`

A MINI PROJECT REPORT ON

MAJOR SCAMS IN INDIAN BUSINESS
Submitted To
Mr.G.Henry James
M.B.A., M.Phill

Associate Professor

Subject: Business Ethics and Corporate Governance

EDUCATIONAL INSTITUTIONS
Spreading Knowledge

Submitted By: M. MAHESH RAJ
M.B.A II Semester JNTUK
Roll No: 13K11E0023
Batch: 2013-2015

DEPARTMENT OF MANAGEMENT STUDIES
PYDAH COLLEGE OF ENGINEERING & TECHNOLOGY
GAMBHEERAM, VISHAKAPATNAM.

CONTENTS
1.2G Spectrum scam
2. Commonwealth Games Scam (CWG)
3. Satyam Computer Services Scam
4. Hawala Scandal
5. Fodder Scam



















MAJOR SCAMS IN INDIAN BUSINESS
1.2G Spectrum scam:
Introduction of 2G Spectrum scam in India
Corruption in India has taken a high toll in the last two years.
News Channels and paper media are both flushed with various scams be it Commonwealth
games scam, Fodder scam, IPL scam, 2G scam list goes on and on. In this article 2G scam is
being explained in detail.
Definition of 2G
"2G" stands for "Second-generation wireless telephone technology". In common man's language
it means wireless transfer of data from one place to another. 2G networks were first launched in
1991(in Finland). The main points that distinguish 2G network are
Digital signals were used.
Greater penetration levels can be achieved making 2G more efficient on the spectrum.
Introduction of transfer of text messages (SMS service).
The Scam
License was supposed to be allocated to various telecom operators for allotment of 2G
spectrum and for the same applications was invited by the Department of Telecommunications
on 25th September 2007 giving last date as 1st October 2007. In November the Prime Minister
wrote to Mr. A.Raja (Telecom Minister during the scam) to issue the allotment in a fair and
transparent manner. Mr A.Raja rejected most of the recommendations given by the Prime
Minister and made the allotment on first come first serve basis advancing last date for submitting
the applications to 25th September. There was a cut-off date till which the interested companies could
apply for licenses citing their particulars and other requisites. This date was preponed arbitrarily and the
website of the Department of Telecommunications (DoT) stated that those who applied between the time
15:30hrs till 16:30hrs would be given the licenses. So the companies like Unitech and Swan, who
allegedly had a tip-off regarding the same amendment to the procedure, kept their documents ready in
line, and eventually got the licenses.
Both Unitech and Swan Telecommunications are companies without any prior experience and of
these, Swan could not even fulfil the eligibility criteria. But still, both were preferred.
Main charges filed against Mr A.Raja:
Instead of auctioning the 2G spectrum at market prices, A.Raja issued licence on first come first
basis.
Advancement of cut off date from October 1,2007 to September 25,2007.
License was issued to private telecom operators in 2008 at the prices of 2001. According to the
CAG report the value for the spectrum allocated under dual technology was assessed to be
Rupees 40526 crore against Rupees 3372 crore as assessed by DoT.
Loss of Rupees 1.76 lakh crore was incurred by the national exchequer.
Issuing of License to M/s Swan Telecom and M/s Unitech Wireless overruling the priority list
according to which M/s HFCL and Idea Cellular ltd. came first.
In December 2010 CBI raided A.Raja's house and Nira Radia's (A corporate lobbyist associated
with A.Raja) and obtained incriminating documents. The raids were also carried at the houses of
Siddarth Behura (Former Telecom Secretary), R.K.Chandolia(Personal Secretary to A.Raja),
K.Sridhar(Telecom Member), A.K.Srivastava(Deputy Director General DoT). On Feb 2, 2011
A.Raja, S.Behura , R.K.Chandolia were arrested by CBI.
Case was filled by CBI against nine people and three firms.
Involvement of Ms.Kanimozhi:
Kanimozhi(daughter of DMK chief M.Karunanidhi and MP) was named by the CBI in second
chargesheet as co-conspirator of A.Raja. She was accused of flowing Rs 200 crore through
various ficticious firms to kaliagnar TV channel in which she has a major stake. Sharad
Kumar(managing director of Kaliagnar Channel) was also declared as conspirator with A.Raja.
On May 20,2011 Kanimozhi was sent to Tihar Jail along with A.Raja and Sharad Kumar.
Present Status:
CBI has pressed new charges against A.Raja , S.Behura and RK Chandolia as "breach of trust
by public servants" according to section 409 under Indian penal code. According to CBI
application presented in court "It is submitted that accused 1, 2, and 3 (Raja, Behura and
Chandolia) were public servants having a dominion over valuable 2G spectrum in their
respective capacities as public servants".
Finance Ministry wrote a 'note' to Prime Minister stating that Mr.P.Chidambaram(Former
Finance Minister and now Home Minister) could have averted the 2Gspectrum scam if he had
insisted on auctioning the sale of spectrum.
2. Commonwealth Games Scam (CWG):
The 2010 Commonwealth Games are the nineteenth Commonwealth Games, and the ninth to be
held under that name. The Games are scheduled to be held in Delhi, India between 3 October and
14 October 2010. The games will be the largest multi-sport event conducted to date in Delhi and
India generally, which has previously hosted the Asian Games in 1951 and 1982. The opening
ceremony is scheduled to take place at the Jawaharlal Nehru Stadium in Delhi. It will also be the
first time the Commonwealth Games will be held in India and the second time the event has been
held in Asia (after 1998 in Kuala Lumpur, Malaysia The 2010 Commonwealth Games was
awarded to Delhi with great fanfare and anticipation as a way for India to show it could hold a
world-class sporting event two years after Beijing hosted the Summer Olympics. It also was a
rare hosting of the event by a developing nation: Mostly the Games rotate between developed
countries in the British Commonwealth of nations such as Britain, Australia and Canada.
Issue
The issue relating to allegation against Kalmadi and others for hiring various equipments, more
costly than their total cost .The Commonwealth games scam as it is known involved large scale
misappropriation of money during the preparatory phase and conduct of the 2010
Commonwealth games held in New Delhi. The total value of the scam is estimated to be 70,000
crore. Chief Minister Sheila Dixit and former chairman of CWG Organizing Committee Suresh
Kalmadi for various irregularities, wasteful expenditures and bending norms to benefit
contractors. The PMO has been indicted f o r recommending Suresh Kalmadi for heading t
h e Organization Committee, Delhi Chief Minister Sheila Dikshit for her active involvement in
import of lighting equipment causing avoidable expenditure of more than 30 crore, and Delhi
Government headed by her for wasteful expenditure of Rs 100 crore in street scaping and
beautification. However, the decision to use imported luminaries on selected A category of
roads was n o t based on technical parameters, but was taken with the `active involvement of the
Chief Minister; this resulted in avoidable expenditure of more than Rs 30 crore. Further, the
procurement of price of imported luminaries was far higher than the fair prices. The CAG report
said the lighting equipment from Saudi Arabia cost only Rs.5040 per unit. But the vendors
supplied to PWD for an unjustifiable exorbitant rate of Rs. 25,704. Further, there were
numerous deficiencies in the appointment and management of the multiplicity of contracts for
external consultant and advisors, pinpointing the irregularities and lack of transparency in
recruitment by Kalmadi headed Organizing Committee. Officials of Commonwealth Games
Organizing Committee had hired equipment for overlay works at over 14 times the actual
price, One-stop luxury shop Harrods of London sells one of the worlds best treadmills for Rs 7
lakh. But the Commonwealth Games Organizing Committee (OC) shelled out an astronomical
Rs 9.75 lakh for each unit of the fitness equipment (not necessarily the same brand) that too on
rent. And this is just one of the products which cost the OC a bomb. A roll of tissue that should
cost a mere Rs 35 being bought for Rs 4,138. Each chair has been rented by the OC at a cost of
Rs 8,378 and it has spent Rs 8.8 lakh for every cross-trainer. A 100-litre refrigerator has been
hired for an astonishing price of Rs 42,202.
Politicians involved
Suresh Kalmadi (born May 1, 1944) is an Indian politician and senior sports
administrator. He was formerly a member of the Indian National Congress. He is a Member of
Parliament from Pune. On April 25, 2011 Kalmadi was arrested by CBI for awarding illegal
contracts to a Swiss firm for Timing-Scoring-Result (TSR) system for the2010 Commonwealth
Games causing a loss of Rs 95 crore to the exchequer.
[2]
Kalmadi's membership of the Indian
National Congress Party was suspended after being arrested and charged with corruption. On
April 26, 2011 he was sacked from the post of president of the Indian Olympic Association.
Sheila Dikshit, Chief Minister of Delhi: Was indicted for several irregularities in the CWG
processes both by Shunglu committee and also by the CAG. Investigators have taken into
custody Lalit Bhanot, former secretary-general of the organizing committee of the October 2010
event. Also placed under arrest was V.K. Verma, director-general of the committee.They have
been held for a suspected over-priced purchase of a timing, scoring and result systems from a
Swiss company.
The Commonwealth Games (CWG) Scam 2010 was mainly subdued to many reasons like heavy
economic expenditure that were being severely criticized of. Since there was a huge expenditure
that was being spend into such a big Commonwealth Games, so there was a complete serenity
over the fact that though being spending so much money, yet things were not utilized for the
proper ways. There were so much hush among the poor people to see such notion of huge
expenditures being spend on CWG Scam 2010, but not helping and cutting out the financial
costs over the period of time in India. This is the serious issue of corruption which was done by
Suresh kalmadi.
3. Satyam Computer Services Scam:
The scam at Satyam Computer Services, the fourth largest company in Indias much showcased
and fiscally pampered information technology (IT) industry, has had an unusual trajectory. It
began with a successful effort on the part of investors to thwart an attempt by the minority-
shareholding promoters to use the firms cash reserves to buy out two companies owned by them
Maytas Properties and Maytas Infra. That aborted attempt at expansion precipitated a collapse
in the price of the companys stock and a shocking confession of financial manipulation and
fraud from its chairman, B. Ramalinga Raju.
What is known as of now is that over an extended period of time, the promoters decided to
inflate the revenue and profit figures of Satyam. In the event, the companyhas a huge hole in its
balance sheet, consisting of non-existent assets and cashreserves that have been recorded and
liabilities that are unrecorded. According to the confessional statement of Mr. Raju, the balance
sheet shortfall is more than Rs.7000 crore.
Why did a leading company in one of Indias most successful industries of recent years need to
inflate profits? After all, the revenues of Indias IT industry have grown at a scorching compound
annual rate of almost 30 per cent in the past eight years, driven by exports. This is remarkable,
assuming that revenue and profit inflation have not excessively overstated performance. With
cheap skilled labour having shored up profits that were lightly taxed when compared with the
norm, net profits must have been substantial and rising too. Why then did the fourth largest IT
company choose to take the criminal route of falsifying accounts and indulging in fraud?One
possible cause could be the desire to drive up stock values. The benefits derived by promoters
from high stock values are obvious, allowing them to buy into real wealth outside the company
and giving them the invasion money to acquire large stakes in other firms. This tendency was
epitomised by the benefits derived by America Online when it merged with Time Warner.
Although the latter had more assets, revenues, and customers, AOLs higher market capitalisation
led to that company and its chairman, Steve Case, getting more out of the deal than did long-time
giant Time Warner.
There is some suspicion that Mr. Raju and his family may have sought similar benefits. The
family chose to build its shareholding in Satyam Computer Services and shed it when required.
For example, in year 2000 Satyam Computer merged with a related company, Satyam
Enterprises. Rajus cousin, C. Srinivasa Raju, who held 800,000
The scam at Satyam Computer Services shares, or 19 per cent, in Satyam Enterprises, was
reportedly allotted an equivalent number in Satyam Computer, leading to criticism that relative
prices did not justify the 1:1 swap. But the original promoters share held by the Raju family and
their subsequentacquisitions were not for keeping. Though the precise numbers quoted vary,
according to observers the stake of the promoters fell sharply after 2001 when they held 25.60
percent of equity in the company. This fell to 22.26 per cent by the end of March, 2002, 20.74
per cent in 2003, 17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in
2007, 8.65 at the end of September 2008, and 5.13 per cent in January 2009 (Business Line,
January 3, 2009). The most recent decline is attributed to the decision of lenders from whom the
family had borrowed to sell the shares that were pledged with them. But the earlier declines must
have been the result either of sale of shares by promoters or of sale of new shares to investors.
According to audited balance sheet figures (if they are to be trusted) available from the CMIEs
database, the paid-up equity in Satyam Computer Services rose from Rs. 56.24 crore in March
2000 to just Rs. 64.89 crore by March 2006 and further to Rs. 133.44 crore in March 2007.
Overall, the number of shares held by the promoter group fell from 7.16 crore (22.8 per cent) to
5.8 crore (8.6 per cent) between September 2001 and September 2008. This points to a conscious
decision by the promoters to sell shares, which may have been used to acquire assets elsewhere.
The more inflated the share values, the more of such assets could be acquired. It is quite possible
that the assets built up by the eight other Raju family companies under scrutiny, including
Maytas Properties and Maytas
Infra, partly came from the resources generated through these sales. If true, this makes Rajus
confession suspect, since he stated that neither myself, nor the Managing Director (including
our spouses) sold any shares in the last eight years excepting for a small proportion declared
and sold for philanthropic purposes. This may not have been the only way in which resources
were transferred out of SatyamComputer Services into other arms of the expanding Raju family
empire. Money could have been siphoned out through opaque transactions with beneficiaries
who were paid sums not warranted by their business profile. Satyams business strategy did
involve unusual transactions. One example was the acquisition in 1999 by group company
Satyam Infoway, which was the largest private Internet Services Provider in the country at that
time, of IndiaWorld Communications, for a sum of $115 million. The acquired company
operated popular portals such as samachar.com and khel.com that had no clear revenue model,
and was the principal beneficiary just as in the AOL deal.
The scam at Satyam Computer Services
According to reports, the owner of IndiaWorld was himself charged with intellectual property
violations by his erstwhile employer IndiaWorld.com, an Internet services company managed by
U.S.-based ASAP Solutions Inc. Satyam Infoways position was that it was aware of the claim
being made by ASAP Solutions, but that its interest was not in IndiaWorld.com but was limited
to the URL indiaworld.co.in and the other portals under its banner, for which it had of course
paid a huge sum.
There is reason to suspect that this acquisition delivered little to the company, raising questions
about the motivation.
Mr. Rajus confession is also suspect for another reason, which has been widely discussed in the
media. Even if he and his colleagues were inflating revenues and profits, the actual revenue
earning capacity of the company, as confessed by him, seems to be extremely low. He claims that
the huge difference between actual and reported profits in the second quarter of 2008-09 was
because the ratio of operating margins to revenues was just 3 per cent rather than the reported 24
per cent. But even if
Satyam Computer Services was cooking its books, it was engaged in activities similar to that
undertaken by other similarly placed IT or ITeS companies and it too had a fair share of Fortune
500 companies on its client list. It is known that many of these companies have been showing
operating margins that are closer to the 24 per cent reported by Satyam than the 3 per cent
revealed in Mr. Rajus confession. Thus in financial year ending March 2008, the ratio of profits
before tax of Infosys was 32.3 per cent of its total income, that of TCS 23.1 per cent, of Satyam
27.8 per cent, and that of Wipro 19.2 per cent.
This suggests that either Mr. Raju is exaggerating the hole in his balance sheet or there is some
other, more complex, and more disturbing explanation. But whatever it is, the difference between
24 per cent and 3 per cent seems too large to be the industry standard.
Despite indicators of these kinds, which could raise suspicion, Satyam Computer
Services remained a leading player with substantial investor support for many years.
The promoters continued to hold control over the company despite the small share in equity they
held and built an empire with land assets and contracts for executing prestigious infrastructural
projects. And despite its award-winning reputation for corporate governance, its impeccable
board with high-profile independent directors, and its appointment of big-four member PwC as
its auditor, this still mysterious accounting fraud occurred. The full truth, it appears, is not yet
out.

4. Hawala Scandal:
Background
- Post liberalization scam
- With the split in Congress in the 60s
- Indira Gandhi banned corporate contribution to parties to break their nexus with
industrialists, introduced a new control on industrial houses in the form of monopoly
control
- This split led to the emergence of political competition and exploitation of industry and
extension of patronage to new interest groups
- With the oil crisis in 1973 and inflation scaled new heights, political opposition gathered
strength
- With the 1975 emergency and gave the opposition a reason to capture power
- The BJP inherited an economy with high exchange reserves, a strong balance of
payments & low inflation
- 3 events led to the Hawala Scandal
- report of the seventh Finance Commission ratio of centra government savings came
down and its budgetary deficit rose
- loosening of fiscal discipline coincided with a serious drought in 1979-80 agricultural
output fell and inflation increased
- third event was a rise in world oil prices
- faced with rapidly falling exchange reserves, Congress raised controlled prices of
foodgrains, fertilisers and oil products and obtained IMF support
- once the run on reserves was stopped with the help of IMF credit, the government
ontinued to finance a high current account deficit by recourse to World Bank loans
- it allowed its own enterprises to raise bank loans abroad, and made foreign loans
advantageous to them by keeping domestic interest rates above intl levels.
- High domestic interest rates were also used to attract deposits into Indian banks from
Indian residents abroad
- India benefited from the fact that intl banks faced a shortage of solvent borrowers, hence
thro the 1980s India could attract debt inflows to finance
- Rajiv Gandhi, after coming to power in 1984, made a major change in party funding
strategy, instead of relying on Indian industrialists for funds, he relied upon chosen
ministers to collect commissions on big contracts under govt control
- He went back to collecting money from Indian industrialists later in his term of office
- Also known from the diaries of the Jain brothers )two business men who were close to
senior Congressmen) that some of his ministers collected bribes on their own initiative
- Bribes taken at that time from foreign companies that sold power generation equipment
to govt-owned generating companies are documented in the recent investigations in the
Hawala case

The Scam
- Naresh Jain, an Indian businessman accused of terror financing by Homeland Security of
the US was booked by Enforcement Directorate for running an alleged hawala operation
to the tune of rs. 5, 000 crore
- The scam hovered around the fact that the Hawala channels thro which terrorist outfits in
Kashmir like Hijbul-Mujahideen used to get funds, the same channels used to grease the
palms of over 115 top bureaucratcs and politicians of the country
- Tehelka journalist, VineetNarain exposed the Jain Hawala Scam in the 10
th
vol of
Kalchakra video new cassette which was immediately banned by the Film Certification
Appellate Tribunal
- After having the ban cleared, Narain was offered a huge sum of money to detain the
release of Kalchakra but he took the matter to the Apex court through a PIL, demanding a
probe into the scam
- During 1993-94 he faced negligible media response, several threats to his life and
numerous financial compensations
- The accused included LK Advani (the deputy PM at the time), VC Shukla, P shiv
Shankar, SharadYadad, BalramJakhar&MadanLalKhurana
- Even though the prosecution was taken forward, many were acquitted in 97-98 partly the
hawala records were judged to be inadequate as the main evidence

Aftermath
- Jolly Bansal, a close associate of the accused Jain brothers, was known to socialize with
the two or three judes of the SC of India who had been monitering the Hawala case
- Even though the judges Justice JS Verma& Justice SC Sen announced in an open court
that they were being pressurized to offer a judgement in favour of the accused involved
but refused to divulge the party that had been blackmailing
- The matter was left pending in the Apex court so VineetNarain wrote to the Attorney
General of India to look into the allegations of Dr.Bansal and decide the suitable course
of legal action
- There was no response from the AG
- Narain then decided to publish the entire episode in Kalchakra with a demand of a
thorough probe into the matter
- A contempt case was initiated against him

Loopholes
- the media was manipulated by the rich bureaucrats and their political pull
- Narain was reduced to resorting to writing columns in popular dailies and address public
meetings
- The reason this scam still leaves questions in the minds of the Indian psyche is that
everybody who matters in Indian politics is involved in it

5. Fodder Scam:
The Fodder Scam involved hundreds of millions of dollars in alleged fraudulent reimbursements
from the treasury of Bihar state for fodder, medicines and husbandry supplies for non-existent
livestock.
The Fodder Scam (Devanagari: chr ghol) was a corruption scandal that involved the
alleged embezzlement of about 950 crore (US$206.15 million) from the government treasury of
the eastern Indian state of Bihar. The alleged theft spanned many years, was engaged in by many
Bihar state government administrative and elected officials across multiple administrations (run
by opposing political parties), and involved the fabrication of "vast herds of fictitious livestock"
for which fodder, medicines and animal husbandry equipment was supposedly procuredAlthough
the scandal broke in 1996, the theft had been in progress, and increasing in size, for over two
decades. Besides its magnitude and the duration for which it was said to have existed, the scam
was and continues to be covered in Indian media due to the extensive nexus between tenured
bureaucrats, elected politicians and businesspeople that it revealed, and as an example of the
mafia raj that has penetrated several state-run economic sectors in the country.
The scam
The scam was said to have its origins in small-scale embezzlement by some government
employees submitting false expense reports, which grew in magnitude and drew additional
elements, such as politicians and businesses, over time, until a full-fledged mafia had formed.
Jagannath Mishra, who served his first stint as the chief minister of Bihar in the mid-1970s, was
the earliest chief minister to be accused of knowing involvement in the scam.
In February 1985, the then Comptroller and Auditor General of India, T.N. Chaturvedi, took
notice of delayed monthly account submissions by the Bihar state treasury and departments and
wrote to the then Bihar chief minister, Chandrashekhar Singh, warning him that this could be
indicative of temporary embezzlement. This initiated a continuous chain of closer scrutiny and
warnings by Principal Accountant Generals (PAGs) and CAGs to the Bihar government across
the tenures of multiple chief ministers (cutting across party affiliations), but the warnings were
ignored in a manner that was suggestive of a pattern by extremely senior political and
bureaucratic officials in the Bihar government. In 1992, Bidhu Bhushan Dvivedi, a police
inspector with the state's anti-corruption vigilance unit submitted a report outlining the fodder
scam and likely involvement at the chief ministerial level to the director general of the same
vigilance unit, G. Narayan. In alleged reprisal, Dvivedi was transferred out of the vigilance unit
to a different branch of the administration, and then suspended from his position. He was later to
be a witness as corruption cases relating to the scam went to trial, and reinstated by order of the
Jharkhand High Court.
Exposure and investigation
Laloo Prasad Yadav, then chief minister of Bihar, was a prime accused in the fodder scam
investigation.
On January 27, 1996, the deputy commissioner of West Singhbhum district, Amit Khare, acted
on information to conduct a raid on the offices of the animal husbandry department in the town
of Chaibasa in the district under his authority. The documents his team seized, and went public
with, conclusively indicated large-scale embezzlement by an organized mafia of officials and
businesspeople. Laloo ordered the constitution of a committee to probe the irregularities. There
were fears that state police, which is accountable to the state administration, and the probe
committee would not investigate the case vigorously, and demands were raised to transfer the
case to the Central Bureau of Investigation (CBI), which is under federal rather than state
jurisdiction. Allegations were also made that several of the probe committee members were
themselves complicit in the scam. A public interest litigation was filed with the Supreme Court
of India, which led to the court's involvement, and based on the ultimate directions issued by the
supreme court, on March 1996, the Bihar High Court ordered that the case be handed over to the
CBI.
An inquiry by the CBI began and, within days, the CBI filed a submission to the High Court that
Bihar officials and legislators were blocking access to documents that could reveal the existence
of a politician-official-business mafia nexus at work. Some legislators of the Bihar Legislative
Council responded by claiming the court had been misinformed by the CBI and initiating a
privilege motion to discuss possible action against senior figures in the regional headquarters of
the CBI, which could proceed similar to a contempt of court proceeding and result in stalling the
investigation or even prosecution of the named CBI officials. However, U N Biswas, the regional
CBI director, and the other officials tendered an unqualified apology to the Legislative Council,
the privilege motion was dropped, and the CBI probe continued. As the investigation proceeded,
the CBI unearthed linkages to the serving chief minister of Bihar, Laloo Prasad Yadav and, on
May 10, 1997, made a formal request to the federally-appointed governor of Bihar to prosecute
Laloo (who is often referred by his first name in Indian media). On the same day, a businessman,
Harish Khandelwal, who was one of the accused was found dead on train tracks with a note that
stated that he was being coerced by the CBI to turn witness for the prosecution. The CBI rejected
the charge and its local director, U N Biswas, kept the appeal to the governor in place.
Path to prosecution
On June 17, the governor gave permission for Laloo and others to be prosecuted. Five senior
Bihar government officials (Mahesh Prasad, science and technology secretary; K. Arumugam,
labour secretary; Beck Julius, animal husbandry department secretary; Phoolchand Singh, former
finance secretary; Ramraj Ram, former AHD director), the first 4 of whom were IAS officers,
were taken into judicial custody on the same day. The CBI also began preparing a chargesheet
against Laloo to be filed in a special court. Expecting to be accused and imprisoned, Laloo filed
an anticipatory bail petition, which the CBI opposed in a deposition to the court, listing the
evidence against Laloo. Also, on June 21, fearing that evidence and documentation that might
prove essential in further exposing the scam were being destroyed, the CBI conducted raids on
Laloo's residence and those of some relatives suspected of complicity.
On June 23, the CBI filed chargesheets against Laloo and 55 other co-accused, including
Chandradeo Prasad Verma (a former union minister), Jagannath Mishra (former Bihar chief
minister), two members of Laloo's cabinet (Bhola Ram Toofani and Vidya Sagar Nishad), three
Bihar state assembly legislators (RK Rana of the Janata Dal, Jagdish Sharma of the Congress
party, and Dhruv Bhagat of the Bharatiya Janata Party) and some current and former IAS officers
(including the 4 who were already in custody). Mishra was granted anticipatory bail by the Bihar
state High Court. Laloo's anticipatory bail petition, however, was rejected by the same court, and
he appealed to the Supreme Court, which resulted in a final denial of bail on July 29. On the
same day, Bihar state police were ordered to arrest him. The next day, he was jailedLater, the
Bihar Director General of Police, SK Saxena, justified the one-delay delay in arresting Laloo by
stating in court that "any precipitate action would have led to police firing and killing of a large
number of people."
End of Laloo's chief ministership
As it became evident that Laloo would be engulfed in the scandal and its prosecution, demands
for him to be removed from the chief ministership had gained momentum both from other
parties, as well as within Laloo's own party, the Janata Dal. On July 5, Laloo formally parted
ways with the Janata Dal and formed his own party, the Rashtriya Janata Dal (or RJD), taking
with him virtually all the Janata Dal legislators in the Bihar state assembly, and winning a vote of
confidence in the state assembly a few days later. The RJD continued to support the coalition
federal government, however. With demands for his resignation continuing to mount, on July 25,
Laloo resigned from his position, but was able to install his wife, Rabri Devi as the new chief
minister on the same day. On July 28, Rabri's new government successfully won another trust
vote in the Bihar legislature by a 194-110 vote, thanks to the Congress and Jharkhand Mukti
Morcha parties voting in alignment with the RJD.
Laloo claimed he had been instrumental in helping HD Deve Gowda become the prime minister.
However, there was press speculation that Gowda held a grudge against Laloo for insisting that
Gowda step down when Gowda's fledgling government ran into internal coalition squabbles, and
this motivated him to push CBI Director Joginder Singh for Laloo's prosecution. Much later, in
2008, Laloo also claimed that Deve Gowda confessed, and "wept and fainted," when Laloo
confronted him on inciting the CBI to pursue the prosecution.
[
Looking retrospectively, Laloo
has said that the scam had a lasting negative impact on his political career, and may have ended
his prospects to one day be prime minister of India.
There were reports that Joginder Singh had violated norms in keeping the new prime minister, IK
Gujral, in the dark as he pursued the prosecution. Gujral's own new government also depended
on Laloo for support in parliament, and Joginder Singh later alleged that Gujral had attempted to
block the scam investigation from proceeding. On June 30, the federal government issued orders
to transfer Singh out of the CBI and into the Home Ministry as a Special Secretary, which was
technically a promotion but also had the effect of removing him from the investigation. There
was also an alleged follow-on move to transfer UN Biswas, the regional CBI director, which led
to the High Court warning that it would act to disallow any such transfer.
Prosecution
As the CBI discovered further evidence over the following years, it filed additional cases related
to fraud and criminal conspiracy based on specific criminal acts of illegal withdrawals from the
Bihar treasury. Most new cases filed after the division of Bihar state (into the new Bihar and
Jharkhand states) in November 2000 were filed in the new Jharkhand High Court located in
Ranchi, and several cases previously filed in the Bihar High Court in Patna were also transferred
to Ranchi. Of the 63 cases that the agency had filed by May 2007, the majority were being
litigated in the Ranchi High Court.
Laloo's initial chargesheet, filed by the CBI on 27 April 1996, was against case RC 20-A/96,
relating to fraudulent withdrawals of 37 crore (US$8.03 million) from the Chaibasa treasury of
the (then) Bihar government, and was based on statutes including Indian Penal Code sections
420 (cheating) and 120(B) (criminal conspiracy), as well as section 13(2) of the Prevention of
Corruption Act, 1988. Even though he had been jailed, he was kept in relative comfort at the
Bihar Military Police guest house. After 135 days in judicial custody, Laloo was released on bail
on December 12, 1997. The next year, on 28 October 1998, he was rearrested on a different
conspiracy case relating to the fodder scam, at first being kept in the same guest house, but then
being moved to Patna's Beur jail when the Supreme Court objected. After being granted bail, he
was rearrested yet again in a disproportionate assets case on 5 April 2000. His wife and then
Chief Minister Rabri Devi was also asked to surrender on that date, but then immediately granted
bail. This stint in prison lasted 11 days for Laloo, followed by a one-day imprisonment in another
fodder scam case on 28 November 2000.
Jagannath Mishra had been permitted bail in June 1997, and avoided judicial remand when Laloo
was first detained in July 1997. However, he was taken into custody on 16 September of the
same year. He was freed on bail on 13 October but then remanded again, at the same time as
Laloo, on October 28, 1998, when he was kept at the same guest house as Laloo, and later shifted
to Beur jail along with him. Mishra was freed on bail on December 18, but then rearrested in a
different fodder scam case on 7 June 2000.
Due to the multiplicity of cases, Laloo Yadav, Jagannath Mishra, and the other accused have
been remanded several times in the years since 2000. In 2007, 58 former officials and suppliers
were convicted, and given terms of 5 to 6 years each. As of May 2007, about 200 people had
been punished with jail terms of between 2 and 7 years.A 2005 litigation of one of the cases (RC
68-A/96) in the Ranchi High Court involved over 20 truckloads of documents.