go up to 500 crores also. The complaint was raised
by Rohit Mohan, against 14 officer of the company. The allegation was that these
people made the firms and purchased dry fruit without payments. This entire saga
was started in the year 2017. Mohit Goyal had started the business behind the
veil. He started with his friend Manoj a company family of dry fruits. There was a
case registered in Bareli (UP) against them and Manoj was arrested in the case in the
allegation of crores of Rs. fraud.

In 2018, Mohit Goyal was first start the business in the name of Shyam
Traders. This was a company with Jaipur resident Pradeep Nirvan. 8 cases were
Judicial Study of Economic Crimes 106

registered against them in Noida n and Gurugram. In 2019 the accused opened and
company for Ayurvedic commodities and committed crime. This type of crime is
also the face of greed of investor many times which encouraged the fraudstar to
commit the fraud by any manner. The regulators are to be more vigilant and more
aware about the crimes happening in the town. The economic offenses break the
back bone of the growth. It cannot be tolerated.