Financial Scams And Fraudulent Schemes Prosecutions
๐ Overview of Financial Scams and Fraudulent Schemes
Common Features:
Deception or misrepresentation for financial gain
Breach of trust or fiduciary duty
Use of complex financial instruments or documents
Involvement of regulatory violations (e.g., SEBI, SEC, RBI rules)
Victim losses (individual investors, public institutions, etc.)
Key Legal Provisions (India):
Section 420 IPC โ Cheating and dishonestly inducing delivery of property
Section 406 IPC โ Criminal breach of trust
Section 409 IPC โ Criminal breach of trust by public servant, banker, merchant
The Prevention of Corruption Act
The Companies Act, 2013
SEBI Act, 1992
The Prevention of Money Laundering Act (PMLA), 2002
๐ Detailed Case Studies
1. Harshad Mehta Securities Scam (1992)
Case: CBI vs. Harshad Mehta & Ors.
Facts:
Harshad Mehta, a stockbroker, manipulated the Bombay Stock Exchange using fake bank receipts and diverted funds from banks to invest in stocks.
Estimated scam: โน4,000+ crores.
He used a loophole in the banking system called "Ready Forward Deals" to siphon funds.
Legal Issues:
Misappropriation of public money
Criminal conspiracy and cheating
Violation of banking regulations
Outcome:
CBI filed multiple charges under IPC and Banking Regulation Act.
Mehta was arrested and faced several trials. Though he died in 2001, some family members continued to face legal action.
The scam led to significant reforms in Indian financial markets, including the establishment of SEBI as a stronger regulator and stricter audit mechanisms.
2. Satyam Computers Scam (2009)
Case: CBI vs. B. Ramalinga Raju & Ors.
Facts:
Satyamโs chairman, B. Ramalinga Raju, confessed to inflating profits by โน7,000+ crores over several years.
He created fake invoices, accounts, and bank statements to mislead shareholders and regulators.
Legal Issues:
Corporate fraud, criminal conspiracy, falsification of accounts
Cheating and breach of trust under IPC and Companies Act
Outcome:
CBI charged Raju and top executives under multiple provisions.
In 2015, Raju was sentenced to 7 years imprisonment along with fines.
The scam shook investor confidence in Indian IT companies and led to changes in corporate governance norms, including stricter auditor accountability under the Companies Act, 2013.
3. Nirav Modi โ PNB Scam (2018)
Case: Enforcement Directorate vs. Nirav Modi & Mehul Choksi
Facts:
Nirav Modi and Mehul Choksi defrauded Punjab National Bank (PNB) of approximately โน13,000 crores.
They used fake Letters of Undertaking (LoUs) issued by bank officials without collateral.
Legal Issues:
Criminal breach of trust, forgery, money laundering
Violation of FEMA and PMLA
Outcome:
Modi fled the country; ED and CBI issued arrest warrants.
He was arrested in the UK and is fighting extradition.
His assets were seized, and Interpol issued Red Corner Notices.
This led to significant reforms in SWIFT-LCBS integration in Indian banks to avoid similar loopholes.
4. Sahara India Case (2012)
Case: SEBI vs. Sahara India Real Estate Corp. Ltd. & Others (Supreme Court)
Facts:
Sahara collected over โน24,000 crores from millions of investors through Optionally Fully Convertible Debentures (OFCDs), which SEBI claimed were unauthorized public issues.
Legal Issues:
Violation of public issue norms
Non-compliance with SEBI regulations
Misleading investors and regulatory authorities
Outcome:
The Supreme Court ordered Sahara to refund the entire amount with interest to SEBI.
Subrata Roy (Sahara chief) was jailed for two years for non-compliance with court orders.
The case established SEBIโs jurisdiction over hybrid instruments and broadened the definition of public issues.
5. Kingfisher Airlines & Vijay Mallya Case (2016)
Case: Enforcement Directorate & CBI vs. Vijay Mallya
Facts:
Vijay Mallya and Kingfisher Airlines defaulted on loans worth over โน9,000 crores borrowed from a consortium of banks.
Allegations of fund diversion and wilful default were made.
Legal Issues:
Money laundering under PMLA
Fraudulent disbursal of loans
Wilful default (not criminal under IPC, but had regulatory implications)
Outcome:
Mallya fled India and is fighting extradition in the UK.
He was declared a Fugitive Economic Offender under the Fugitive Economic Offenders Act, 2018.
His properties were seized in India.
Case triggered stricter banking norms on Non-Performing Assets (NPAs) and borrower disclosures.
๐๏ธ Key Legal Takeaways
Indian courts have upheld strict liability in financial fraud cases.
The Supreme Court has emphasized investor protection and public trust as paramount.
Enforcement agencies like CBI, ED, SEBI, and SFIO have increasingly coordinated actions for better prosecution.
In many cases, non-bailable warrants and asset seizures have been employed to ensure accountability.
New laws like the Fugitive Economic Offenders Act (2018) were enacted as a direct consequence of these scams.
โ๏ธ Conclusion
Financial scams and fraudulent schemes have serious economic and legal consequences. Indian jurisprudence has evolved to tackle these crimes with a mix of penal provisions and regulatory reforms. Courts have consistently held that white-collar crimes, especially those involving public money and investor trust, must be dealt with firmly to maintain systemic integrity.
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