Why is govt sitting on Rs 750 crore Unitech default case?

The inquiry has found that in the case of Rs 750 crore loan default of Unitech, which is ‘a blatant example of a deliberate bid to benefit a private party to the detriment of LIC’, acting complete contrary to the law, repeatedly misleading the investment committee, submitting untruths to mislead and gross administrative incompetence, a mala fide leading to undue benefit was extended to a consistent defaulter.

Even after repeated defaults, the private company was provided undue relief by senior officers. This detailed inquiry report was prepared by the Director Vigilance of the Ministry of Banking and Financial Service, Anna Roy, and then duly approved by the Jt. Secretary Anurag Jain, who said in the note: ‘This irregularity over a period between 2008 and 2014 is either a gross negligence or some implicit connivance.’

Former Secretary Banking and Financial Service, Rajiv Tukru, also endorsed the note and wrote that this file should be sent to the CVC at the earliest after taking sanction from the then finance minister. 

Tukru had left that file for the current secretary (on 31 March 2014), but the file has not reached the CVC since the current secretary SS Sandhu is sitting over it.

The question that is being raised is that can IRDA, which is the regulator of the entire insurance industry comprising 24 life insurance companies, 24 non-life insurance companies and three health insurance companies, have a chairman who is indicted by the finance ministry itself, and against whom they are seeking to impose a major penalty and asking for CVC inquiry? LIC has the maximum share in the life insurance market with a 28-crore customer base. It has a Rs 18 lakh crore corpus of fund as on this date where they play the role of mover and shaker of the entire stock market. 

LIC owns a large chunk of shares of all the major listed companies and the common man has invested his hard-earned life savings in LIC as well. But the real power of LIC is in the investment decision where public money goes as loan, debenture and equity investment to various private sector companies. But the findings of the Unitech case is a shocking example of how the former chairman Vijayan, the MD and the ED, investment, have acted to protect public interest.

According to the inquiry report, LIC had extended a rupee term loan of Rs 200 crore to Unitech and also subscribed to non-convertible debentures of the company of Rs 550 crore which was procured through secondary market operations from LIC mutual funds. Terms and conditions were also modified after the loan was disbursed. Till today, Unitech has not repaid the money to LIC, forget about the interest. And finally, LIC has declared Unitech a willful defaulter under pressure from the ministry.

According to the report, that money, after the sanction was granted, was supposed to be kept in an escrow account which prohibits the borrower not to use it for any other purpose other than for which the loan is sanctioned. But the senior officers did not insist for it even though it is mandatory in the agreement. Unitech used the money for other purposes and did not follow the loan condition. Even after 80 post-dated cheques were dishonoured, LIC did not initiate any legal action against Unitech. It is also found that the collateral assets which were offered to LIC during the time of sanction of the loan, were changed and altered later on, which is completely illegal. 

Even after the consistent default, LIC did not take any action to foreclose those pledged assets as well. LIC did not attempt to declare the company a ‘willful defaulter’ even when there was evidence that the company was meeting the dues of its other lenders declaring dividends etc. The inquiry also found that the then chairman, Vijayan, while seeking the approval of the investment committee for restructuring the accounts of Unitech, did not present all the facts and details to the investment committee. It was also found that the chairman delayed the action for declaring the borrower a willful defaulter.

It is a critical test for the Modi government to see what actions they can initiate in this sensational case of loot of Rs 750 crore by a dubious builder from the public financial institution and whether it allows the perpetrator of the crime to hold the position of the regulator of the biggest industry where the highest amount of public money is invested. It is another story how Vijayan was made the chairman of IRDA in the first place.

TS Vijayan has a dubious past. He took over as the chairman of LIC in 2006 and in May 2011 he was removed from the post of chairman and demoted as the managing director, LIC. On 25 January 2010, the then chairman IRDA, Hari Narayan, had put it on record that on 3 July 2008, the chairman LIC had written to the IRDA confirming that the investment management system, as mandated by IRDA, was fully in place. Based on this confirmation by the chairman, IRDA had granted certain exemptions in different categories of the investment portfolios. However, it is amply clear that the confirmation by the chairman LIC of the system being in place was false. This was when Pranab Mukherjee was the finance minister. Vijayan was found ineligible to remain a chairman of LIC and demoted. But when P Chidambaram became the finance minister, he found him suitable for the post of chairman, IRDA (for his ‘splendid record’!).

In between, at the time of his removal at the behest of the CVC, inquiries into major financial irregularities were handed over to the CBI. A few years later, Vijayan managed to get a clean chit from another dubious CBI director AP Singh. Vijayan was accused of exposing the funds of LIC by investing in IPOs of companies which are against the investment policies of LIC. Some of the companies are Shahid Balwa’s DB Realty, JSW Energy and JP Infratech.

But now, with Narendra Modi in power and having announced his ‘zero tolerance towards corruption’ policy, can such a person with a dubious track record continue as the regulator of an industry whose job is to protect crores of hard-earned savings of common people? We haven’t got the answer yet. Finance ministry’s own inquiry report has still not moved to the CVC. What signal can we take from this, Mr. Modi?