ITC - The FERA Violation Story

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Excerpts

A majority of ITC's legal troubles could be traced back to its association with the US based Suresh Chitalia and Devang Chitalia (Chitalias). The Chitalias were ITC's trading partners in its international trading business and were also directors of ITC International, the international trading subsidiary of ITC.In 1989, ITC started the 'Bukhara' chain of restaurants in the US, jointly with its subsidiary ITC International and some Non-Resident Indian (NRI) doctors. Though the venture ran into huge losses, ITC decided to make good the losses and honour its commitment of providing a 25% return on the investments to the NRI doctors.ITC sought Chitalias' help for this. According to the deal, the Chitalias later bought the Bukhara venture in 1990 for around $1 million. Investors were paid off through the Chitalias New-Jersey based company, ETS Fibers, which supplied waste paper to ITC Bhadrachalam...

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The ED found out that around $ 83 million was transferred into India as per ITC's instructions on the basis of the accounts maintained by the Chitalia group of companies. According to the ED officials, the ITC management gave daily instructions to manipulate the invoices related to exports in order to post artificial profits in its books.A sum of $ 6.5 million was transferred from ITC Global to the Chitalias' companies and the same was remitted to ITC at a later date. Another instance cited of money laundering by ITC was regarding the over-invoicing of machinery imported by ITC Bhadrachalam Paperboards Ltd., from Italy...

Alarmed by the growing criticism of its corporate governance practices and the legal problems, ITC took some drastic steps in its board meeting held on November 15, 1996. ITC inducted three independent, non-executive directors on the Board and repealed the executive powers of Saurabh Misra, ITC deputy chairman, Feroze Vevaina, finance chief and R.K. Kutty, director.ITC also suspended the powers of the Committee of Directors and appointed an interim management committee....

Exhibit I: Excise Duty Violation Charges Against ITC
Exhibit II: Share Price Manipulation Charges Against ITC
Exhibit III: FERA Sections Violated by ITC
Exhibit IV: ITC Board Members - 1996
Exhibit V: About FERA and FEMA
Exhibit VI: Restructured Corporate Governance Practices at ITC