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Yes Bank scam crises : crime within the corporate sector

November 14, 2021
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Yes Bank

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This article is written by Varchaswa Dubey, from JECRC University, Jaipur. This article is concerned with the Yes Bank scam, with special emphasis on legal aspects of corporate fraud. 

Introduction 

The concept of scams is not new for India and various scams have been witnessed from time to time. One such scam is the Yes Bank loan fraud of Rs. 2,435 crores. It is the greed of money and the lack of proper functioning of the laws which lead to such a large scam being committed by one of the largest and most trusted private banks in India. 

Background of Yes bank 

The Yes Bank is one of the top private sector banks in India which was incorporated in the year 2003 and began functioning in the year 2004 after a partnership of its Founder Rana Kapoor and Ashok. Initiated to provide a high-quality private Indian bank with a customer-centric approach. 

The Yes Bank is the fourth-largest private sector bank in India which is currently functioning across all 29 states and 7 Union territories in India with more than 1000 branches and 800 ATMs in the country. 

What was the Yes bank scam 

The scam began between April and June 2018, when Yes back invested Rs. 3,700 Crore in the form of short-term debentures of DHFL. The founders of DHFL agreed to pay back the amount in the form of loans to DoIT Urban Ventures to Rana Kapoor and his family as an inside trade after the stock price of the company fell at an alarming rate and the customers started withdrawing money from the bank. 

A charge sheet was filed in May by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 regarding Rana Kapoor’s illegal gratification of Rs. 5,050 crores along with several other cases of providing inside loans to many corporate entities. Yes bank also used customers’ money to cover the debts of the bank. It also diverted Rs. 2,185 Crore to Morgan Credit, one of the holding companies of Yes bank. 

Yes Bank was found liable for not only insider trading but also illegal lending practices, evergreening of loans, the high charge from borrowers which was not the policy of the bank, overstatement of profits, and violations of RBI guidelines. 

What were the after-effects of the scam 

A case against Rana Kapoor, his wife, and his three daughters who were the owners of the companies was filed in Mumbai Sessions Court. Rana Kapoor was asked to step down from the top position of the company and the management of Yes bank came under Reserve Bank of India (RBI) under Section 45 of the Banking Regulation Act, 1949 which reserves the power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution of amalgamation.

RBI also enacted a draft scheme for the reconstruction of Yes Bank in the year 2020 under which Yes Bank was placed under a moratorium period under which the deposit withdrawals by customers of the bank during this period were limited to Rs 50,000 per person. 

The State Bank of India also showed interest in the reconstruction scheme of the bank and it got 49% shares of the Yes Bank.

What are the other corporate scams India has witnessed 

Corporate crime, which is also referred to as organized crime or white-collar crime, being committed by individuals in their occupation, for maximizing their profit. India has witnessed many corporate scams since its independence and each scam has always affected the economy of the country. Other corporate scams in India are: 

How industrialists practice abuse of power in the corporate sector 

The Tendolkar committee report highlighted reasons how industrialists practice abuse of power:

What are the laws to tackle corporate fraud 

The Indian laws which aim at combating corporate fraud and punish those who are involved in corporate fraud are:

Prevention of Money Laundering Act, 2002

The legislation aims at the prevention of any activity concerned with money laundering, which refers to the concealing of origins of the money which is obtained illegally. 

According to Section 4 of PMLA, any person who is involved in any money laundering activities shall be imprisoned for a term not less than 3 years but may extend to 7 years and fine. 

Prevention of Corruption Act, 1988

In most of the scams, it has been witnessed that the offenders bribe the government officials to not take any action against their illegal acts and this leads to the amount of corporate fraud being large in amount. To prevent this, the Prevention of Corruption Act, 1988 is legislation that seeks to eliminate corruption. 

According to Section 7 of PCA, any public servant who is found to be taking, agreeing, attempting, any illegal gratification for himself or someone else shall be imprisoned for a term which shall not be less than 6 months but may extend to 5 years and fine. 

The Companies Act, 2013

The Companies Act, 2013 is another significant legislation concerning corporate frauds, although the companies act is primarily concerned with high standards of corporate governance and putting restrictions on insider trading, and protecting the interest of the investors. 

The Securities and Exchange Board of India Act, 1992

The Securities and Exchange Board of India Act, 1992 provides the rules and regulations required by the board to avoid any circumstances which shall originate any irregularities among corporate fields. 

Conclusion

After scrutiny of the legal provisions bestowed by the parliament of India to its legal mechanism, it can be concluded that our corporate system lacks enforceability of laws and a strict rule of checks and balances, which is the primary reason for huge corporate frauds and a loss to the economy of the country. 

The practice of corruption in the system is certainly a matter of grave concern, however, the unlawful and mala fide practice of corporate sectors can be eliminated if the safeguarding laws are more stringent and are equally enforced. 

References 


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