This Article is written by Soumya Jain (BVIMR, NEW DELHI)
Table of Contents
Yes Bank, is a story of great success which met its doom too early. Yes, Bank was a privately incorporated bank, that was incorporated in the year 2003 on 21st November. The bank grew immensely in its peak years and went on to become India’s fourth-largest private sector bank. Yes Bank was founded by three core members, Rana Kapoor, Ashok Kapur and Hariket Singh. Unfortunately, Rana Kapoor was the only man left to manage and govern affairs of such a big enterprise after the remorseful demise of Ashok Kapur in Mumbai Blasts, 2008 and Hariket Singh stepped down from the bank in the initial years of when the bank was founded. The bank understood the needs of one of the fastest-growing economies in the World kept its approach customer-centric and service driven. The founders clearly understood that the coming years is the era of the Corporate World. The bank kept on achieving success until, 2008 and reached the apex of its success before the onset of the huge financial crisis.
STARTING OF UPHEAVAL IN THE YES BANK
Yes Bank was facing serious governance issues and several other practices lead to its decline. Finally, leading into legal trouble popularly known as, “Yes Bank Scam.” The other practices mentioned earlier will be elaborated here, firstly, the bank found its way too difficult to raise a minimum amount of capital which could ensure that the bank stayed above capital regulatory requirements, stated in, Section 11 of Banking Regulation Act, 1949, as the banking system was overburdened with bad loans. Secondly, it is emphasized that the great number of retail customers are the backbone of any successful banking institution. The Yes Bank was lagging far behind in this aspect the number of corporate customers superseded retail customers. The bank which was on the verge of collapse advanced loans to the corporations that were themselves sinking and advancing towards bankruptcy. The result was a mounting amount of bad loans.
FRAUD INITIATED BY RANA KAPOOR WITH DHLF
The roots of ‘Yes Bank Scam’ can be traced to November 2019. In the month of November, Rana Kapoor, sold all of his stakes in the bank, when the bank completely became unbankable. A case was filed by the CBI, against Rana Kapoor, on the charges of money laundering, on 7th March 2020. The founder was taken into the custody of the Enforcement Directorate’s, as a consequence of a case filed by the CBI, on the laundering charges. The case basically revolves around the fact that a financing giant, DHFL, is alleged to have bribed Rana Kapoor with an enormous amount of 600 crores. The CBI initiated charges of cheating, fraud, criminal conspiracy under the Indian Penal Code, 1860. They alleged Yes Bank sanctioned the loans to DHFL in exchange for bribes given by the promoters of DHFL, Dheeraj and Kapil Wadhawan.
The CBI had not failed to include, promoters of DHFL, Wadhwans, in the charge sheet. Also, DOIT Urban Ventures Ltd, owned by Kapoor’s daughters were also made accused in the case. The CBI alleges, during the tenure of Rana Kapoor, he engaged, in malpractices, he extended loans to the financing giant, DHFL, through Yes Bank. Rana believed in the policy of giving and take, he in exchange got monetary benefits from DHFL for himself, the companies he controlled and the companies where his family members are dominant.
TRIAL STARTED BY COURT IN RANA KAPOOR VS. ENFORCEMENT DIRECTORATE
The CBI filed case was first trialled by the Metropolitan Magistrate. A Magistrate rejected the bail plea filed on the merits by the Wadhawan brothers, promoters of DHFL. Later, on April 9 Wadhawan brothers were out on the bail along with the other 23 members. While Rana Kapoor was not granted bail. In the middle of the pandemic, when travelling was not possible, the Wadhawan brothers flouted the pandemic conduct, in violation of lockdown rules, which were strictly in place during that time. The brothers flouted the rule in lieu of the letter issued by the IPS Officer which allowed them to travel. The Court granted them an interim relief as their advocate pleaded that since the nation was in pandemic and for the safety of his clients, they should not be arrested. The Court considering the seriousness of the situation granted them the relief, on 18 April.
But Rana Kapoor still faced the consequences of his acts. The Bombay High Court observed due to the criminal activities initiated by the Rana lead to huge losses in the public funds and also many companies incurred losses. The Court cannot forgive someone who has flouted and misused his position of authority. The Court, thus not granted bail to Rana Kapoor, in the alleged money laundering case filed by the CBI.
Justice Prakash Naik, while rejecting the bail plea of Rana Kapoor noted, that the offence was of grave nature and there is sufficient evidence on record to prove the involvement of Rana in the case. It is the settled principle of law that while granting bail the Court, has to consider, nature of accusations and the evidence in support of the alleged crime, the Justice noted. Also, the present case did not find anything in any circumstances that proved that Rana was not involved in the criminal conspiracy. The bail plea was rejected on 25 January 2021. The banking institution is a very crucial institution, which holds the position of great prominence in the economy of any country. If there are such frauds in the banking institutions and judiciary took a softer view such criminal activities will not be discouraged. Thus, there are huge chances that the Indian economy could topple. The three tiers of government have to make sure that any criminal activities which threaten the Indian economy are discouraged and punished as 130 crore Indians rely on it for their survival and prosperity.
The Justice stated in the present case there are huge losses to the public funds which the Court has to view very seriously. Also, the magnitude of the offence is very huge and evidence on record makes it impossible for the Court to grant bail to the accused. The Court expressed its opinion on the current case. The Court strongly contended that the proper governance of banks and financial institutions is very critical for the proper functioning of the banking sector and the Indian economy.
The whole case revolved around the 600 c crore taken as a bribe by Kapoor. Kapoor and the Wadhawan brothers were accused by the CBI of criminal conspiracies. The Enforcement Directorate contented that the Wadhawan brothers have extended a heavy bribe to Kapoor in favour of loans extended by the Yes Bank. This bribe was shadowed as the loan that is being extended to DOIT Urban Ventures (India) Pvt. Ltd. by DHLF. Whereas the senior advocate, appearing for Kapoor continued to deny the charges and strongly pressed that the amount extended to DHFL was genuine and within the ambit of what is permissible. The senior advocate also submitted that the bail should be granted as Kapoor health is deteriorating in the jail and he needed proper medical treatment, prior also the council has raised the concern over the health issue of Kapoor.
BAIL DENIED BY THE COURT
However, after hearing both sides, the Court was not satisfied with the arguments presented by the senior advocate in the favor of Kapoor. The Court observed that Kapoor had deliberately engaged in the crime. He misused his position of authority as MD and CEO of Yes Bank and projected and claimed the amount advanced to be uncontaminated of the laundering conspiracy for personal gain and ignoring the benefit of a larger institution, that is Yes Bank. The Court noted that the concern over health issues of Kapoor has also been raised prior, concerning situation, the Court directed the jail authorities to provide adequate medical treatment to Kapoor
AFTERMATH OF COLLAPSE OF BANK
Yes Bank is one of the big banking institutions of India where a lot of have invested not only their money but also dreams and financial security of future. The situation raised widespread unrest among people who invested in the bank. As mentioned earlier, huge losses were incurred in the public funds and the question of deposited safety became crucial. The bank was sinking unable to raise basic capital. It was the time when RBI (Reserve Bank of India) stepped in. RBI came up to give hope to many who invested in banks. RBI stated that the SBI (State Bank of India) is willing to work for the reconstruction of the bank. Under, section 45 of the Banking Regulation Act, 1949, the Reserve Bank of India is said to propose a scheme for the revival of banks and raising fresh capital for the bank.
Yes Bank Scam, is an eye-opener for the government of India, especially the Ministry of Finance and the RBI. The National Bank should keep a stern vouch on the banking sector and various financing institutions by conducting regular audits and ensuring that the governance of the banking sector is going in a smooth and uninterrupted way. These are not only the measures that can be taken RBI, can do much more, in its capacity as a National Bank, and avert the toppling of big financial institutions.