By - Sidhi. K. Kutty , Student , Mar Gregorious College of Law
ABSTRACT:
This article focuses on a recent fraud case commonly known as the Yes Bank Scam. This private bank was incorporated on November 21, 2003. It was founded by three people, namely Rana Kapoor, Ashok Kapur and Harkirat Singh. Rana ultimately became the only founder left but was able to build the bank's loan business. However, due to family dispute and exposure to bad loans and RBI's audit of the banks in India, things eventually led to the Yes Bank downfall.
KEYWORDS- Yes Bank, Fraud, Yes Bank Crisis, Rana Kapoor
INTRODUCTION: BRIEF HISTORY OF THE BANK
The Yes bank had grown to be the 4th largest private sector bank in the country at its peak. The bank had initially established a customer-centric and service-driven bank for the future corporates of the country. It had released its Initial public offering and kept developing up to the 2008 global financial crises. Harkirat Singh, on the one hand, had left the bank at an initial stage, and on the other hand, Ashok Kapur had unfortunately died in the 2008 terrorist attack in Mumbai, leaving Rana to be the only founder left. In order to achieve success, the bank had started to focus on its operations rather aggressively.
DETAILS OF THE CASE:
Yes, Bank's financial position had been declining steadily, and it was mostly because of the inability to raise capital. The bank had undergone grave governance issues and practices in recent years, which encouraged the decline. The bank had to struggle a lot to raise the basic capital required to stay above regulatory requirements as it had a very high level of bad loans. It is to be noted that the bank has more corporate customers than retail customers and the fact that most of the companies. The bank gave loans to companies that were at a loss. The fact that these companies by themselves were sinking and on the verge of bankruptcy was also a reason that increased the bad loan of the bank.
Rana Kapoor had sold his entire stake in the bank in November 2019, after it turned out that Yes Bank had completely become unbankable. Rana Kapoor is currently in Enforcement Directorate's custody on money laundering charges, registered by the CBI. The case revolves around an alleged bribe of Rs 600 crore by the DHFL to the Rana Kapoor family on a quid pro quo basis.
On March 7th 2020, CBI registered a case for alleged cheating, fraud, criminal conspiracy in sanctioning of loans by YES Bank and in exchange receiving bribes from DHFL promoter Dheeraj and Kapil Wadhawan.
The charge sheets had also included DHFL, its promoters Wadhawans, DOIT Urban Ventures Ltd, owned by Kapoor's daughters, as an accused in the said scam case. According to CBI, during his tenure, Rana Kapoor had extended credit facilities to DHFL through YES Bank and, in exchange, received large monetary benefits for himself and the hundreds of companies controlled by him and his family.
The Reserve Bank of India had, on March 5th 2020, imposed a 30-day moratorium on YES Bank. According to the terms of the said moratorium, deposit withdrawals were allowed only at Rs 50,000 per person. The central bank has also proposed a reconstruction scheme.
RANA KAPOOR V. ENFORCEMENT DIRECTORATE
Initially, the Yes Bank fraud case against Rana Kapoor was sent to a Metropolitan Magistrate for trial. A magistrate court had rejected the pleas for the bail that were filed on merit by the Wadhawans, the promoters of DHFL, in this case. Later on the 9th of April, the Wadhawans, out on bail, along with a group of 23 other people, had disobeyed lockdown rules and travelled after a senior IPS officer had issued a letter allowing them to travel. The Wadhawan brothers, on 18th April, had gotten an interim relief from arrest after their lawyer pleaded that they shouldn't be arrested in the middle of the pandemic.
The Bombay High Court had recently observed that a large amount of loss in the public funds by the alleged account of criminal activities of Rana Kapoor's various companies should be viewed seriously, and he was denied bail in the case.
Justice Prakash Naik noted while rejecting Kapoor's bail plea on January 25th that the offence is of a serious nature, and there is a large amount of evidence that shows Kapoor's involvement in the crime. The justice also noted that it is settled law that while granting bail, the Court has to keep in mind the nature of accusations, evidence in support thereof. The justice had stated that such a huge loss of public funds is to be viewed seriously, and with regard to the instant case and the magnitude of the offence and the evidence on record, no bail can be made out.
The Court was of the opinion that the honest governance of banks and financial institutions is critical for the proper functioning of the banking sector and the economy.
Kapoor is accused of entering into criminal conspiracies with Kapil Wadhawan, Director of Dewan Housing Finance Corporation Ltd (DHFL). As mentioned before, one of the key contentions of the case revolved around the amount that Wadhawan is said to have paid kickbacks of Rs. 600 crores to Kapoor by extending a loan to DOIT Urban Ventures (India) Pvt. Ltd. The ED contented that the loan of Rs. 600 crores were sanctioned by DHFL, whereas the senior advocate appearing for Kapoor stated that the said amount was a genuine loan and urged for a grant of bail.
However, after hearing both sides at length, the Court was of the view of the allegation that Kapoor had deliberately used, projected and claimed proceeds of crime as untainted by laundering the same for personal gain after observing the position of power and authority that he had as the MD/CEO of the YES Bank.
The averments in the bail plea also concerned the health condition of Kapoor. The Court was informed that Kapoor's health had been rapidly deteriorating while in jail. The Court noted that the medical issue was there prior to his arrest and directed the jail authority to provide appropriate medical treatment to Kapoor.
CONCLUSION:
The whole situation had raised quite the unrest among the people and very rightfully so. The huge loss of the public fund led many to lose and question the deposited safety in the bank. The whole situation also rendered the bank with lesser deposits and to a point where it was unable to raise capital.
However, the RBI stated that SBI is willing to make an investment in Yes Bank Ltd. and participate in its reconstruction scheme. Thus by sub-section (4) of section 45 of the Banking Regulation Act, 1949, the Reserve Bank of India proposed the scheme's details for raising fresh capital for Yes Bank.
References :
Rajan, D. T. (2019, October 16). The Case of Yes Bank: From the Founders' Dream to a Bank in Distress. Researchgate. https://www.researchgate.net/publication/338211439_The_Case_of_Yes_Bank_From_the_Founders’_Dream_to_a_Bank_in_Distress
Bankedge, A. (2020, March 12). A CASE STUDY ON YES BANK… THE REAL STORY. BANK EDGE | Professional Certification Courses In Banking. https://bankedge.in/a-case-study-on-yes-bank-the-real-story/
Choudhary, S. (2020, June 25). YES Bank loan fraud: CBI charges Rana Kapoor with criminal conspiracy. www.Business-Standard.Com. https://www.business-standard.com/article/current-affairs/yes-bank-loan-fraud-cbi-charges-rana-kapoor-with-criminal-conspiracy-120062501509_1.html
Business Standard. (n.d.). WHAT IS YES, BANK CRISIS? Business-Standard. Retrieved February 6, 2021, from https://www.business-standard.com/about/what-is-yes-bank-crisis
Yes, Bank fraud case against Rana Kapoor sent to a Metropolitan Magistrate for trial. (2020, July 17). The Economic Times. https://economictimes.indiatimes.com/news/politics-and-nation/yes-bank-fraud-case-against-rana-kapoor-sent-to-a-metropolitan-magistrate-for-trial/articleshow/77024669.cms?from=mdr
Correspondent, S. (2021, January 8). Yes Bank fraud case: bail pleas of Wadhawan brothers rejected. The Hindu. https://www.thehindu.com/news/cities/mumbai/yes-bank-fraud-case-bail-pleas-of-wadhawan-brothers-rejected/article33532668.ece
Joshi, N. (2021, February 5). [YES Bank scam] Huge loss of public fund should be viewed seriously: Bombay High Court refuses to grant bail to YES Bank founder Rana Kapoor. Bar and Bench - Indian Legal News. https://www.barandbench.com/news/litigation/rana-kapoor-bail-rejected-bombay-high-court-order
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