The System Has Started Striking

Then there are those who do not know how to suppress their glee over the current discomfiture of the former ITC bosses. Wasnt ITC touted as Indias pride and the Indian multinational? And didnt Mr KL Chugh, one of the arrested chairmen, compare it with the Taj Mahal and give this as the reason for opposing BATs proposal to enhance its stake in ITC? Such people seem to be relishing how a powerful and proud Indian company has been humbled.

There are also quite a few proponents of conspiracy theories to explain away the ITC scandal. Echoing what Mr Chugh said, some people are saying that the raids and the arrests must be the result of BAT taking its revenge on the Indian managers who thwarted its proposal to increase stake in the company. BAT found an effective ally in the Chitalias in teaching Mr Chugh and his colleagues a lesson, they say.

 

There is yet another type of reaction. Here the financial institutions and their masters in the finance ministry are the target of attack. What has happened today to ITC is basically because the finance ministry never wanted the nominees of the financial institutions on the board of companies to act independently, they are saying. This is followed with a piece of advice: Let the nominees of financial institutions act independently in the interest of their shareholding stake.

Barring the last reaction, all the rest have one thing in common. They are born out of a total lack of understanding of the issues at stake. Corporate malfeasance is nothing new in India. That ITC was a saintly company just because it was professionally managed can only be a simpletons view. Who knows how many more companies there are in India, which are guilty of even more serious economic offences. And not all of them will be family-promoted concerns.

The problem is that administration of economic laws in India has always been extremely lax. Thus, a company is rarely penalised even though there may be elaborate legal procedures for booking economic offenders. Barring the short raid raj in the mid-eighties when Mr VP Singh was the finance minister, it is difficult to recall any other case where a reputed company and its officials were hauled up for economic offences. That is why the ITC case stands out. Not because ITC is a professionally managed company and therefore it cannot commit any offences.

If there is any glee over the arrest of former chairmen of ITC, it is also because the people are not used to seeing the law enforcement agencies penalising industrialists or corporate chieftains accused of having committed economic offences. The peoples faith in the executives ability to enforce law has been so eroded that they feel good to see that even the powerful can be brought to book.

Yes, as some commentators have suggested, the delays and procedural cobwebs in dispensation of justice must be removed. But nobody can deny that the ITC episode has contributed to the gradual restoration of the peoples faith in the system and its ability to penalise the guilty. The appearance of former prime minister, PV Narasimha Rao, in a court of law to defend himself against criminal charges, the Supreme Court ordering the former petroleum minister, Satish Sharma, to pay up Rs 50 lakh as fine for abusing public trust and two former chairmen of ITC being arrested cannot be seen in isolation. If there is any rejoicing, it should, therefore, not be over the discomfiture of Mr Chugh, but over the fact that the Indian system has begun striking.

But the gains achieved through this process will be frittered away if the follow-up actions are not taken without much delay. For instance, the judicial system has to be beefed up so that there is no inordinate gap between the time the charges are framed against the accused and the final judgement is delivered on them. If the people of this country have to be assured that the system has indeed begun delivering, all these cases must be disposed quickly. It should be the governments responsibility to cash in on the current mood and institute special benches so that these cases are settled expeditiously.

At another level, the ITC episode has an important lesson for the government. For far too long have the countrys financial institutions acted completely at the behest of the political bosses in the finance ministry.

If there is an outcry over the financial institutions role in supporting Mr Chugh in his bid to thwart BATs move to acquire majority stake in ITC, it is because the institutions then did not act as per their own wisdom, but were guided by the finance ministrys directives.

In the wake of the ITC scandal, the same financial institutions may once again be directed to act in a certain manner. That again will be unfortunate. This is the right time for the finance ministry to stay out of the entire controversy and allow the institutions to act in the interest of their investments in ITC. That will also restore the ordinary investors faith in the system.