Regulators - Part III: Corruption is often on account of regulatory processes

Usually, collectors (who are normally IAS officers) or the local land officer convert large parcels of land at the nod of the urban development minister of that state. If palms must be greased, that is shown as cost of doing business. The higher authority always has the right to countermand any orders given by the lower authority. As the old saying goes, the greater the discretion, the greater is the potential for corruption

Limited (DHFL). The NCLT (National Company Law Tribunal) cleared the proposal put forth by the Piramal Group, which offered to pay upfront in cash Rs 12,700 crore and a total of Rs 37,250 crore subsequently for assets estimated to be valued at over Rs 80,000 crore. This was challenged in the Supreme Court by Kapil Wadhawan, the erstwhile promoter of DHFL.

He instead, offered to pay the entire outstanding principal of Rs 91,158 crore to creditors. In his letters, Wadhawan had said around Rs 9,062 crore was lying with the DHFL, according to the company’s balance sheet. He said this would be utilised for upfront repayment of outstanding debts of small investors and the major break-up would be to non-convertible debentures (NCDs) held by the public.

The Supreme Court (rightly) turned down this offer.

Investigation agencies claim fake bills were also found at DHFL. But that could be explained. Even though funds are borrowed legally, the bribes are paid illegally and must be covered by fake receipts.

What Piramal will do is what DJFL’s promoters would have done in any case – secure regulatory clearances for all assets worth around Rs.80,000 crore (the author’s estimate). This requires deep pockets, the right connections and a good understanding about how real estate development markets work.

Had there been no discretionary power with the authorities and conversion of land, and obtaining of clearances quite transparent and time-bound, the bribes that are required to be paid out would not be that steep.

Successive governments have allowed these discretionary powers to stay because they are a wonderful source for slush money. The entire real estate development market got into a mess because of the freeze in money markets thanks to the IL&FS crisis (which was itself into such deals ever since it acquired Maytas from Satyam).

Sometimes, the government can itself precipitate a financial crisis. Take the recent case of industrialist Anil Ambani trying to claim his dues from Delhi Metro (DMRC), a government-owned entity. In the first fortnight of September 2021, the Supreme Court upheld an arbitration award of 2017 won by Anil Ambani’s company DAMEPL, a special purpose vehicle floated by Reliance Infrastructure. This suddenly made the Anil Ambani group richer by around Rs 5,000 crore. Had the DMRC accepted the arbitration award in 2017, the money could have eased creditors’ woes.

In fact, as pointed out repeatedly by his author, the government (usually through its entities such as the DMRC) remains the biggest litigant in court. Even the Law Commission called it a compulsive litigant.

To be ‘Atma Nirbhar Bharat’ (selfreliant India), it must reduce this huge generation of sleaze by authorities through regulations that allow for caprice and discretion. Discretionary powers need to be reduced, and a transparent process is urgently called for.

Can the government clean up this mess?

#PMPOSHAN

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The author is consulting editor with The FPJ