The Great Cobbler Scam

KIRIT P MEHTA, SCHOOL OF LAW, MUMBAI A Project Submitted ON The Great Cobbler Scam IN COMPLIANCE TO THE FULFILLMENT OF THE MARKING SCHEME, FOR SEMESTER 2 OF 2017-18, IN THE SUBJECT OF Law of Crimes (IPC) SUBMITTED TO: - SUBMITTED BY:- Professor Ashraya Singh- A018 Prof. Nazima Munshi Rajeev Tekwani- A059 (FIRST YEAR) Contents S.No. Index Page No. 1. Abstract 3 2. Literature Review 4 3. Introduction 7 4. Facts of the Case 8 5. History of the Case 9 6. Present Scenario 10 7. Criminal Charges 11 8. Similar Cases 12 9. Conclusion 14 10. Suggestions 15 11. Bibliography 17 Abstract The cobbler scam is one of the biggest scams of India involving around 1600cr. of money. This money was meant to be provided to the poor cobblers at low rates if interest and tax modifications. The money however did not reach the cobblers because of involvement of some of the top businessmen and politicians including Saddruddin Daya-owner of Dawood shoes, Rafique Tejani-Owner of Metro Shoes, Kishore Signapurkar-Owner of Milano Shoes, Abu Asim Azmi-Partner in City walk Shoes. The investigation was started by a complaint by the BMC and charge sheets were filed against the 28 people accused however, all of them are out on bail and the case is still waiting for a trial. Literature Review I. Books 1. Why Scams are here to Stay: Understanding Political Corruption in India -by N.Ram Pages-1-162 Year of Publication-2017 The writer in this book talks about the scams taking place in India and their relations with businessmen, political leaders and other influential people including people associated with criminal element through the help of Bofors Grand Corruption Scandal case. He talks about the chain of corruption blocking our system and because of this; corruption has become an untraceable problem in India. This book helped to understand the involvement and control of the politicians and bureaucrats. 2. Corruption and Anti-Corruption -by Peter Grabosky Pages 146-198 Year of Publication-2013 A part of the book talks about the economic crimes taking place whether in form of Insurance fraud, bribery and corruption, money laundering, telecommunication fraud, forgery, electronic banking fraud and others and countermeasures to prevent these economic crimes through auditing, transparency, public awareness and political change. This book helped to understand the various ways in which the economic crimes take place and moreover the ways to cure this problem through better laws. 3. Frauds in Banks -by Narasimhan R. Pages-1-20, 182-213 Year of Publishing-2005 The author in the book explains the various crimes committed against the banks with the help of various bank frauds around the world and in India like Rustom Sohrab Nagarwala to understand the modus operandi of the people committing such crimes and to provide defence from the same. 4. Crime and Money Laundering: The Indian Perspective -by Jyoti Trehan The author in this book speaks about the scams and crimes taking place in India to make huge sums of money and the mode of operation behind it. Several other cases can be used for a comparative study. II. Journals 1. Economists on Bank Scams Journal-Economic and Political Weekly Date of Issue-10 March 2018 Talking about the recent scam involving Punjab National Bank which is the second largest public sector bank the author looks for the loopholes in the present system being exercised by the banks in India. 2. Criminal Conspiracy Journal-Harvard Law Review Date of Issue-4 Feb 1992 Author-Francis B. Sayre The articles explains the concept of criminal conspiracy and its practical implications using cases from various countries to understand what concludes criminal conspiracy or whether just the planning and not execution for the crime is enough to prove this charge. 3. Framework for Issuing, Using, and Validating Identification Documents Journal-Economic and Political Weekly Date of Issue-15 October 2016 This article deals with the procedure for issuing identification documents using the six step procedure involving identification, certification, use of documents, authentication, regulation and audit of the documents to find out how people involved in the scam created more than 50,000 fake identities through duplicate documents. Introduction There is no end for corruption in India, for by the time one is brought to light another one starts somewhere. One of the biggest scams that has happened in the Indian history is the Cobbler scam which involves money worth several multi million dollars. This was most popularly discussed as the Great Cobbler scam. The cobbler scam revolved around a number of political heads and even top businessmen siphoned off lot of illegal money into their own account which is a huge figure of about $600 million US dollars. This money was actually given by the government of India especially for the benefit and the well being of the poor cobblers of Mumbai. But unfortunately the money was mostly swindled by the top businessman and politicians for their enrichment of life to build posh houses and to improve their lifestyle to the best. History of the case The Government of India planned this plan which was intended to give credits to the poor shoemakers at a low rate of interest and assessment alteration for even after 16 hours of work they wound up gaining just 80-100 rupees for each day. However this plan did not favor them because not a single penny reached them. The reason for activity and the strategy for working behind the shoemaker's plan were to enact a helpful society which would empower the shoemakers to make utilization of the upside of soft government credits with the distinctive kinds of schemes which was accessible. But the politicians and the top business heads just to make use of these soft loans came up with a number of bogus small companies and societies. Some of the main individuals who were engaged with the shoemaker trick were Saddrudin Daya, previous sheriff of Mumbai and proprietor of Dawood Shoes, Rafique Tejani, proprietor of Metro Shoes, Kishore Signapurkar, proprietor of Milano Shoes, and Abu Asim Azmi, leader of Samajwadi Party's Mumbai unit and accomplice in Citywalk Shoes. Aside from these individuals the multi million dollars shoemaker trick likewise included different authorities of banks and budgetary organizations like Maharashtra State Finance Corporation, Citibank, Bank of Oman, Dena Bank, Development Credit Bank, Saraswat Co-agent Bank, and Bank of Bahrain and Kuwait who all considered an extremely who all held a very responsible position and were highly reputed. Facts of the case The investigation started based on the complaint filed by the officials of the Brihanmumbai Municipal Corporation’s octroi department when they realized there was enormous quantity of raw materials which were brought into the Mumbai city on an extremely huge scale. The duty which levied on these materials was at considerable concessions as they were into the city in the name of fictitious cooperative societies which were formed by the people involved in the scam. Thus once the complaint was lodged the police from its side started to probe their investigation. As a result of the investigation one of the officers in the Registrar of Cooperative Societies who was keener on conscientiousness in his work and duties made up his mind and decided to do a thorough and a complete survey of all the registered cobbler societies in Mumbai. In 1995, Sudhir Thakre , the then joint registrar of the Cooperative Society for Mumbai division who just then took in charge gave an authoritative instruction to do a complete survey of all the registered societies which came under the Mumbai division. Not a single society was missed out from this survey. The survey stated that the officials from Sudhis Thakre’s office who were especially auditors of each of these societies complained that most of these societies did not exist at the registered addresses furnished attached to this office. During an exclusive interview to Express Newsline Sudhir Thakre stated that the series of actions or steps taken in the investigation into the big business way to success through fictitious cobbler societies. Thakre also narrated that since most of the cobblers were from a poor and uneducated background that did not want to harass them in the name of investigation. But however because of the fact or quality of being more merciful or tolerant from the Registrar’s part was misused by the businessman who was all involved in the cobbler scam. So Sudhir Thakre decided to survey and investigates all the cooperative societies which were formed. Also at the same time a Bicycle Manufacturing Company lodged a complaint to the police stating that lot of raw materials used in the manufacture of shoe making worth around two crores were brought into the city. Present Situation On the basis of the complaints of BMC, police started the investigations. The banks whose officials were involved in this scam include Maharashtra State Finance Corporation, Citibank, Bank of Oman, Dena Bank, Development Credit Bank, Saraswat Cooperative Bank, and Bank of Bahrain and Kuwait and they were subsequently charge sheeted. The Officials of Bank of Baroda, Saraswati Co-operative Bank and the Bombay Mercantile Co-operative Bank are also facing charges for manipulation of the funds of the government. As the inquiry progressed, Dawood, Metro, Milano, City walk shoes and, many of other shoe shops were sealed and were opened only after a long battle. Presently, the shoe scam is waiting in the queue of cases to be taken up by the court of the 19th additional chief metropolitan magistrate. All the accused are out on bail. Files on the multiple cases of the shoe scam are gathering dust on court shelves. The case is still waiting for a trial. Criminal Charges Many people along with Sadruddin Daya, the prime accused in the case and former sheriff of Mumbai, his wife Shauheen, two international banks and five co-operative banks have also been charge sheeted under various sections of the Indian Penal Code (IPC). The charge-sheets were filed before the additional chief metropolitan magistrate, Sharad N Chimade. However, Rafique Tejani of Metro Shoes, Kishore Signapurkar of Milano Shoes and Abu Asim Azmi of City walk Shoes have not been charge-sheeted. EOW officials said the role of the three companies in the scam is still being investigated. The sections of IPC under which the above suspects are charges include criminal conspiracy According to Section 120A of the IPC, when two or more persons agree to commit an offense punishable with death, imprisonment for life, or imprisonment of either description for a term of two years or upwards, or to cause such an offense to be committed, the agreement in designated a criminal conspiracy., forgery  According to Section 463 of the Indian Penal Code, "whoever makes any false document or  electronic record or part of a document or electronic record with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery., preparing and using duplicated documents for financial benefits Section 464 if the IPC, criminal breach of trust According to the Section 405 of the IPC,whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust”, cheating, jumping bail limits, fraudulently setting up fake co-operative societies and making money. Similar Cases 1. PNB Fraud The recent Nirav Modi case deals with the use of duplicate documents to get the money from the bank. The suspect in this case obtained fake Letters of Understanding (LOU) and Letters of Credit (LOU) from the bank ultimately amounting to Rs. 11,384 crores. Modi was able to do so because none of the transactions were routed through the CBS system, thus avoiding early detection of fraudulent activity, it added. The bank also cautioned of a similar modus operandi used by the same branch official in companies belonging to Gitanjali Gems Ltd, promoted by Mehul Choksi viz. Gitanjali Gems, Gili India and Nakshatra while issuing LOUs. Nirav Modi Case: Business Today https://www.businesstoday.in/sectors/banks/nirav-modi-case-pnb-fraud-11400-crore-scam-ed-cbi-raid/story/270708.html Apart from Modi, Gokulnath Shetty, deputy manager who was posted at PNB’s foreign exchange department in Mumbai who allegedly with help of another official Manoj Kharat issued the fraud LOU’s and LOC’s to the company without following the required norms and steps and without making the entries which are required to be made in the system of the bank which is the reason that transactions were not detected. Nirav Modi with his wife and brothers left India in the first week of January before Punjab National Bank brought up charges of fraud against him. Since then, they have not returned to India. 2. Dwarka Seth International Scam The United Co-operative brought up the case against Dwarka Das International for a default on the loans through the instruments called Letters of Credit (LC) Definition of Letter of Credit http://www.businessdictionary.com/definition/letter-of-credit-L-C.html which are used to pay liabilities like creditors. Dwarka Das International used the LC’s to pay the offshore creditors from which they purchased raw materials like gold and precious stones however the transactions were only fictitious and the money went to the group itself through foreign ties which amounted to around Rs.390 crores. Dwarka Das International also misrepresented the facts including information about the creditors, customers and the annual turnover of their company to the bank. The company reported the annual turnover to be Rs.1 billion wherever its actual turnover was Rs.140-150 million. The issue of LC’s continued until the bank noticed that the banks were rated poorly and thus stopped the credit facility. The group then stopped paying the loan amount and asked for an extension due to poor condition of the business. Now more than 10 months have passed and there has been no response from the customer and his family and the are not present at address according to the records. Conclusion India is a country exhausted with corruption. The Cobbler Scam costed the government $600 million. The irony is that the money was taken from a plan that should have benefited the poor of Mumbai. Instead it went into the pockets of the wealthy elite people of Mumbai.  “For India’s poor, the Great Cobbler Scam is just confirmation that fifty years after independence, little has changed.” said Dominique Schwartz. The Cobbler Scam was extensively covered by the Indian media from 1995-2009 writing in detail about the several elites and politicians involved in the scam and the investigations being carried out. This scam had headlined leading newspapers like The Times of India, Hindustan Times, The Indian Express, Business Standard, Mid Day and Outlook, the weekly magazine. It was a case that made front page headlines in 1995, managed to stay there for almost two years — before disappearing. Papers like The Indian Express and Hindustan Times continued to cover the Cobbler Scam and how it was handed over to the Economic Offences Wing (EOW) in the year 2006 and how even almost a decade later the cobbler scam, which involved 40 politicians, bureaucrats and well-known shoe manufacturers in Mumbai is still waiting for a trial. Times of India had even put forth the grievances of the people impacted by the scam. Indian Express informed how the shoe scam was exposed by three agencies after the BMC filed a complaint about raw materials being brought into the city on a large scale. The media did an excellent job in extensively covering the Cobbler scam and how another Cobbler scam was barred in 2006 where families had got recovery notices for loans taken by complete strangers. Political implications in the 1,000 crore cobbler scam was also elaborately mentioned in the Indian media. The introduction of digital technology especially for scanning and copying, enables almost perfect reproduction which may not only leave the recipient holding a worthless piece of paper, but the forged documents can also be used to facilitate a variety of other economic crimes. Page No. 150, Para 4,Corruption and Anti-Corruption -by Peter Grabosky However, though the media high lightened all the aspects of the Cobbler Scam, the trial is yet pending in court and the accused out on bail; hence the media pressure on the Government to take quick action against those on the  chargesheet was not as strong  should have been. The investigation files now continue to gather dust while justice has yet not been delivered after more than a decade. Suggestions All the banks should review their critical systems and processes including the IT segment regularly. Ethical banking practices should be preferred. Disclosures to RBI, SEBI and other regulators should be made with consistent periodicity. Banks should ensure that there are adequate systems and controls in place to identify potential risks and that they are being followed at all relevant branches. SWIFT-CBS linking must be made mandatory for all LoUs. Confirmation from lending foreign branches must be done for each of the LoUs. At this juncture, it is critical to focus on effective regulation and supervision of all banks, and to make the regulatory process stricter, as well as more transparent and accountable. Para 6, Economists on Bank Scams Journal-Economic and Political Weekly Date-10 March 2018 All internal and external audits must be completed on time at branch level. The audit reports should be shared with the government's auditors and examined by the RBI, which should conduct a separate audit every year. In the PNB fraud case, the bank has told the finance ministry that the last audit by RBI was done in March 2009. “It is by no means fail-safe, as accountants often fail to detect irregularities, but the very necessity of having to prepare accounts in a form suitable for independent scrutiny and then subjecting them to a degree of examination is an important first step” Page No. 154, Para 2,Corruption and Anti-Corruption -by Peter Grabosky . Training of bank staff should be undertaken for skill up gradation and creating awareness about the possible modes of banking fraud. Use of technology for preventing fraud should be encouraged within banking ecosystem. New technology like block chain can be used to record all banking transactions. Some experts have said that block chain could have detected the first of the series of frauds in the PNB. And, once a fraud is detected, it should be immediately flagged by the bank and concerned agencies roped in for probe. Bibliography 1. Why Scams are here to Stay: Understanding Political Corruption in India -by N.Ram 2. Corruption and Anti-Corruption -by Peter Grabosky 3. Frauds in Banks -by Narasimhan R. 4. Crime and Money Laundering: The Indian Perspective -by Jyoti Trehan Journals 1. Economists on Bank Scams Journal-Economic and Political Weekly Date of Issue-10 March 2018 2. Criminal Conspiracy Journal-Harvard Law Review Date of Issue-4 Feb 1992 3. Framework for Issuing, Using, and Validating Identification Documents Journal-Economic and Political Weekly Date of Issue-15 October 2016 Newspaper Articles 1. DNAIndia.com http://www.dnaindia.com/india/report-now-dwarka-das-seth-international-under-cbi-scanner-for-loan-fraud-case-2588853 2. DeccanChrinicle.com http://www.deccanchronicle.com/nation/current-affairs/100318/nirav-modi-will-take-time-to-return-to-india-pnb-case-not-a-scam-law.html 3. Business Standard.com http://www.business-standard.com/article/specials/daya-among-28-chargesheeted-cobbler-scam-197071701015_1.html 4. IndiaToday.in https://www.indiatoday.in/magazine/indiascope/story/19961231-cobbler-scam-shoe-firms-charged-with-misappropriating-concessionary-funds-834263-1996-12-31 5. EconomicTimes.com https://economictimes.indiatimes.com/topic/Cobbler-Scam Page 18