As a member of the joint parliamentary committees (JPCs) set up to enquire into the Harshad Mehta stock market scam of the early 1990s and the Ketan Parekh stock market scam of a decade later, I am disturbed that the current government has not promptly moved to set up a JPC to enquire into the hammering Adani stocks have received in the wake of the Hindenburg report detailing what it calls “brazen stock manipulation and accounting fraud”, and “poor corporate governance” in the conglomerate.
The charges are specific; Adani’s responses are vague. Regulatory supervision is the function of the government and its agencies. The key question is whether such supervision has in the present case been exercised with due diligence. Only the regulators can clarify, and only a JPC can compel them to do so.
The principal finding of the Harshad Mehta JPC was that the regulators—armed with doctoral and post-doctoral degrees from Oxbridge-Harvard and flourishing their credentials as World Bank-IMF experts—either fell asleep at the wheel or were so thrilled with the economic reforms they were helming that they deliberately ignored the warning bells sounding in the Bombay Stock Exchange of the gross transgressions of the laws of the land. This was essentially because they believed the laws to be antediluvian. Rather than change the law, they decided to worship the market—and so did not realise that the market was being manipulated by unscrupulous brokers who found ready collaborators in public sector and private banks, domestic and foreign, LIC and UTI—just as we see happening today. The manipulators manipulate and the regulators find divinity in the volatility of stock exchanges.
Illustration: Bhaskaran
At the time the Harshad Mehta scam broke, the director the Enforcement Directorate was an IAS officer of unimpeachable integrity, Javed Chowdhury. The agony he endured has been well described in his 2012 memoir—An Insider’s View. I quote from pp. 134-136 because his words find such eerie resonance in the Adani matter that they could have been written about the present. He charged that “the nature of financial violation was brazen and executed so obviously in furtherance of the private profit of certain select individuals”. Change “individuals” to “individual” and you have a 1992 prism through which to view the events of 2023. Chowdhury goes on: “There was not the slightest tinge of introspection or remorse—there was only absolute confidence in talking one’s way out of the crisis.” This is how the government today is reacting to the Adani imbroglio. Chowdhury then delivers his final punch, “The attitude was that if laws have been violated, the laws are wrong—because they (economic tsars) understood economics and therefore what they say should be the law.” As the Congress spokesman put, “The Adani Group is no ordinary conglomerate: it is closely identified with Prime Minister Narendra Modi since the time he was chief minister.”
As of now, of course, these are yet-to-be-proved allegations. But the question immediately arises, what was the finance ministry’s high-level committee on capital markets (HLCC), set up on the recommendation of the Harshad Mehta JPC report, doing? It is chaired by the finance secretary and includes the top brass of regulators from governor, RBI to chairman, SEBI. What escaped their eye but caught Hindenburg’s attention? Especially as the small investors, who are the nation’s principal concern, seem to regard Hindenburg’s findings credible as they quit their Adani holdings in droves, and have stayed away from Adani’s FPO.
An alert HLCC would have been able to provide convincing answers but, as in the Ketan Parekh scam, seems to have woken up only after its shoulders were shaken by Hindenburg. The only way of unearthing the truth is through yet another JPC.
Aiyar is a former Union minister and social commentator.