Thirty years after the securities scam, Harshad Mehta’s story is attracting a lot of public attention after a selectively sympathetic portrayal of the Big Bull operator in a hugely popular television series; but it also showcases our inability to resolve major financial scandals.
An order by justice AK Menon of the special court set up for ‘expeditious’ hearing of the scam cases has categorically said that the family’s repeated claim that they are due to get refunds of over Rs5,500 crore from the custodian are not correct—at least, at this time. Also, that the amount of claims made against the group are significantly higher than what was known so far.
This order comes exactly four days after a newspaper reported
that the finance minister has asked for a quick disposal of tax disputes and a dedicated bench was sought to be set up to expedite hearings. No dedicated bench has been set up so far.
However, as things stand, justice AK Menon’s order
(Miscellaneous application No.15 of 2021) of 6th May, indicates that the gap between the family’s claimed assets and the liabilities is much too wide, even accounting for the fact that the tax department’s assessments and demands are likely to be whittled down considerably (see table).
Justice Menon has not only dismissed the Mehta family’s application without costs, but has ordered that the special court registry “shall not register any further application for release of funds from attached assets for payment of fees payable by notified parties without leave of the court.
Ashwin Mehta, brother and business partner of the late Harshad Mehta, who was the main accused in the securities scam of 1992, is now an advocate and has been representing his family as well as other scam-accused in several cases. He has filed repeated applications on behalf of the family, seeking the release of funds by the custodian established under the special court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Here is the background to this order. It is essentially a simple application filed on behalf of Harshad Mehta’s family members asking that the custodian release a small sum of Rs3 crore to be paid as legal and professional fees to Ashwin Mehta for his role as an advocate in handling their cases. The idea is to force the custodian to start releasing some money that was impounded in 1992
Ashwin Mehta’s 50-page application showed how the court had already denied relief to the group in 1995 (in the absence of a clear picture of their assets and liabilities) and again in 2010 (because the custodian allegedly presented ‘a false picture of assets and liabilities’). Mr Mehta claims there is a ‘complete change’ in the scenario in 2021 and things favour them, despite the adversarial actions of the custodian. Quoting from various Supreme Court judgements, he makes the claim that it was wrong of the custodian to include liabilities which are ‘not final and binding and the stage of final distribution’ to access money that would be rightfully theirs.
The key arguments revolved around whether assets and liabilities should be considered as a group –i.e., the ‘Harshad Mehta group’ While the custodian argued that the ‘group issue’ had been finally decided by the apex court in 2011 and in separate cases pertaining to Harshad’s mother (Rasila S Mehta), wife (Jyoti Mehta) and brother (Sudhir Mehta), Ashwin Mehta argued that it is still open.
The numbers quoted by the custodian’s office are mind-boggling, since the clock on interest, etc, seems have continued to tick over the past three decades. It says, the total liabilities of the Harshad Mehta group, as on 31 July 2021, are as high as Rs22,606.22 crore, while the family’s assets are Rs3,605 crore. By its calculations, the group had uncovered liabilities of Rs19,001 crore; but, clearly, many of these claims are still in dispute.
A big chunk of these relate to the tax dispute, where Ashwin Mehta contends that there will be a big refund due to the family, based on orders already issued by the tax tribunal. This, he contended before the court, would erase the bulk of the liabilities of the family. He also argued that even if individuals of the family are considered independently of the group, their assets exceed liabilities. For instance, he argued that the assets of his mother, Rasila S Mehta, were Rs938.33 crore, while her liabilities were only Rs102.22 crore.
The application also says that Harshad’s late mother Rasila Mehta and his son Aatur Mehta “have disclaimed any right to the estate of late Harshad S. Mehta.” So her assets ought not to be considered a part of the group. Hence, there was no reason for the custodian to hold back her money.
Arguments before the special court also reveal that the custodian has written more than a dozen letters to the income-tax (I-T) department to decide the matter or give effect to various rulings of the tribunal; but nothing had moved. The tax department appears to be the main claimant.
The order notes that a decision of the Supreme Court had noted that Harshad Mehta and his brother brought funds into the account of various family members in an attempt to show them as independent transactions. The judge declined to go into whether or not the tax department’s claims are correct or accurate, saying it was not competent to decide the tax due from the family. Until the claims of the tax department are assessed and determined, justice Menon said the court would not ask the custodian to release any money from the attached accounts. It also refused to accept Ashwin Mehta’s arguments that the family’s assets were significantly higher than its liabilities.
It turns out that Ashwin Mehta has filed at least eight applications before different judges of the special court seeking release of money by the custodian for payments to various tax consultants, professionals and counsel’s fees. So the court decided that similar applications will not be registered without its approval, given the time invested in hearing and disposing repeated applications.
I have learnt that many of those accused in different aspects of the giant bank and securities scam, whose assets have been attached by the custodian (employees of Standard Chartered Bank, Fairgrowth Financial Services, Canara Bank, Allahabad Bank, State Bank of India, the Bhupen Dalal and Hiten Dalal families, and various other brokers and their employees), would have stood to benefit if the court had ruled in favour of the Harshad Mehta family. It would have opened the doors to similar applications, since many of their assets also remain frozen and attached.
As I argued in a recent column
, after 30 years, the right and wrong of it is less relevant than the embarrassment of India being unable to complete the trial and punishment of a major financial scandal in a reasonable time, largely because the tax department’s claims have no end in sight.
To put matters in perspective, the joint parliamentary committee (JPC), which investigated the securities scam in 1992, had estimated it to be just under Rs5,000 crore. Today, the liabilities of one family alone are estimated at Rs22,606 crore. It only proves that we have a broken system, where the process itself is the punishment for the guilty as well as the innocent!