December 20, 2002, Chandigarh, India
Ketan Parekh ‘key player’
New Delhi, December 19
This nexus should be further investigated by the Securities and Exchange Board of India (SEBI) or the Department of Company Affairs expeditiously, the JPC, which probed the scam, said in its report presented to Parliament today.
Noting that this scam was basically the manipulation of the capital market to benefit market operators, brokers, corporate entities and their promoters and managements, the JPC headed by BJP MP Sri Prakash Mani Tripathi, concluded that certain banks, notably private and cooperative banks, stock exchanges, overseas corporate bodies and financial institutions were willing facilitators in this exercise. The report named Ketan Parekh as ‘a key player” in the scam.
“The scam lies not in the rise and fall of prices in the stock market, but in the large-scale manipulations like the diversion of funds, fraudulent use of bank funds, use of public funds by institutions like the Unit Trust of India (UTI), violation of risk norms on the stock exchanges and banks, and the use of funds coming through overseas corporate bodies to transfer stock holdings and stock market profits out of the country,” it said, pointing that “these activities were largely unnoticed.”
Indicting the Chairman and top executives of Madhavpura Mercantile Cooperative Bank (MMCB) for indulging in a series of irregularities flouting all prudent banking norms and the guidelines laid down by the Reserve Bank of India, the JPC said: “This resulted in a run on the bank in March 2001 and triggered a run on the deposits of several cooperative banks, not only in Ahmedabad but also in other towns of Gujarat.”
“The Chairman of the MMCB was instrumental in getting huge amounts of loans sanctioned in blatant violation of extant rules/guidelines either for his personal gain or for the benefit of his close relations.”
“He misused his official position for his personal business interests by securing from the bank credit facilities much beyond exposure norms for M/s Madhur Food Products Ltd, a company in which he was a Director.”
“Large funds were transferred between different accounts belonging to the business concerns of the Chairman; for instance, amounts were withdrawn from the loan account of M/s Madhur Food Products and transferred to other accounts of the Chairman, that is M/s Madhur Shares and Stocks Ltd and M/s Madhur Capital and Finance Ltd,” it said.
“In this pursuit of his (MMCB Chairman) vested interests, he colluded with Ketan Parekh. For example, between January 17, 2001, and February 28, 2001, Rs 135 crore were transferred from the hypothecation account of M/s Panther FinCap and Management Services Pvt Ltd, a company belonging to the bank Chairman’s group.”
“This appears to have been done in consideration of unduly large credits extended by the bank to the Ketan Parekh Group at its Mandvi Branch, Mumbai, indicating a business nexus between the Chairman and Ketan Parekh,” the report said.
Stating that all those involved must be dealt with severely and expeditiously, the JPC had recommended that the RBI, the State Registrar of Cooperative Societies and the Central Registrar of Cooperative Societies should fix responsibilities for wrong doings and proceed expeditiously against all those who were found involved.
Noting that had such misdeeds not been committed, the fabric of the cooperative banking system could not have been affected to this extent, the JPC report said the Ministry of Finance must give a serious thought to the problem of duality of control in the case of cooperative banks which in fact was not only resulting in cross directives adversely affecting the working of the cooperative banks but also since most of the state Registrars were not exercising proper control and surveillance over these banks, it was noticed that these banks often flouted rules with impunity.
“The committee, therefore, desires that bank-related functions of the cooperative banks should be brought under the purview of the Banking Regulation Act, 1949, so as to bring a clear demarcation of areas of activities of the cooperative banks which will fall under the domain of the RBI vis-a-vis the Registrar of Cooperative Societies,” it said.
“The legislative proposals submitted by the RBI to the Ministry of Finance as well as the proposal regarding the setting up of a separate apex body for regulating the entire urban cooperative sector, therefore, merits early consideration,” the report added.
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