Chapter 11D: For some bureaucrats it doesn’t matter which party is in power. They remain in demand for their honesty and hard work. Bimal Jalan was one such officer. He was the Finance secretary when liberalisation was flagged off by Dr Singh in 1991. He was also the Governor of RBI from 1997 to 2004. In a way he handed over the baton to Dr Singh in 2004.
His son Prateek Jalan who is an eminent lawyer continues his family tradition as a sitting judge of Delhi High Court. Bimal Jalan was as understated as he was sharp. India has a history of having developed some outstanding regulatory bodies. Israel, China and our neighbours could never get that right. And each of them have invited me to look at the regulatory structures there. It is whilst looking at those countries from deep within that I realised both the strengths and weaknesses of Indian regulators. The basic strength is the people. And for failed regulators – that is also the basic weakness. To be fair to RBI, other than the Citi HDFC fiasco – it has been an excellent regulator. Why did it fail on HDFC ?
Coming back to Tata Finance. The RBI caught Tata Finance doing everything they should not have been doing. Citi even took these bogus documents to the stock market.
The Tata Finance scandal, often referred to as the Tatafin Episode, was a significant corporate crisis that unfolded in 2001, involving serious financial irregularities, alleged fraud, and insider trading at Tata Finance Limited (TFL), then the flagship financial services company of the Tata Group.
When the shit hit the fan, the citi war room ran for cover. They advised Ratan Tata that a fall guy had to be found to protect mainly the interests of Citibank – but projecting it as something required to safeguard the reputation of Tatas. It was made out to be a case of collusion between a rogue employee and a corrupt auditor.
My friend and guide, Kale was the statutory auditor. He was in line to be Managing Partner of the 100+ year old AF Ferguson & Co – by far India’s most respected CA firm. He had been fooled into signing fake accounts. For the first time in the history of the Firm, a partner was impeached.
Dilip Pendse, the Managing Director of Tata Finance and a former confidant of Ratan Tata, was blamed as the mastermind behind the fraud. An FIR was filed.
Investigations by RBI revealed that TFL misrepresented its financial position in its rights issue offer documents, concealed the losses of its subsidiaries, and engaged in insider trading, with Pendse selling company shares using inside information just before the crash. It was a scandal that Ferguson didn’t really recover from. The House of Tatas were their largest account. Citibank was pushing their auditor KPMG to take over.
Deloitte took over Ferguson.
And Tatas have since been in the control of Citibank. Appointing Pramit Jhaveri as a Trustee of Tata Trust was a mere formality.
Dilip Pendse hung from the fan in his office and took his own life.
