Rewind. Some animals are more equal

All animals are equal, proclaimed George Orwell in his book “Animal Farm’, but some animals are more equal than others. This is very true for the Indian system of justice.

With enough money and influence, especially political influence, perpetrators of crime and fraud are able to to get away with almost anything; whether a road accident that results in deaths, or a fire killing several. A fraudster can endlessly prolong his day of reckoning since the judicial system is insensitive to the pain caused by delays and happily grants adjournments, with a view to accommodate the legal fraternity rather than to dispense speedy justice.

The truth is that unless justice is equal, speedy and delivered to protect those most in need of it and not those who have committed a crime, India’s economic growth engine would get stuck. Investors who have suffered and are seeking judicial redress would get disillusioned. Several examples come to mind.

Consider Sahara. A small individual, Khitish Kumar Pandey, invested ₹10,000 in 2004 in a Sahara savings plan, told by the agent that he would get back ₹30,000 in 10 years. When he went to collect it, he was offered ₹15,000 provided he invested the balance in another Sahara ponzi scheme. Sahara itself used the moneys collected from millions of Khitish Kumar Pandeys to fund the acquisitions of marquee hotels in London and New York. It has avoided paying the money despite a Supreme Court order. Some animals are more equal than others.

Consider NSEL. Despite three independent investigations by reputed accountancy firms confirming that it was a planned fraud, the perpetrator has managed to delay the day of reckoning and is now opposing a merger under Section 396 of the Companies Act.

The objection is on the ground that a forced merger under the section would, by lifting the corporate veil, violate ‘the fundamental principle of limited liability’. This is hogwash.

Section 396 is meant to be used in the rarest of rare cases, and the NSEL scam qualifies as one. It will not pose a general danger to the concept of limited liability, as wrongly commented (perhaps motivated to) by some reports. The opposite is true.

If Section 396 is not used, despite being provided for, to be used in exceptional cases, in order to make fraudsters responsible for their actions, it will only serve to encourage others to commit fraud. If it becomes easy to hide behind the corporate veil, set up subsidiary companies to commit fraud, as done by FTIL, and use the concept of ‘limited liability’ to avoid paying for their misdeeds, then there will be further frauds.

Because some animals are more equal.

Or consider the ongoing National Herald case. This is a corporate fraud but turned into a political combat. At issue here is the subjugation of rights of the minority shareholders of Associated Journals, the company which owned the National Herald and properties stated to be worth ₹5,000 crore today. The original share capital of the company was ₹5 lakh, or 50,000 shares of ₹10. So, if the assets had been liquidated instead of the company being hijacked, each shareholder would get ₹10 lakh per share held. If the law is applied equally and there is proper justice, the original shareholders ought to get their due share.

But some animals are more equal.

This is also true of our polity. Rajya Sabha MPs, who have worked 45 per cent of the time in the current session, have asked for a 100 per cent pay hike. If senior managers of a company were to ask for such a hike even if absent more than half the time, they would be sacked. But some animals are more equal. If allowed, it would be a sham of democracy.

The BSE Sensex went up 102 points last week to close at 25,838.71.

India is in a sweet spot as it has a large domestic economy. Its main import, crude oil, has seen a sharp fall in price, bringing down India’s current Q2 account deficit, to 1.6 per cent compared to 1.2 per cent in Q1. The RBI Governor has warned banks of the huge bad loans on their books. This will see greater M&A activity.

India’s story is hampered by its laxity towards crime, including white-collar crime. Unless we ensure that all animals are, indeed, equal, we will not be able to attain the heights we seek to attain.

Justice must not only be done, but seen to be done. Alas, neither is true in India.

The writer is India Head, Euromoney Conferences

COMMENT NOW