Sunday, September 7, 2014

How government agencies fast-tracked Lavasa | Features | Environment

Lavasa, the picturesque planned hill station being developed by Hindustan Construction Company (HCC) near Pune, is facing charges of illegal land acquisition and environmental violations and construction has been stayed pending an inquiry. 

This article says that the focus should be not on the misdemeanours of the corporation but on the collusions and oversights of government

The bureaucracy moves at snail’s pace in India. But look at the speed with which the Lavasa project, currently under scrutiny from the Environment Ministry and construction stayed pending scrutiny of irregularities in sanctions granted to the project, was sanctioned. Clearance was granted within months of its application of purpose, indeed even before the application was submitted to the concerned departments and ministries!

Thousands of scheduled caste and scheduled tribe families in this Mulshi-Maval region have languished for decades without caste certificates to support their legal entitlements to the land, or access to basic services. The ignorance of these poor families -- nomadic tribes (Dhangar) and tribal communities (Koli, Katkar, Thakar and Marathas) residing in small community hamlets -- worked in favour of Hindustan Construction Company (HCC) and the state of Maharashtra.

Had it not been for the voices of a few concerned citizens of Pune city, who recognised the long-term implications of such a massive infrastructure project, the socio-environmental consequences of the project would never have come to light.

Brand ‘Lavasa’

Lavasa Corporation was originally registered as Pearly Blue Lake Resort Private Limited Company, in 2000. The project was a business hotel to be developed on the banks of Warasgaon lake in Mose valley, Mulshi block, Pune district. The company changed its name to Lake City Corporation Pvt Ltd on December 12, 2000. Later, in June 2004, it changed it again to Lavasa Corporation Limited (International Securities Identification Number INE172G01016).

The hill station project is being driven by a consortium of companies led by Hindustan Construction Company (HCC), which holds 65% of the stake in Lavasa through its real estate subsidiary HCC Realty. Other investors include the L M Thapar Group and Venkateshwara Hatcheries, besides several minority shareholders with 35% equity.

The project in a nutshell

Lavasa is a sprawling private real estate project, 65 km from the city of Pune in Maharashtra, nestled amidst 18 hills and 975 metres above sea level.

The project was approved under Section 20 (3) of the MRTP on July 15, 2000. Accordingly, the Maharashtra Urban Development Department declared 18 villages in Mulshi and Velhe block -- a total of 25,000 acres of land -- part of the project. Since then, the inhabitants of around 20 villages have faced eviction, land alienation, harassment by project officials, cheating by the land mafia and company agents, denial of community access to freshwater bodies, river, temples and common roads. And the destruction of their natural habitat and forests.

The people of these villages comprise poor marginal farmers who depend heavily on traditional farming techniques, livestock rearing, collection of non-timber forest produce, fishing, daily wage labour, and collection of natural resources. Though they have been living in the area for generations, it was only in 1964 that poor landless and socio-economically backward families were allotted excess ceiling lands under the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961. They made these lands cultivable and survived on them without any support from the government.

In 1974, construction of Warasgaon dam began, and of the scores of families displaced only a few were given compensatory land in Daund taluka (125 km from Pune). Many were left in the affected area to fend for themselves, without adequate compensation or rehabilitation.

Thirty years on, the Lavasa township project has brought back painful memories.

The completion target for the Lavasa project is 2022. It is being planned in four phases. The overall size of the project is said to be almost one-fourth the size of Mumbai city.

Role of the state government

The Maharashtra state government has supported the project wholeheartedly, be it in granting permission for land acquisition by denotifying ceiling lands, transferring lands belonging to the Maharashtra Krishna Valley Development Corporation reserved for public purposes, granting of environmental clearance, no-objection certificates and forest clearance. Above all, obtaining a no-objection from the zilla parishad for changes in local infrastructure, etc.

Facilitating corporate land grab

The Maharashtra government notification dated November 26, 1996 relating to the Maharashtra Regional and Town Planning (MRTP) Act 1966 that proposed the development of hilly areas throughout the state as hill-stations and resorts is at the root of issues related to land acquisition for hill station development. The notification was introduced to circumvent regional plans so as to make it easy for land sharks to claim the valleys. It has been contentious on the grounds that the regulations have been framed for the benefit of moneyed companies and the commercial exploitation of scenic places.

1. Clause 17 of the notification deprives the collector of discretionary powers to be exercised for the benefit of tribals.

2. The notification also impinges on the provisions of the Maharashtra Agricultural Land Acts 1961, The Maharashtra Land Revenue 1968, which relates to the transfer of land from tribals to non-tribals.

3. The other acts contravened are the Maharashtra Land Revenue (disposal of government land) Rules 1971, the Indian Forest Act, 1927 and the Forest Conservation Acts, 1980.

4. The notification also allows disposal of up to 2,000 hectares (20 sq km) of agricultural land against 21 hectares earlier imposed under the provisions of the Maharashtra Agricultural Land Acts, 1961.

Land notified for Lavasa

In 2000, the Maharashtra government declared around 12,500 hectares of land for development of a hill station. Initially, the proposal was for a small lake city project; this later spread to revenue villages in Mulshi and Velhe blocks, including Daswe, Mugaon, Lavharde, Vegre, Bhode, Pathershet, Bombatmal, Palase, Admal, Padalghar, Wadavali, Sakhari, Bhoini, Koloshi, Ugavali, Dhamanhol and Gadale, in Mulshi block, and Mose Budruk, Shiv Budruk and Varasgaon in Velhe block. The land acquisition was carried out by three different departments -- the irrigation department (Maharashtra Krishna Valley Development Corporation [MKVDC]), forest department, and revenue department. It involved the acquisition of 2,500 acres of plantation land in two blocks, for which permission was granted by the forest department. It is worth mentioning here that on November 13, 1999, the Director, Town Planning, Pune, gave a report clearly stating that the land was forest land. The irrigation department allocated 141.15 hectares of land on lease to the company at a royalty of as little as Rs 275,250 per annum.

Though Lavasa claims it has not constructed on forest land, it cannot deny that roads have been built or pass through forest land for which hundreds of trees have been cut. One wonders how the local forest department allowed this without forest clearance from the central Ministry of Environment and Forests (MoEF). The forest officer of Khanapur, Haveli block, gave permission under the Maharashtra State Tree Felling Rules (Amendment) 1964 to cut trees and shrubs in the project area.

The MKVDC land allotted to the Lavasa project was reserved for public purposes. Interestingly, the same land had been claimed a number of times by people affected by the Warasgaon dam project; their claims were denied on grounds that the land was supposed to be used for public purposes. The company acquired the land on the basis of a 99 to 999-year lease.

Private land transactions

Over the past one-and-a-half decade, every land sale and purchase in Pune district has revealed the involvement of the land mafia. There are rumours about Lavasa too. From Daswe, where the company has built its first-phase dream town, to Mugaon village, which is being developed in the second phase, there is talk of forcible acquisition and purchase of land, forged signatures, misuse of power-of-attorney, community land disputes, devasthan land disputes, and joint ownership disputes.

Since 1996-97, when the land deals were initiated, companies like Pearly Blue Lake Resort and Aqua Land Pvt Ltd were also involved in the purchase of land. The company is supposed to have looped in several real estate agents to buy land for as little as Rs 500-Rs 5,000 per acre. Land agents from the villages and from Pune city, made small initial payments to the landholders, with promises of huge sums later. Most of the lands acquired from the Dhangar, Koli and Maratha communities are ceiling and inami (gifted) land distributed by the state government to the landless in the 1970s.

Locals recall that the district revenue officer and agents used to come together and discuss ceiling and inami lands in various villages. This caused a lot of apprehension, with people hurriedly collecting their land records. Some paid close to Rs 10,000 to the local talathi for copies of their land entitlements (7/12).

Agents and brokers are said to have played an important role in the land grab. In many instances, they bought 2 acres of land and registered about 10-17 acres. There are cases where the 2007 land records show ownership in the name of a local family, but records dated around the same time show a change in title name. In Mugaon village alone, 67 tribal families claim they lost 330 acres of land and did not receive any compensation. After being forcibly evicted, they realised that they no longer owned the land because the new land records did not show their names!

According to a letter written by the district collector, Pune, dated 4/7/2001, it is suggested that adivasi land cannot be acquired or transferred without consent from the competent authority. Likewise, forest land that has been affected by development projects like dams cannot be acquired without permission from the competent authority. Type-2 land or government land such as adivasi land, watani land, tenancy land, devasthan land, sites reserved for rehabilitation etc also cannot be acquired without permission from the competent authority. Most of these types of land would have been acquired for the Lavasa project with permission from the district collector, who is the competent authority under the MRTP Act, 1966. Lavasa Corporation has also been given approximately 1,042 acres of government land at a nominal price.

According to local residents, the agent who did most of the land deals, especially tribal lands in the villages of Dhamanhol and Mugaon, promised people jobs in the company and construction of a temple and other facilities in the village if people parted with their lands. In the few cases where villagers filed complaints against Lavasa Corporation, the government conducted an inquiry. Some cases were resolved, but others in Dhaman Ohal, Gadle, Sakhari and Mugaon carry on.

The role of the talathi and tehsildar is extremely important in all these cases of land transfer. Most people whose lands have been transferred to the company’s name have been struggling to access current land records. Filing appeals with the authorities has so far been unsatisfactory.

Ceiling land transfer to the company

According to the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961, Article 27, ceiling land should be distributed among the landless, poor and socially deprived. However, the revenue department (letter dated 5/3/2005), Pune, believes otherwise. The district collector argued in favour of the company, allotting it excess ceiling lands amounting to 373 hectares. In 1976, in the villages of Mauje Gadale, Dhamanohol, Mugaon and Wadiwale, a total of 372 hectares was found in excess of the ceiling but was not taken under possession, under the Land Ceiling Act, Section 21 (4). In 2005, the then district collector suggested that if the land were given to the company instead, the government would benefit.

Moreover, land measuring 609 hectares that had been given to landless farmers for agriculture under the Maharashtra Land Ceiling Act (especially those belonging to katkari tribe families) was taken back and transferred to Lavasa.

Water resource privatisation

According to a letter written by the district collector, Pune, (dated 4/7/2001), the company is barred from claiming any rights over and disturbance to water resources such as streams, ponds, dams, freshwater sources, natural springs, etc. Nor can the company claim rights to civic amenities like traditional riparian rights, public roads, lanes, roadways, etc. However, Lavasa Corporation is allowed to build eight weirs (walls that control the flow of water) in the backwaters of Warasgaon dam for commercial use -- water sports, water villas, tanks, and water parks.

The company’s plans include the building of 10 captive mini dams which will definitely affect local riparian rights. After Lavasa built the Daswe check dam, villagers and their cattle have been denied access to water. Heavy security has been put in place by the company to safeguard its territory. In Mugaon village, the katkari hamlet has been suffering due to lack of fresh water. The company denies them access to the reservoir, the catchment of which will supply water to the project, saying that they should either relocate or face the consequences. The waterbody that is supposed to be a community resource has become the company’s private resource, strengthening its power to harass poor villagers and force them to live without basic resources.

In the few years since the Daswe check dam was constructed, there has been no water downstream during summer, whereas, because of the dam, Lavasa does not suffer. This means that the natural flow and storage of water in the valley has been greatly affected by massive construction and infrastructural changes.

Transfer of Maharashtra Krishna Valley Development Corporation land

In the lease agreement dated August 28, 2002, the Khadakvasla Irrigation Division allotted 141.15 hectares of land belonging to the Maharashtra Krishna Valley Development Corporation, on lease for 30 years from September 2, 2002, to the Lake City Corporation. A PIL against this move is ongoing in the Bombay High Court since November 15, 2006. According to the PIL, there are several irregularities in the way the government has dealt with Lavasa Corporation. According to the rules, excess land under the Maharashtra Krishna Valley Development Corporation can only be used and transferred for a ‘public purpose’, not for private use. The PIL challenges the transfer of MKVDC land to Lavasa Corporation, alleging political favouritism.

It is worth noting that the land that MKVDC transferred to Lake City Corporation belonged to villagers displaced during construction of Warasgaon dam in the 1970s. Since then, the villagers have made several appeals with the irrigation department to hand the remaining unutilised land back to the families. The department paid no heed to the requests; instead, the land was given to the company within three days of signing the MoU.

The company has also got permission from the Khadakvasla Irrigation Division to use water from Warasgaon and Temghar dams. The Khadakvasla reservoir, on the Mose river, was built to meet the water requirements of Pune city. It has a capacity of around 11.5 TMC, almost equalling Pune’s annual needs.

Pune is a fast-growing city, and the problem of water scarcity is a real one. Allowing huge amounts of water to be used by Lavasa Corporation, not only for drinking purposes but for water sports, hotels etc, will worsen the water crisis. No impact assessment has been carried out.

Environmental violations

According to Lavasa’s environment impact assessment (EIA) report, prepared by NEERI, 50% of the area is covered by vegetation, 23.39% by forests. Construction of the huge lake town, and a population of 200,000 during peak time, will undeniably impact the area’s flora and fauna. The report states that 43% of flora in the study area consists of medicinal plants. It does not feature any impact mitigation or preservation plan.

Mulshi and Velha valley, where the project is coming up, experiences some of the heaviest rainfall in the world. The area is lush with tropical vegetation and it is imperative that, considering the fragility of the Western Ghats, it be left undisturbed. Construction activity is drastically altering the natural landscape, opening the valley and entire ghats region up to environment degradation. This will have an impact on rainfall patterns in the long run.

A document by the Maharashtra government, dated April 12, 2004, permits Lavasa a ‘stone-crushing’ unit under the ‘orange’ category of small-scale industries, for which the hills have been cut. Another letter from the revenue collector, dated July 15, 2003, allows the company to quarry for Daswe. These permissions from the governing authorities, with no strict compliance norms and no studies on the impact of these activities on the fragile biodiversity of the hills, will cause enormous damage to the Sahyadri hills. The continuous crushing, quarrying and ferrying of raw materials in the project area has already had an impact on the local environment.

The recent show cause notice issued by the central Ministry of Environment and Forests (MoEF) to the company clearly shows that the company has flouted the environmental laws. The project was supposed to take environment clearance from the MoEF, under the Environment Impact Assessment Notification of 1994. But it never approached the ministry. Rather, the project took environmental clearance from the environment department of the state government which is not competent to do so.

Parts of the project are at an altitude of over 1,000 metres; roads pass through forest areas; about 10 dams are to be constructed; the project is for more than 1,000 persons; and investments cross Rs 50 crore. All these factors call for environmental clearance under the 1994 notification. The company sought environmental clearance in 2004 when the aforesaid notification was binding on any project. Instead, environmental clearance was granted by the environment department of Maharashtra, and within record time of around two months, on 18-3-2004, vide letter No Env/Cle/765/CR.105/TC. In the letter, the environment department does not mention that clearance has been issued under EIA Notification 1994. It can also be construed from this letter that the department did not issue the specific environment clearance prescribed under EIA Notification 1994 but a general clearance letter identical to a routine NOC issued by the department.

On September 4, 2005, the central MoEF wrote to the government of Maharashtra saying that construction at Lavasa was being carried out without the mandatory environmental clearance required under the Environment Impact Assessment Notification of 1994. Notwithstanding these instructions, various authorities in the Government of Maharashtra shut their eyes and took no action on the matter. The company is in violation of the Environment Protection Act, 1986.

Incidentally, environment clearance was issued for development of a 2,000-hectare township hill station. However, the company is developing more than 25,000 hectares -- a clear violation of conditions imposed by the environmental clearance letter.

Lavasa, a fast-track project

During 2002-03, 31 no-objection certificates (NOCs) were granted to Lake City Corporation (later changed to Lavasa Corporation) by various departments such as the MKVDC, Konkan Irrigation Department, Maharashtra Tourism Development Corporation and Maharashtra Pollution Control Board. These were for construction of mini-dams and impounding of water for commercial use, tree felling, quarrying, stone crushing and purchasing land for industrial use.

Some of the MoUs and clearances granted to Lake City/Lavasa Corporation in 2002-03 from various departments of the Maharashtra government are:

  • May 30, 2002: NOC (No BO/TB/RO (HQ) Pune-163/444) for development, from the Maharashtra Pollution Control Board
  • June 5, 2002: MoU between Lake City Corporation and Maharashtra Tourism Development Corporation
  • July 4, 2002: Maharashtra Krishna Valley Development Corporation’s (MKVDC) NOC (No TPD/ADM2/RBR/2543) to construct DTR
  • July 16, 2002: MKVDC’s permission (No KID/ADM/4891/2002) to construct dams and store water
  • August 9, 2002: Irrigation department, Konkan region, NOC (No 89.01/(18/2002)/U-5/3074) to construct dams and store water
  • September 23, 2002: 30-year lease agreement between MKVDC and Lake City Corporation for construction of mini-dams in the submergence area of Warasgaon dam and impounding of water for commercial use
  • December 11, 2002: Permission (No DI/Land Permission/255/2002 C-17386) from the industries department to buy land for industrial purposes
  • December 13, 2002: NOC from the environment department (No ENV (NOC) 2000/765/CR.105/TC.1) for development
  • January 2, 2003: Forest department’s tree-felling permission (No B/M/907/2002-03) for DTR/RFO, Khanapur
  • January 10, 2003: Tree-felling permission from the forest department (No 576/2002-03) for DTR/RFO, Paud
  • March 12, 2003: Land-use certificate (No DDTP-Pune/Final RP Pune/Zone Cert/822) from the town planning department
  • April 10, 2003: MKVDC permission (No PB-4/KID/91/203) to carry out preliminary works
  • July 15, 2003: Quarrying permission (No Mining/SR/391/2003) from the revenue collector for Daswe
  • December 20, 2003: Irrigation department (Konkan region) agreement to construct dams and store water
  • March 18, 2004: Environmental clearance (No ENV/cle/765/CR-105/TC.1) for project

So, who is responsible for the controversy that surrounds Lavasa? The state knowingly ignored all attempts to assess the project before clearing it. It is the responsibility of the state and its agencies to make corporations abide by the rules of the land. In this case, Lavasa flouted several regulations, thanks to state support given in the form of various clearances. Over the past five years, attempts by environmentalists, social activists and villagers to raise the issue at all levels of government have failed. It’s time the state government made its position clear. As Plato rightly said: “The community suffers nothing very terrible if its cobblers are bad and become degenerate and pretentious; but if the guardians of its laws and constitution, who alone have the opportunity to bring it good government and prosperity, become a mere sham, then clearly it is completely ruined.”

To read the stand of the Lavasa developers, read this interaction with Ajit Gulabchand, Chairman and Managing Director, Hindustan Construction Company, at

1 Interim Report of the People’s Commission of Inquiry on Displacement in Sahyadri Region, April 20, 2009
2 Technical Analysis Report of EIA of Lavasa Corporation-Lake Town at Moshe valley, Pune district, 2009
3 Committee on Land Reform, Ministry of Rural Development, GOI, Visit to Maharashtra Report, April 3, 2008
4 Letter written by the district collector, Pune, to the revenue department, Pune, dated 9/1/2005
5 Environment clearance letter No Env Cl/765/CR105/TC.1, environment department, government of Maharashtra, March 18, 2004
6 Forest department’s tree-felling permission (No B/M/907/2002-03) for DTR/RFO, Khanapur, January 2, 2003
7 30-year lease agreement between MKVDC and Lake City Corporation for construction of mini-dams in the submergence area of Warasgaon dam, and impounding of water for commercial use, September 23, 2002
8 Urban development department under notification No TPS-1800/1004/ CR-106/2000/UD-13, dated 1/6/2001
9 Letter written by the district collector, Pune, dated 4/7/2001

(Rifat Mumtaz works on developmental issues with a focus on land rights and the environment. She is with NCAS, Pune)

Source - Infochange News & Features, January 2011 -
How government agencies fast-tracked Lavasa | Features | Environment

Sunday, August 24, 2014

Scrapping the RTO setup, and Protest by RTO Agents - An interesting Saga in the Making

This Saga been waiting for years to happen, and now its started. 
Finally someone realised that its time to Scrap or amend the Motor Vehicles Act 1988. The Union Minister makes a statement, and the protectorates under the MV Act start running for cover. This Act has spawned innumerable Corrupt Officers and their Handmaids/Manservant - Agents, who together run a parallel RTO setup in the country, though not in unison, but on similar lines.

Remember the KamalHasssan starring Movie "Indian" in Tamil, or "Hindustani" in Hindi??

The story runs on two tracks. One is that of Chandra Bose alias Chandru (Kamal Haasan), a small-time broker outside the RTO (Regional Transport Office) who gets people to high positions by accepting bribes. He is supported in this work by Subbiah (Goundamani). Paneerselvam (Senthil) plays an officer in the RTO who has conflicts with Subbiah. Aishwarya (Manisha Koirala) and Chandru are in love with each other. Sapna (Urmila Matondkar) is the daughter of Gandhikrishna, an officer in RTO. Her father promises to get Chandru a job of being a brake inspector in the RTO, if he runs errands for them. He agrees to work for them, and soon he becomes a brake inspector.
The other track is of Senapathy alias Indian (Kamal Haasan), a 70-year-old man who kills top government officials (like Commissioners of Corporation etc.) in an extreme attempt to weed out corruption from Indian soil.
Thats about the EXTANT of corruption in the Regional Transport (Authority) Offices in the Indian Soil.

Now for the news....
After axing the Planning Commission of India, it seems that the Narendra Modi government will soon scrap the Regional Transport Offices (RTO) and replace them with an alternative system in the coming months. 
Union Minister of road transport and highways Nitin Gadkari while delivering the JS Karandikar memorial lecture in Pune said that the central government was in the process of bringing in a law to scrap the outdated Regional Transport Offices (RTO). He said, "There are some outdated laws and systems which need to be scrapped. Systems like RTOs will soon be abolished; there is no need for RTOs. We have prepared a law which will be introduced soon to replace RTOs." 
At RTOs, corruption has become a way of life Corruption has become an everyday phenomenon in RTOs and this has led to the word 'bribe' being replaced with ‘service charge,' and further encouraging the back-door policies. 
The future plan - alternative for RTOs Revealing more about the future plan of scrapping RTOs, Gadkari said that a new system will be employed with the help of the traffic models in the UK and other countries to nab the traffic violators. 
Not only the RTO offices even the RTO officials create a lot of problems for the public. In January a non -government organization (NGO) based in Thane had alleged that at the border check posts, the number of heavy carriage vehicles are underreported which in turn caused multi-crore losses to the state exchequer. 
Unless the middlemen (the agents) are eliminated and more people are appointed, corruption cannot be weeded out from these RTOs. Thus, it seems this plan to scrap these Regional Transport Offices will be in country's favour. 

The Association of RTO Agents, a body with 300 members who offer their services to Mumbaikars inside and outside the Mumbai RTO office in Tardeo, has decided to protest if such a move comes into being.

Ilyas, the head of the RTO Association, said, "We serve Mumbaikars charging a nominal sum. We make sure people get relevant documents on time. If the Central government is planning to scrap RTOs, where will we go and what will happen to our business and our families? We will definitely protest against this decision, if it gets implemented."

Agents in Mumbai countered Gadkari's argument of outdated computerisation, saying it is nothing but a strategy to make money for RTO officials. 

At the Tardeo RTO office, Ramesh Patel has been running pillar to post to renew his licence. "For the last two months, I have been trying to renew my driving licence. You can see this receipt given to me two months back. But till today, no RTO official is willing to give me the renewed licence or even not ready to give me a new date. I wasted my entire day today, but no one has an answer."

When asked if he had gone through any agent, he replied, "Why should I? These agents will take a good amount from me for just renewing my old driving licence. Why are these RTO officials here?"

Union Road Transport and Highways Minister Nitin Gadkari on said that the government will introduce the Motor Vehicles Amendment Bill in the next Parliament session.

“The Bill, being prepared in sync with practises in six advanced nations – USA, Canada, Singapore, Japan, Germany and the UK will be introduced in the next session of Parliament. This will overhaul the sector bringing to an end the corrupt practises in RTOs,” Gadkari said.

The Act has become obsolete in the present context and needs overhaul, he said, adding the new law is designed in a way that will provide permits online besides slapping fines on violators of traffic rules on the basis of recordings in camera.

“The new law will provide a corruption free and transparent system with a proper record of driving licenses. Data would be utilised in e-governance. International norms are there for vehicle design, pollution control on the basis of prevalent laws in six advanced nations – US, Canada, Singapore, Japan, Germany and UK, I have firm faith that the new law will end corrupt practises in RTOs through e-governance,” he said.

Friday, August 22, 2014

Forensic Accounting - A Career Option

Forensic Accounting Beginnings

The term "forensic accounting" was first used in 1946 by Maurice E. Peloubet, a partner in a New York accounting firm. He wrote about the use of accounting in courtroom proceedings as part of testimony, but acknowledged that investigation was becoming more prevalent for accountants due to the increase in government agencies that regulated financial practices. Journals began to publish articles about the connections between law and accounting. In 1953, a New York lawyer named Max Lourie claimed that he invented the phrase "forensic accounting," although Peloubet wrote about it first. Lourie stressed the need for forensic accounting literature and training.

Forensic accounting service has been the growth industry in the 1990s. Called the private eyes of the corporate culture, forensic accountants must have an investigative mentality. A normal accountant acts like a watchdog, but a forensic accountant must be trained to act like a bloodhound. They look behind the facade and do not accept financial records at their face value.

Forensic Accounting

"Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.

“Forensic accounting” is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. Forensic accounting is the specialty practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation.

Forensic accounting is the application of accounting principles, theories, and disciplines to facts or hypotheses at issue in a legal dispute, and encompasses every branch of accounting knowledge.

There are two major aspects within forensic accounting practice -
1. Litigation support services that represent the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.
2. Investigative services that make use of the forensic accountant’s skills, which may or may not lead to courtroom testimony. It is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant’s work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases. An important criterion is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. A forensic accountant must be open to examining all alternatives, scrutinising the fine details and at the same time seeing the big picture.
Forensic accounting can involve the application of special skills in accounting, auditing, finance, quantitative methods, certain areas of the law and research, and investigative skills to collect, analyze, and evaluate evidential matter and to interpret and communicate findings.

Application of Principles of Forensic Accounting to an organisation
• One premise of forensic accounting is to look for indications of abnormal occurrences in the accounting and financial reporting systems.
• Having a forensic accounting orientation to designing the accounting processes will provide an opportunity to design in steps for verification of key assumptions and data while also providing the opportunity for identifying possible fraud.
• The related area of forensic auditing can help in reducing the transaction processing risk by helping to perform audit type procedures on a routine schedule.
• Timely performance of audit type procedures can help management and internal audit function be more effective by helping to identify and resolve potential internal control breakdowns quickly and thoroughly. It can reduce external audit costs by regularly completing testing procedures that are part of the annual certified audit.
• In instances where information processing systems cover a broad array of businesses and/or locations establishing routine or continuous monitoring of all transaction processing systems, it can be considered as a type of forensic accounting.

Some of the areas that the principles and activities of forensic accounting can apply in an organization include:
• Reviewing operational transactions for compliance with standard operating procedures and approvals.
• Completing analysis of financial disbursement transactions in the accounting system to determine if they are normal or outside company policy and, thus, possibly fraudulent.
• Reviewing general ledger and financial reporting system transactions for possible improper classification or manipulation of data or accounts and its impact on the resulting financial reports.
• Examining warranty claims or returns for patterns of fraud or abuse.
• Helping estimate the economic damages and the resulting insurance claims that stem from calamities such as fires or other natural disasters.
• Evaluating or confirming business valuation in mergers and acquisitions.

 Forensic Accountants - The Bloodhounds of Book-keeping

 Forensic accounting requires the most important quality a person can possess: the ability to think.
There is no book that tells you how to do a forensic investigation. It is about solving a puzzle or peeling an onion. It takes creativity.
All of the larger accounting firms, as well as many medium-sized and boutique firms, have specialist forensic accounting departments. Within these groups, there may be further sub-specializations: some forensic accountants may, for example, just specialize in insurance claims, personal injury claims, fraud, construction, or royalty audits.

Forensic accountants may be involved in recovering proceeds of crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering. In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002. In India there is a separate breed of forensic accountants called Certified Forensic Accounting Professionals. Some forensic accountants are also Certified Fraud Examiners, Certified Public Accountants, or Chartered Accountants.

Forensic accountants utilize an understanding of business information and financial reporting systems, accounting and auditing standards and procedures, evidence gathering and investigative techniques, and litigation processes and procedures to perform their work. Forensic accountants are also increasingly playing more proactive risk reduction roles by designing and performing extended procedures as part of the statutory audit, acting as advisers to audit committees, fraud deterrence engagements, and assisting in investment analyst research.

The forensic Accountant is a bloodhound of Bookkeeping. These bloodhounds sniff out fraud and criminal transactions in bank, corporate entity or from any other organization’s financial records. They hound for the conclusive evidences. External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. External auditors look at the numbers but the forensic auditors look beyond the numbers.

Forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud.

In addition to the specialized knowledge about the techniques of finding out the frauds one needs patience and analytical mindset. One has to look beyond the numbers and grasp the substance of the situation. It is basically the work of the intelligent accountants. He needs to question seemingly benign document and look for inconsistencies. He searches for evidence of criminal conduct or assists in the determination of, or rebuttal of, claimed damages.

Who needs Forensic Accountants

Forensic accountants are more than just number crunchers who happen to work on criminal or civil disputes -- these accountants possess additional skills. They must conduct investigations, know how to use a variety of computer programs and communicate well. Some forensic accountants specialize in specific industries that are susceptible to fraud, such as insurance or banking, and learn the business practices associated with those fields.
Forensic Accountants work in most major accounting firms and are needed for investigating mergers and acquisitions, and in tax investigations, economic crime investigations, all kinds of civil litigation support, specialized audits, and even in terrorist investigations.
Forensic Accountants work throughout the business world, in public accounting, corporations, and in all branches of government.

Forensic Accounting in India

Forensic accounting is unique in that it combines accounting with investigation. These bloodhounds— as opposed to the watchdogs that are auditors— attempt to sniff out fraudulent transactions from the financial records of banks and companies.
Sherlock Holmes was probably the most famous practitioner But Kautilya was the first economist who openly recognized the need of the forensic accountants. He mentioned forty ways of embezzlement centuries ago.

The Opportunities for the Forensic Accountants are growing at the rapid speed. Collapse of Enron and World Trade Centre twin towers have blessed the American Forensic Accountants with the opportunities.
Forensic accounting is still nascent in India. However, the nature of fraud in India has undergone a change. Reserve Bank of India has made forensic accounting audit compulsory for banks in India. However banks are hesitant in approaching certified fraud examiners, and are mostly dependent on their internal auditors.
In India the formation of Serious Fraud Investigation Office is the landmark creation for the Forensic Accountants. Growing cyber crimes, failure of regulators to track the security scams, series of co-operative banks bursting - all are pinpointing the need of forensic accounting, irrespective of whether we understand the need or not.

In the Indian context the Forensic Accountants are the most required in the wake of the growing frauds. After the Satyam scam, forensic auditors are much in demand as many companies want to understand what could be the initial warning signals of a Satyam kind of fraud in other Indian companies. Even the government’s Serious Fraud Investigation Office (SFIO) has sought the help of forensic accountants to get to the root of the financial fraud at Satyam.

How to become a Forensic Accountant

Commerce graduates can easily take up forensic accounting as a career. You need to become a chartered accountant and then specialise in forensic accounting. The forensic accountants prior audit and accounting experience will be of tremendous assistance. But ultimately, it is only through working with experienced forensic accountants on various cases that one can learn the skills necessary to become a capable forensic accountant.
There are several organizations that provide training and additional certification for forensic accountants. Each organization requires that its members possess varying degrees of education and experience, and they must sit for additional exams. These certifications show that a forensic accountant has training and experience beyond that of a standard accountant.

 Some places where one can study and/or obtain certifications as Forensic Accounting Professional are:
• Institute of Chartered Accountants of India, New Delhi
• Association of certified fraud examiners (ACFE), USA
• Indiana University, Bloomington, USA
• British Columbia Institute of Technology, Canada
• Charles Stuart University, New South Wales, Australia

Some forensic accountants take courses in:
• Sociology
• Psychology
• Law enforcement
• Criminal law
• Business law
• Business and finance
• Information systems
• Communication


Forensic accountants are trained to detect evidence of frauds. Forensic accounting is about more than legal matters and financial numbers. There is an acute shortage of forensic accounting skill sets in India. A huge demand for forensic accountants has come up in the wake of the requirements from the investors after the Satyam fiasco. There are only about 400 forensic accountants in the country though India loses approximately $40 billion because of frauds.

Author - Rajkumar S. Adukia
Senior Partner, Adukia & Associates, Chartered Accountants
Mumbai 400 058

Source - Forensic Accounting -

Wednesday, August 20, 2014

Competition law violations get personal | Business Standard

Competition law violations get personal
Directors and senior officers could be now fined for the anti-competitive conduct of their companies
Avirup Bose

The Competition Commission of India (CCI) has upped the ante on competition law compliance by Indian companies. Now a director or a senior officer incharge of the affairs of a company may be held personally liable for anti-competitive conduct of the company. The company may be penalised separately for such anti-competitive conduct.

The CCI in a recent order against Bengal Chemist and Druggist Association (BCDA) not only penalised the association for its anti-competitive conduct but additionally held 78 of its senior officers to be personally liable for taking/endorsing such anti-competitive conduct of the BCDA. The aggregate fine imposed on the BCDA and its officers was approximately Rs 18.38 crore (out of which the amount of fine imposed upon the BCDA was a mere Rs 13.24 lakh). The BCDA case marks the first instance when the infringement of competition law by a trade association triggered action against its senior officers.

Under the Competition Act, the term "company" includes a partnership firm or a trade association. Thus, the provisions of the Competition Act under which the BCDA officers were held personally liable are equally applicable to directors and senior officers of a company or the managing partner of a firm. Therefore, from now on directors and senior officers of a company are equally vulnerable to such liability.

At the core of an anti-competitive conduct by a company is a decision of a director and/or its corporate officers to pursue such an anti-competitive conduct. A company cannot remain in compliance with rules of competition law if its corporate officers either willingly or unknowingly adopt corporate practices that are anti-competitive in nature or willingly ignore their commitment towards competition law compliance programmes. A survey conducted by Deloitte in 2007 revealed that one of the top-most incentives for senior management to comply with competition rules are sanctions that operate at the individual, as opposed to corporate, level. Section 48 of the Competition Act provides such an incentive by rendering directors and other officers who are in charge of the affairs of the company to be personally liable, where their actions result in the company falling foul of the rules of Indian competition law.

In the BCDA case, the CCI found, among other things, that the trade association engaged in issuing anti-competitive circulars directing its member-retailers not to give any discount to consumers and to sell drugs only at their MRP, thereby indirectly determining the sale prices of drugs and controlling or limiting the supply of such drugs in the market. The CCI found such practices of the BCDA to be anti-competitive in nature and violative of the provisions of the Competition Act. The CCI also identified: (a) senior officers of the BCDA who were directly responsible for the BCDA to adopt such anti-competitive practices; and (b) members of the BCDA's executive committee who ratified such decisions. The senior officers and the executive committee members were penalised at the rate of 10 and seven per cent of their annual salary/receipts for the preceding three years, respectively.

The law does not expect the directors or the senior management of a company to be experts in competition law. However, they should be aware of the basic rules, which will allow them to manage and avoid the risk of a competition law infringement.

It is pertinent to note that since offences under the Competition Act are not criminal in nature, the CCI may hold directors personally liable for offences committed by their corporations based solely on circumstantial or indirect evidence. There is, however, a silver lining. The Competition Act provides that directors and senior officers may avoid liability through a "due diligence defence". This would require them to demonstrate that an anti-competitive act occurred despite there being an appropriate competition law compliance programme in place, which consisted of proper controls and systems, or without their knowledge. The due diligence defence relies more on the process that the directors or senior officers followed than on the result. Therefore, if the directors "inform" themselves before making a decision - for example, if they approve the merger of the company with a competitor after due discussions, asking the appropriate questions and seeking advice from experts - they may be able to use the due diligence defence to avoid personal liability, even if their decision produces results that contravene Indian competition law. The CCI would usually not second-guess the business judgement of a company's directors where they have followed the proper procedure in reaching their business decisions.

In the BCDA decision, the CCI did not have an opportunity to address the issue of personal liability of an independent director for the company's anti-competitive conduct, since the decision dealt with the anti-competitive conduct of a trade association that typically does not have any independent board members. In my opinion, executive directors are more likely to be held liable for anti-competitive acts of a company than independent directors because they usually have decision-making responsibilities and a supervisory role over the company's business on an ongoing basis. However, even an independent director may be held liable if s/he knowingly endorses an anti-competitive conduct of the company.