I-T dept, banks fight, Rs 2200cr recovered from Mehta scam gets stuck

Source :Prabhakar Sinha, TNN, Sep 16, 2010, 12.30am IST





NEW DELHI: The money recovered from Harshad Mehta-led 1992 banking securities scam is lying idle. The distribution of 2,200 crore recovered from Mehta group by the custodian appointed under a Special Act by government is not taking place due to differences between two major claimants — the I-T department and banks and financial institutions (FIs) — which have lost money in the scam.

It is learnt that the custodian has attached enough assets from Mehta group, more than enough to meet the liabilities of banks, FIs and I-T departments. But, all the money is not going to come at one point of time. As the attached assets are cleared by a Special Court, created under the act, for sale in the market, custodian sells them to generate cash.

At present, the custodian is sitting on a cash of over Rs 2,200 crore. Another Rs 800 crore is expected to be generated by sale of some more assets, However, attachment of them has been challenged in the Supreme Court and a judgment on this is likely to come soon. Besides this, assets worth around Rs 1,000 crore is in the process of getting clearance for sale to meet liabilities. So, a total of around Rs 4,000 crore is likely to be recovered.

As against this, I-T department is demanding Rs 2,100 crore and banks Rs 1,700 crore. The department is claiming that it should be paid their dues of Rs 2,100 crore from the present kitty of Rs 2,200 crore and banks can be paid later.

Earlier, I-T department had raised a demand of Rs 22,000 crore against loss from the scam and banks claimed Rs 5,500 crore loss. However, an earlier judgment of the Supreme court restricts priority claims to principal amount only, disallowing any penalties or interests on them. This restricted the I-T department's demand to Rs 2,100 crore and that of banks to Rs 1,700 crore.

Banks argued that the main objective of the Special Court is to recover the losses suffered by them. However, in the details of the act, banks' claims come after the Income Tax department.

When contacted, custodian Satish Lopmba, who is the statutory authority under the act for acquisition, management and liquidation of assets, said that there were sufficient assets to satisfy the primary claims of all the agencies to a large extent. He said that a consensus was being attempted within the government to facilitate release of funds recovered from Harshad Mehta Group. He however, clarified that these things would finally be a matter of judicial determination.

Interestingly, banks and financial institutions are ready for a pro-rata distribution, though it is not yet clear whether the law permits that. If Rs 2,200 crore is distributed through pro-rata basis, I-T department will get around Rs 1,216 crore, while banks and financial institutions will get Rs 984 crore.

Among the banks, the State Bank of India will get the largest amount, followed by Standard Chartered Bank.

The custodian had already recovered Rs 3,000 crore, which was distributed among various claimants. Out of this, Rs 1,800 crore was given to I-T department and the rest amount of around Rs 1,200 crore to banks and financial institutions. However, at present, several parties are yet to reach any consensus over how the remaining recovered money will be distributed.