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Men in Suits

Chanda Kochhar case study: Famous to infamous

Updated: Jun 19, 2023

The exposure of massive banking scams has been trending in the past few years. These wrongdoings ranging from the Vijay Mallya fraud to the Nirav Modi scandal and to the latest Chanda Kochhar controversy have shaken the financial sector of the country. Waves of shock were sent through the entire nation when the renowned and respected name of Chanda Kochhar popped up in a colossal banking scam.


Background

The journey of Chanda Kochhar, CEO and MD of ICICI Bank continued for a lengthy period of 34 years with the Bank. She joined the bank in 1984 and in 2009 and 2019, she became the MD and CEO, respectively of the company. The three important names in this controversy are Chanda Kochhar, her husband Deepak Kochhar and the founder of the Videocon Group Venugopal Dhoot. Deepak Kochhar had business relationships with Dhoot.

Chanda Kochhar case study: Famous to infamous

NuPower Renewables Pvt Ltd (NuPower or NRPL)

By the end of December 2008, Dhoot and Deepak Kochhar ventured jointly on a project, namely ‘NuPower’ in which both these business tycoons shared an equal stake of 50 per cent each. A certain stake in this joint venture also belonged to the kin of the Kochhars. One fifty-per cent stake was owned by Dhoot and other individuals belonging to his family, whereas the other fifty per cent stake belonged to Deepak Kochhar and an entity named “Pacific Capital”, which was his family enterprise. Pacific Capital belonged jointly to Chanda Kochhar’s father-in-law and sister-in-law. This was followed by a continuous series of resignations and entries in the joint venture. Soon, a year later Dhoot decided to give up his position as a director in his joint association with Deepak and transferred his shareholding in NuPower which quantitatively summed up to 25000 shares for a price of ₹2.5 lakh to Deepak.


Videocon Group

Videocon was in dire need of around Rs. 40,000 crore, owing to its “oil and gas capital expenditure programme” and it sought assistance by resorting to a consortium facility through 20 banks. Consortium financing basically means that a number of banking companies join hands together to provide loan assistance to a common borrower so that no single bank will have to face such a huge risk. By virtue of this, a massive sum of ₹3,250 Crore was granted by ICICI as a loan amount to Videocon in 2012. Chanda Kochhar was a member, though not a chairperson of the lending committee of ICICI; this proved an impediment to the bank’s otherwise stringent checks for the Videocon loan. Out of this huge ₹32.5 billion loan amount, a total of ₹1,730 Crore was categorised as a Non-Performing Asset (NPA) by the banking company.


Supreme Energy Pvt Ltd

Further, after the passage of one year in 2010 monetary assistance in the form of a loan amounting to around ₹64 crores was granted to this solely held NuPower by “Supreme Energy Pvt ltd” (Hereinafter referred to as Supreme Company / SEPL). The loan granted was in the form of a fully convertible debenture capable of being wholly converted into equity shares. This company belonged to Dhoot. The Supreme Company’s transfer did not stop here and further transfer of shares took place from Dhoot to Deepak Kochhar and vice versa. Subsequently, Supreme Company conquered the majority stake of 95 per cent in NuPower.


The entry of Mahesh Chandra Punglia

After a few months, Dhoot also gave up his stake in the Supreme Company by passing on his shareholding to an associate named “Mahesh Chandra Punglia” who shortly, in a stretch of 7 months in 2012-2013, passed on his stake in the Supreme Company to an association, precisely “Pinnacle Energy” run by Deepak Kochhar. He was one of the directors of NuPower and served in many other capacities too. He worked as a years-old consultant in Videocon apart from being one of the trusted individuals of Dhoot. This transfer activity between Punglia and Deepak cost a total sum of Rs Nine Lakhs. The timing of this transaction is crucial as it took place shortly in half a year’s time subsequent to the grant of the ICICI loan. A careful observation of these events brings us to the conclusion that the holding in the Supreme Company was an indirect transfer made by Dhoot to Deepak Kochhar.


The role of whistle-blower

This financial asymmetry was uncovered by a few whistle-blowers and it affirms the importance of whistle-blowers in the world of securities. The individual who exposed this hidden irregularity in 2016 was investor whistle-blower Arvind Gupta through a letter addressed to Prime Minister Narendra Modi as well as the RBI governor and a few authorities. However, this complaint of alleged irregularity did not catch anyone’s eye. Later, other whistle-blowers raised an alarm of suspicion in the alleged banking activities of ICICI in a 2018 post, in which investigating agencies stepped up to take the matter at hand.


Chanda Kochhar’s resignation

She resigned as the MD and CEO of the Bank in October 2018.


Allegations by SEBI

Conflict of interest

SEBI alleged that the Bank and Chanda Kochhar failed in their duties to abide by the disclosure norms pertaining to the issue of ‘conflict of interests. The issue arises when taking into consideration the timing of the transfer of shareholding by Punglia. Only 7 months subsequent to his acquired ownership in Supreme Company by virtue of Dhoot relinquishing and passing on his stake, Punglia gives up his ownership in favour of the trust held by Deepak. During this 7-month-long time span, ICICI loan was sanctioned to Videocon. Moreover, after Deepak Kochhar gained a dominating position in NuPower, the loan sanction event of ICICI took place. The favours were further extended by way of foreign funding to a Videocon-owned enterprise, namely “Tuskar Overseas Inc” in the Cayman Islands by sanctioning a ₹660 crore loan amount through the bank’s overseas branches. There is no direct connection here between Chanda Kochhar’s husband and ICICI as ICICI did not sanction loans either to NuPower or Supreme Company or Pinnacle Energy. However, there clearly exists an indirect link between the bank’s lending to Dhoot’s company and Dhoot’s transfers to Deepak Kochhar. Here is where the conflict of interest lies.

Chanda Kochhar was clearly a beneficiary in NuPower as it belonged to her family members. After a sequence of transfers, majority ownership soon got transferred to Deepak-owned Pinnacle Trust. Thus at the cost of acquiring personal benefits, Chanda Kochhar conflicted with her duties as the CEO and MD of a bank.


Failure in complying with the disclosure obligations


According to the market watchdog, the bank did not make any disclosures on relevant details in the loan matter to the BOD as well as the stock exchange; something it was obliged to make. Now, in this case, the bank would have been bound to make disclosures only if Chanda Kochhar had informed about the indirect nexus to the loan/money transfer. So the first failure on the part of Chanda Kochhar in the disclosure sphere was her silence on the business relationships between Dhoot and Deepak Kochhar while giving off the loan. She should have revealed the relationships and should have refrained from serving as a member of the credit grant committee.

Secondly, in addition, Chanda Kochhar failed to make certain other disclosures in which she, as well as Videocon, shared a common interest. For instance, their shareholding in a common entity “Credential Finance”. Even though Chanda Kochhar had a much smaller stake than Videocon did; however, they still had a common place of interest.

SEBI has mandated listed entities to maintain a Code of Conduct which requires adherence by the lead officials of the company. Significant disclosures form a vital part of the Code of Conduct. Failure to conform to the disclosure norms amounts to a violation of the Code of Conduct of the Bank.


Risk Management Committee

According to SEBI (LODR) Regulations 2015, the Board of Directors are required to constitute a Risk Management Committee, in which they may delegate monitoring and reviewing of the risk management plan to such committee. Had Chanda Kochhar made relevant disclosures, the Board of Directors would in turn seek a report from the Risk Management Committee before clearing such transactions where such conflict of interests is disclosed by the Directors to the Board.


Criminal case registered by Enforcement Directorate (ED) for money laundering

In 2019, a criminal case for money laundering was registered against Dhoot, the Kochhar family and others.


CBI Investigations under the Prevention of Corruption Act

In January 2019, the CBI conducted raids in Mumbai and booked the Kocchar couple on charges of cheating and corruption in the sanction of loans. It said that Chanda Kochhar abused her official position and got illegal gratification / undue benefit through her husband from Dhoot for sanctioning loans to Videocon. According to the CBI, in return for the loans provided by ICICI bank, Chanda Kochhar benefited to the extent of Rs. 64 crores in NRPL. A loan of ₹300 crore was laid out to one of the Videocon group-led companies and soon within two days of the disbursement, a transfer of ₹64 crore to NRPL was observed.

They were produced before the Mumbai Special Court on 24 December 2022 and were arrested.


Conclusion

In light of the above circumstances, an observation may be drawn that it was a very intelligently planned conspiracy. Chanda set an example of abuse of a prominent position in a company to illicitly earn personal benefits.



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