1

S|nce the ear|y 90's lnd|a has w|tnessed

a spate ot major econom|c scams |n d|tterent
sectors ot the economy. Wh||e m||||ons ot
sma|| |nvestors have |ost thousands ot crores
ot rupees, the econom|c cr|mes have a|so
caused havoc |n the government managed
|nst|tut|ons ||ke 8anks, Pub||c Sector Under-
tak|ngs, Je|ecom Department, lnsurance
Compan|es, etc. Jhe magn|tude and the new
methods ot comm|tt|ng econom|c cr|mes
have been a cause ot ser|ous concern to the
Government as we|| as to the peop|e.
fconom|c Cr|mes are not a new phenom-
enon |n our country. fven one and a ha|t cen-
tury ago, when the lnd|an Pena| Code was
enacted, pun|shment was prov|ded tor Cheat-
|ng (Sec.420), Cr|m|na| 8reach ot Jrust (Sec-
409), Counterte|t|ng ot Co|ns (Sec-232), Mak-
|ng and Se|||ng ot Adu|terated Drugs (Sec.274
& 275), lraudu|ent use ot We|ghts and Mea-
sures (Sec.25), Counterte|t|ng Govt. Stamps
and the|r Sa|e (Sec,255 and 258), Mak|ng and
Se|||ng ot lake Goods (Sec. 481 to 489), Soon
atter the |ntroduct|on ot currency notes |n our
country, counterte|t|ng ot the currency |ed
to add|t|on ot Sect|on 489-A and 8 |n the
lnd|an Pena| Code |n the year 1955. 8ut what
has changed |n the past tew decades |s the
magn|tude and enorm|ty ot econom|c cr|mes
ow|ng to the deve|opment |n techno|ogy
and |mproved means ot transport and com-
mun|cat|on and the|r use by the perpe-
trators ot these cr|mes.
Jhe terms 'fconom|c Cr|me' and 'Wh|te
Co||ar Cr|mes' are more otten than not, used
as synonyms ln tact, both the terms need to
be used to det|ne d|t terent categor|es ot
DIMENSIONS OF ECONOMIC CRIMES IN INDIA.
- Mahendra Kumawat IPS, Addl. D.G.P. &Chairman, SLPRB, A.P.
cr|me. Wh||e wh|te co||ar cr|mes can be sa|d
to be cr|mes comm|tted by protess|ona|s ||ke
chartered accountants, pub||c servants,
pr|vate emp|oyees |n the course ot the|r
occupat|on, econom|c ottences are cr|mes
comm|tted by |nte|||gent but dev|ous
|nd|v|dua|s |nvo|v|ng huge sums ot pub||c or
government money.
Magnitude of the problem
fconom|c ot tenders have exp|o|ted
weaknesses |n a|most a|| areas ot econom|c
act|v|ty and s|phoned ott thousands ot crores.
Jhe|r depredat|ons w||| cont|nue t||| the |aw
makers p|ug |oopho|es |n the attected system.
8ut the econom|c ottenders, as they have the
knack ot exp|o|t|ng weaknesses |n any system
e|ther traverse a new terr|tory or subvert the
system wh|ch |s the|r spec|a||zed t|e|d. ln the
recent past a|one, scams have cost the
exchequer and m||||ons ot lnd|ans,
astronom|ca| sums ot money. Some major
scams/ econom|c ot tences, wh|ch have
adverse|y attected our nat|ona| economy |n
the recent past are:
i) Primary Market lrauds:
Jhe Stock Market Scams ot 90's attected
m||||ons ot sma|| |nvestors across the country.
l|y-by-n|ght operators entered the pr|mary
markets and through ln|t|a| Pub||c Ot ters
(lPOs), co||ected hundreds ot crores and
van|shed! Jhe |rony |s that the whereabouts
ot over 100 compan|es are st||| not known
e|ther to Sf8l or to the other |nvest|gat|ng
agenc|es. fven those compan|es, wh|ch d|d
not van|sh, used the peop|e's money tor
purposes other than tor wh|ch |t was
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co||ected. As a resu|t, the va|ue ot the|r shares
p|ummeted resu|t|ng |n heavy |osses to the
|nvestors.
ii) Secondary Market lrauds:
lns|der trad|ng has the danger ous
potent|a| ot market man|pu|at|on and m|suse
ot unpub||shed pr|ce sens|t|ve |ntormat|on by
a pr|v||eged tew |ns|ders who ar e |n
possess|on ot such |ntormat|on. Jh|s k|nd ot
ma|pract|ce deteats the very pr|nc|p|e ot ta|r
and eth|ca| bus|ness pract|ces, bes|des
spe|||ng a doom tor the common and sma||
|nvestors. Jhe Cap|ta| Markets |n lnd|a have
been v|ct|ms ot th|s ma|ady tor years and
more part|cu|ar|y when ||bera||zat|on attracted
sma|| |nvestors to the markets. lnstances ot
art|t|c|a||y jack|ng up pr|ces ot shares and
thereby |nduc|ng gu|||b|e peop|e to buy them
are a|so common. Peop|e have |ost heav||y
on account ot trauds ot th|s nature comm|tted
by unscrupu|ous market p|ayers.
iii) 8ank lrauds:
fconom|c ot tenders have targeted
nat|ona||zed and cooperat|ve banks and
s|phoned ott thousands ot crores by hav|ng
cr|m|na| nexus w|th the managements ot the
banks. Jhe b|g borr owers a|one ar e
respons|b|e tor the huge non-pertorm|ng
assets (ks. 55,000 Crores |n 2003) the
nat|ona||zed banks are sadd|ed w|th.
ln the 90's, unscrupu|ous econom|c ot-
tenders set up |arge number ot UC8s (Urban
Cooperat|ve 8anks) |n the States ot Andhra
Pradesh, Maharashtra, Gujarat and co||ected
thousands ot crores by otter|ng unsusta|nab|e
h|gh rate ot |nterest and |ater s|phoned ott
hundreds ot crores e|ther by sanct|on|ng |oans
to themse|ves, or to the borrowers w|th
whom they had cr|m|na| nexus. Natura||y,
such banks co||apsed, wh|ch caused havoc
to the m||||ons ot sma|| |nvestors.
iv) lmport ]xport lrauds:
Money |aunder|ng operat|ons by under-
|nvo|c|ng |mports and over-|nvo|c|ng ot
exports have been r esorted to by
unscrupu|ous traders |n a b|g way and thereby
converted the|r b|ack money |nto wh|te and
at the same t|me, obta|ned ||bera| |ncent|ves
g|ven by the Government |n the torm ot
exempt|on ot |ncome tax on the earn|ngs,
etc. Jh|s |s |n add|t|on to |mport/export trauds
be|ng comm|tted based on torged and
t|ct|t|ous documents.
v) lnsurance lrauds:
lnsurance compan|es have been v|ct|ms
ot trauds perpetrated by unscrupu|ous
c|a|mants w|th or w|thout the act|ve
conn|vance ot |nsurance ott|c|a|s. lnstances
ot de||berate|y sett|ng t|re to the |nsured
goods, go-down, tactory, mak|ng more than
one c|a|m on the bas|s ot same acc|dent,
|nt|ated c|a|ms supported by corrupt
surveyors, are qu|te common.
vi) lntellectual Property Crime] 1heft:
Jhe ledera| 8ureau ot lnvest|gat|on (l8l)
ot USA has est|mated that |n 2003 a|one,
$3 b||||on (ks. 13,500 Crores) worth money
was |ost wor|d w|de as a resu|t ot cr|m|na|s
sw|p|ng copyr|ght protected d|g|ta| cop|es
ot mus|c, mov|es, sottware and games and
d|str|but|ng them through webs|tes, chat
rooms, mass e-ma||s.
Accord|ng to a mus|c and t||m market
survey, the lnd|an Mus|c and l||m |ndustry |s
|os|ng around ks. 1800 crores because ot
p|racy, s|nce some unscrupu|ous peop|e are
mak|ng cop|es ot DvD mov|es and MP 3
songs |||ega||y w|thout obta|n|ng perm|ss|on
and pay|ng r oya|ty to the concer ned
producers. Some |nternet s|tes are otter|ng
tree ot cost |atest mus|c trom h|t mov|es by
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up|oad|ng to the |nternet wh|ch can then be
down|oaded by peop|e anywhere |n the
wor|d w|thout pay|ng anyth|ng to the or|g|na|
producers ot the mus|c. Jhus, the or|g|na|
producers ot mov|es and songs as we|| as
exchequer |ose heav||y on account ot th|s new
type ot econom|c cr|me comm|tted w|th the
he|p ot techno|ogy.
vii) Non -8anking linance Companies
(N8lCs) lrauds:
N8lCs engaged |n w|de range ot
act|v|t|es ||ke h|re-purchase t|nance, h|r|ng
t|nance, equ|pment |eas|ng t|nance, |oans and
|nvestments have been per tor m|ng an
|mportant r o|e |n our t|nanc|a| sector.
However, unscrupu|ous market p|ayers
targeted N8lCs |n a b|g way |n the ear|y 90's
. As a resu|t, the number ot N8lCs wh|ch
were 24,009 |n 1990,rose to 55,995 |n 1995
w|th depos|ts ot ks. 45,000 crores. 8y
ot ter|ng very h|gh rate ot |nterests and
comm|ss|ons, wh|ch were commerc|a||y
unv|ab|e |n the |ong run, thousands ot crores
ot rupees were co||ected trom |nvestors
across the country. However, the bubb|e burst
sooner than |ater, when the scamster C.k.
8hansa||, who a|one t|oated over 130
compan|es, was arrested tor the trauds
comm|tted by h|m, |n wh|ch the |nvestors
and the nat|ona||zed banks |ost a stagger|ng
amount ot ks. 1200 crores.
ln the wake ot Ck8 scam, the keserve 8ank
ot lnd|a |ntroduced compu|sory reg|strat|on
ot N8lCs w|th the k8l. lt |s |nterest|ng to know
that ot the 37,880 app||cat|ons rece|ved by
the k8l as on 31st Mar ch, 1994 tor
reg|strat|on, on|y 9000 were tound e||g|b|e.
As many as 28,500 N8lCs d|d not have the
requ|red net owned tunds ot ks. 25.00 |akhs,
but they were co||ect|ng crores ot rupees trom
the |nvestors. Consequent|y, many ot the
N8lCs ta||ed to repay the amounts to the
depos|tors and t|na||y they co||apsed. And
hundr eds ot N8lCs van|shed, |eav|ng
|nvestors |n t|nanc|a| cr|s|s. Untortunate|y, t|||
date, non-repayment by N8lCs |s st||| a non-
cogn|zab|e cr|me. Jhe l|nanc|a| Compan|es
kegu|at|ons 8||| 2000, wh|ch seeks to protect
the |nterest ot |nvestors, |ntroduced |n the
Par||ament on 13th December, 2000, has not
yet rece|ved the attent|on |t deserves.
viii) lAK CuRRNCY :
Large sca|e c|rcu|at|on ot take currency can
underm|ne the economy, as we|| as nat|ona|
secur|ty ot any country. ln lnd|a, the prob|em
|s age o|d, but w|th the deve|opment |n
techno|ogy, h|gh qua||ty take currency notes
have been recovered trom terror|sts, who had
come trom across the border. lake currency
pr|nted abroad |s genera||y channe||sed |nto
lnd|a through Nepa| and Duba|. 8es|des h|gh
qua||ty take currency notes be|ng pumped
|nto the country trom across the border,
cr|m|na| gangs and |nd|v|dua|s w|th|n the
country are mak|ng use ot computers and
soph|st|cated pr|nters |n mak|ng take currency
notes. S|nce the prob|em has nat|ona| as we||
as |nternat|ona| d|mens|ons, |t needs to be
tack|ed ettect|ve|y by the k8l, C8l and State
Po||ce lorces.
ix) lAK S1AMPS SCAM:
A mu|t| crore take stamps racket operated
by Abdu| Kar|m Je|g| throughout the |ength
and breadth ot the country tor many years
w|th the act|ve co||us|on ot Po||ce, Secur|ty
Press and ott|c|a|s ot banks and |nsurance
compan|es exposed vu|nerab|||ty ot the
system. Jhe extent ot the revenue |oss
caused to the exchequer by th|s gang a|one
|s be|ng est|mated to the tune ot ks. 25,000
crores. S|nce there are many other gangs
a|so engaged |n d|tterent parts ot the country,
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the prob|em needs to be dea|t w|th |n a pro-
act|ve and ho||st|c manner.
MASuRS 1O 8 1AKN 1O CON1AlN
CONOMlC OllNCS:
Desp|te a s|ew ot measures taken by the
Governments there |s ne|ther dec||ne |n
overa|| vo|ume ot econom|c cr|mes, nor
reduct|on |n the number ot major scams that
are occurr|ng w|th regu|ar trequency |n the
country. ln tact, the menace ot econom|c
cr|mes has assumed ser|ous proport|on,
wh|ch needs to be addressed w|th a ho||st|c
appr oach. Jhe to||ow|ng measures are
recommended:
i) Revamping of Laws Coverning
conomic Offences:
Jhe Laws govern|ng econom|c ottences
are sott as compared to the |aws enacted to
dea| w|th v|o|ent cr|mes ||ke murders,
daco|t|es, etc. Moreover, the |aws have not
kept pace w|th the t|me, as a resu|t, they
have |ost the|r ett|cacy. ln tact, many ot the
|aws seen |n the present context have
become absurd. lor |nstance, trauds |n
te|ecom sectors are cost|ng exchequers
hundreds ot crores ot rupees annua||y, but
the act|on aga|nst the cu|pr|ts has to be taken
under the lnd|an Je|egraph Act, 1885 . Jhe
h|ghest pun|shment prov|ded under the Act
|s three years |mpr|sonment w|th a max|mum
t|ne ot rupees one thousand on|y! lmag|ne a
cu|pr|t sentenced to a t|ne ot one thousand
rupees tor caus|ng |oss ot a tew hundred
crores! Jhe Drugs & Cosmet|cs Act too has
become anachron|st|c. Jhe t|ne prov|ded tor
se|||ng spur|ous drugs (Sect|on 275 lPC) |s a
meager one thousand rupees, even when the
ottender wou|d have made crores ot rupees
by mak|ng and se|||ng take and spur|ous
drugs. Jheretore, a|| the |aws re|at|ng to
econom|c ottences need to be rev|ewed and
revamped to create necessary deterrence
as has been done tor dea||ng w|th the
menace ot terr or|sm, smugg||ng ot
psychotrop|c substances, etc.
ii) 0eprive conomic Offenders of
the Proceeds of Crime:
Jhough thousands ot crores ot rupees are
s|phoned ott by econom|c ottenders every
year, they cont|nue to enjoy a |uxur|ous ||te,
s|nce the proceeds ot cr|me |n most ot the
cases cont|nue to r ema|n w|th them.
Jheretore, entorcement agenc|es dea||ng w|th
the econom|c cr|me shou|d make a|| out
ettorts to ensure that the tru|ts ot cr|me are
taken away trom the econom|c ottenders.
Un|ess th|s |s done, econom|c cr|mes w||| be
a pay|ng propos|t|on to cr|m|na|s.
iii) 1ightening of 8ail Provisions:
fconom|c ottenders are ab|e to engage
the best |ega| bra|ns to detend them and
obta|n ba||, though they wou|d have duped
|akhs ot |nvestors caus|ng un|mag|nab|e
agony to the |nvestors. Jhe State shou|d a|so
engage prosecutors w|th sound know|edge
ot |aw and |mpeccab|e |ntegr|ty, to ensure
that the econom|c ottenders are not re|eased
on ba|| and ther eatter secur e str ong
conv|ct|on. Jhe ku||ng ot the Supreme Court
ot lnd|a |n Narenderjeet S|ngh Sahn| v/s Un|on
ot lnd|a, needs to be to||owed by the courts
|n dea||ng w|th econom|c ottenders.
'Jhe Wh|te Co||ar Cr|mes are ak|n to
fCONOMlC GfNOClDf and cons|der|ng tor
ba|| ot such accused, wou|d be m|sp|aced
sympathy ot the Court because accused have
dece|ved m||||ons ot countrymen who had
|nvested the|r ent|re ||te's sav|ng |n t|ct|t|ous
and tr|vo|ous compan|es.'
iv) Creation of xclusive Courts:
lor a var|ety ot reasons, the courts |n lnd|a
5
are not ab|e to d|spense just|ce prompt|y.
One ot the pr|nc|pa| reasons |s heavy back|og
ot cases. Jheretore, there |s need to create
exc|us|ve courts to br|ng ottenders to book
qu|ck|y.
v) Need to Simplify Court Procedure:
fconom|c ottenders w|th the|r huge |||-
gotten wea|th are known to have taken the
cr|m|na| just|ce system |n lnd|a tor a r|de.
f|ther they corrupt |t or dera|| |t by
procrast|nat|on ot tr|a|. Jhe end-resu|t |s that
hard|y any econom|c ottender |s pun|shed |n
a reasonab|e t|me trame. lor |nstance, the
cases aga|nst |ate Harshad Mehta the b|ggest
scamster ot 90's and h|s assoc|ates, are st|||
pend|ng tr|a| tor more than a decade, whereas
|n the case ot Lesson, who comm|tted a
s|m||ar type ot cr|me |n S|ngapore at the same
t|me, was conv|cted sw|tt|y w|th|n a year.
Hence, there |s need to s|mp||ty Court
pr ocedur e and ensur e that econom|c
ot tenders are not a||owed to subvert the
system. Jhey need to be na||ed w|th|n a year
or two, wh|ch w||| det|n|te|y create necessary
deterrence among the|r tratern|ty.
vi) Notify conomic Offenders on the
lnternet:
fconom|c ot tenders target d|t terent
t|nanc|a| |nst|tut|ons ||ke banks, etc., and a|so
peop|e at d|tterent p|aces |n the country and
abroad. Jheretore, the known econom|c
ottenders a|ong w|th the|r photographs need
to be not|t|ed on the |nternet, wh|ch w||| he|p
t|nanc|a| |nst|tut|ons and the pub||c to take
note ot the|r modus operand| so as not to ta||
prey to the|r des|gns.
vii ) Need for Coordinated Action:
Jhere are a number ot lnd|an entorcement
agenc|es / departments dea||ng w|th
econom|c ottenders, v|z., Po||ce, lncome Jax,
Customs, Dkl, Ser|ous lraud lnvest|gat|on
Ot t|ce, fntor cement Department,
Commerc|a| Jaxes Department, Sf8l, etc., but
there |s hard|y any coord|nat|on among them.
fvery econom|c ottence ot s|gn|t|cance needs
to be exam|ned by a|| the agenc|es dea||ng
w|th econom|c ottences.
viii) Make 0iversion of funds ] loans
a Specific Offence:
Jhe t|nanc|a| |nst|tut|ons |nc|ud|ng banks
are sadd|ed w|th non-pertorm|ng assets
(NPAs) ot over ks. 1,00,000/- crores. Many
ot the b|g borrowers use them tor the purpose
other than tor wh|ch the |oans were
sanct|oned. Jheretore, there |s need to make
d|vers|on ot tunds a spec|t|c ottence, w|th a
pun|shment ot over 10 years or more. lt |s
a|so suggested that the |oanees shou|d
subm|t an end-use cert|t|cate to the t|nanc|a|
|nst|tut|ons.
CONCLuSlON:
fconom|c cr|mes have the propens|ty to
cause havoc and underm|ne not on|y the
economy ot the country, but the nat|ona|
secur|ty as we||. Jhe enorm|ty ot the cha||enge
posed by econom|c ot tenders ca||s tor a
protess|ona| and pro-act|ve approach. Jh|s
mu|t|-headed monster can be contro||ed
et tect|ve|y on|y by coor d|nated and
|mag|nat|ve ettorts ot a|| the entorcement and
|nvest|gat|ve agenc|es.