The major chunk of Indian textile and apparel industry follows all kinds of compliance norms and works ethically. However, from time to time, some cases keep making headlines, shaming the industry. Just a few days back, The Directorate of Revenue Intelligence (DRI) arrested a person – Zahid Ali, from Mumbai, for fraudulently claiming export incentives of Rs. 52 crore and during the investigation, it came to light that the crime was related to the same group that was arrested in March. The syndicate procures cheap carpets and garments from different people and shows purchase through fake bills by the overvaluation of the same; to get more drawbacks, the caucus was procuring cheap garments and carpets from India by showing inflated purchase bills to get duty drawback benefits.
In another case also from Mumbai, the Central Bureau of Investigation (CBI) was investigating a Rs. 65 crore bank fraud allegedly committed by a textile company (name has not been disclosed) that took credits from a nationalised bank but defaulted on repayments. The firm had taken loans from the bank between 2011 and 2012. The loan amount later turned into non-productive assets (NPA). This matter was heard at Mumbai Debts Recovery Tribunal, and the forensic audit report accused the defaulter firm of irregularities like misappropriation of funds or diversion of funds via several shell firms into real estate firms of those known to the company’s officials. Such cases of diversion and misappropriation of the loan are also another popular way of scam.
Apparel Resources identified at least two dozen such companies (spread across India including yarn giants to apparel exports and domestic brands) who are involved in frauds and majority of them have big-scale operations. And their tricks to make ‘easy money’ were different also. Their modus operandi of making unethical money includes inflated purchase bills to get duty drawback benefits (a decades-old practice in India), claiming false GST return, and malpractices with banks regarding loans to get more subsidies over invoicing of goods and showing new machines while buying.
Black money is another key area of concern. One may recall how names like Yash Birla, Chairman of Yash Birla Group and Ritika Sharma, Promoter of Blessing Exports, Noida, came up in the black money scam. It is noteworthy that the issue is not confined to medium level companies, as it extends to even public limited companies that have things in the public domain and are supposed to have enough transparency and system in place. To name a few, SEL Manufacturing Company Ltd., Ludhiana, and Neo Corporation International Ltd. (NCIL) – both have come under the radar of CBI in the last few years.
Two months back, three owners of SEL Textiles Ltd., Ludhiana, had been booked by the CBI for allegedly cheating a consortium of banks, worth Rs. 1,530 crore, while this matter is more than 6 years old. Just a month back, Punjab National Bank (PNB) informed in a regulatory filing that a Rs. 1,203 crore borrow fraud by Ahmedabad-based textile and yarn giant Sintex Industries Ltd. had been detected.
Such cases are not limited only to the Indian vicinity; in August this year, the Indian Government froze the account of a leading textile company with a turnover of more than Rs. 2,000 crore per annum. The step was taken on the request of the Saudi Arabia Government. Though the media hadn’t been told about the fault of the company or why the account was frozen, but it was hinted that such exporters might be involved in unethical practices of Hawala (Hawala works by transferring money without actually moving it).
Before this, around 67 accounts of exporters (from various trades) were also frozen. The Enforcement Directorate (EB) has been investigating these accounts.
Few exporters (from various trades) are also involved in frauds related to GST. Just a month back, it was reported that 1,377 exporters claimed Rs. 1,875 crore IGST refund ‘untraceable’.
Keep aside the Government institutions, cases of corruption or such malpractices in apparel trade are prevalent at various private organisations too. Corruption at buying offices has been a ground reality for many years. Though it has now reduced owing to more professionalism and maximum use of technology, can Indian exporters forget that years back, Adil Raza and nine others were asked to step down at the JCPenney Sourcing office in Noida on corruption charges? While at the retail side, adidas filed a criminal complaint against the former chief of its India operations and another senior employee for alleged financial and commercial irregularities.
The radius of such practices is even beyond private and public limited companies, export or buying houses, etc. Even the Ministry of Textiles’ owned company National Textiles Corporation (NTC), its officers, and Export Promotion Council (EPC) are also involved in such cases. In 2015, NTC faced an FIR registered against it in an alleged Rs. 1,700 crore land deal scam, by the CBI, while after a year, Ashutosh Kumar Singh, in-charge DGM of Handicrafts and Handloom Export Corporation of India Ltd., Ministry of Textiles (MoT), was allegedly caught red-handed by the CBI while trying to give bribe to a Delhi Police inspector. The CBI had also seized two Mercedes cars with red beacons from him. Even the Comptroller and Auditor General (CAG) also highlighted some of the irregularities in the accounts of the Apparel Export Promotion Council (AEPC).
The above mentioned are just a few reported cases; there can be many more. The saddest aspect of such scams is that no big fish has ever been caught.
At the same time, it is also pertinent to mention here that whatever company is involved in such practices doesn’t spoil just its own business, but also adversely impact various other stakeholders like its staff, suppliers, buyers and in fact everyone related to the business.
Strict regulations and monitoring processes need to be implemented. Such incidences tarnish the reputation of the industry and need a strong rebuke. The current Union Government has a comparatively good track record and image in this regard. Quick resolution in a time-bound manner, strict monitoring of doubtful activities and such cases, overall simple policies and no people-to-people interaction so as to cut down touch-points for corruption are ways of doing things. Now that many processes are being done digitally, one can hope that such news will be rare in future. Despite all challenges, future is bright for the Indian textile and apparel industry. So, to avoid unethical practices, every stakeholder also has to be more aware and responsible. There is no other way!