ITC – The FERA Violation Controversy
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ITC In Trouble
In October 1996, officials of the Enforcement Directorate (ED), Customs and Department of Revenue Intelligence (DRI) conducted raids on the various establishments of tobacco to hotels major ITC in Kolkata. The raids were conducted because the ED suspected ITC of having contravened FERA regulations to the tune of $ 100 million. ED sources claimed to have found conclusive documentary evidence of FERA violations by ITC from the raids. Following this, on October 30th, 1996, ED officials arrested R. K. Kutty, Director and head of ITC subsidiary International Business Division (IBD), G. K. P. Reddi, former IBD Director and Chairman, E. Ravindranath, former IBD Vice-President, Operations, IBD, and M. B. Rao, former export manager, IBD. |
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On 31st October 1996, former Chairmen of ITC Ltd. (ITC), J.N. Sapru (Sapru) and Krishen Lal Chugh (Chugh) were summoned to the ED’s office in Kolkata for interrogation. They were arrested the same day. On November 5, 1996, the ED interrogated ITC Chairman, Y.C. Deveshwar, who promised to submit a complete report on alleged FERA violations. By mid November, the ED arrested a few more ITC executives taking the total number of arrested officials to 15.
By June 1997, ITC’s board of directors was facing prosecution on account of allegations of FERA contravention. An ED official said, “For the first time in Indian corporate history, the entire board of directors of a company has been held liable for irregularities.” The case attracted extensive media attention, resulting in serious debates regarding the stringent FERA regulations and the need for efficient corporate governance practices in companies. The issue was discussed in both the houses of parliament, where MPs accused ITC of poor corporate governance practices and lack of transparency. The MPs wanted the DCA to investigate into the matter, as they felt ITC had contravened various sections of the companies Act and willfully and deliberately misinterpreted information causing loss to the shareholders. Though ITC performed very well on the financial front for the fiscal 1996-97, charges of FERA violation, excise duty evasion and share price manipulation in the early 1990s seemed to have tarnished the company’s image beyond repair (Refer Exhibit I & II).
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