US and European case studies tend to dominate discussions of accounting scandals. However, emerging markets have seen their share of accounting scandals, often exacerbated by weak governance structures and inadequate governance structures.
Although China has dominated accounting fraud in emerging markets, India has also witnessed a number of significant scandals that profoundly impacted its corporate landscape and economy. In addition to the usual misdoings – fraudulent reporting and corporate governance failure – misappropriation features prominently in the Indian accounting scandals. Siphoning of funds from bank loans, in particular, has been a common feature of Indian corporate malfeasance.
Below follows a list of the most significant accounting scandals to have emerged in India in recent years. We briefly highlight the companies involved, the nature of the fraud, and the consequences faced.
Yes Bank
Founded by Rana and Ashok Kapoor in 2003, Yes Bank grew rapidly to become one of India’s largest private-sector banks. Rapid growth reflected aggressive lending practices that prioritized growth over risk management. Yes Bank extended large loans to several corporations without adequate due diligence or collateral.
Many of these loans turned sour, leading to a sharp increase in non-performing assets (NPAs). These are loans that borrowers have failed to repay for an extended period.
As early as 2017, the Reserve Bank of India began to identify discrepancies in Yes Bank’s reported NPAs.
The RBI subsequently conducted audits and assessments that revealed a significant divergence between Yes Bank’s claims regarding its asset quality and what the RBI found during its evaluations. This discrepancy raised red flags about the bank’s financial reporting practices.
In August 2018, the RBI refused to extend Rana Kapoor’s tenure as CEO due to concerns over governance and asset quality management. A new CEO was appointed in January 2019 but the damage was already done. Each attempt by Yes Bank to raise capital through share sales was met with increasing skepticism from investors as more negative information about its balance sheet came to light. Withdrawals of deposits began to escalate as fears for the bank’s solvency grew.
In March 2020, it was reported that Yes Bank’s gross NPAs had surged, indicating severe financial distress. As withdrawals surged, the RBI intervened by imposing a moratorium on Yes Bank for 30 days. This action was taken after it became clear that, without immediate intervention, Yes Bank could face insolvency due to its inability to meet withdrawal demands. The RBI hammered out a restructuring plan involving a bailout by State Bank of India and other lenders.
Yes Bank’s downfall was ultimately attributed to poor lending practices combined with significant accounting irregularities. The bank had overstated asset quality by hiding NPAs via improper asset classification and fraudulent non-disclosure of bad loans. By underreporting its NPAs, the bank created a false impression of financial health and stability.
Following the scandal, legal actions were initiated against key figures involved in the mismanagement of Yes Bank, including its founder Rana Kapoor. Kapoor faced allegations of money laundering and fraud linked to various transactions involving corporate borrowers. Legal proceedings are ongoing. The fallout from the scandal affected not only depositors but also shareholders and employees of Yes Bank.
DHFL
In late 2018 and early 2019, media reports began to highlight discrepancies in Dewan Housing Finance Limited’s (DHFL) loan disbursement practices. The company was accused of fraudulent activities involving misappropriation of funds and falsification of accounts to hide losses.
In response to these allegations, a special audit was commissioned by DHFL, conducted by KPMG for the period from 2016 to 2019. This audit aimed to investigate the financial practices of DHFL and assess the legitimacy of its loan disbursements. The findings indicated a systematic manipulation of financial records.
The audit revealed that DHFL had allegedly disbursed over ₹29,000 crore (approximately $3.5 billion) to 66 entities closely linked to the company’s founders, the Wadhawan brothers. These loans were characterized by a lack of appraisal processes, inadequate scrutiny, and insufficient collateral backing. Furthermore, investigators uncovered a network of approximately 87 shell companies allegedly created by the Wadhawan brothers, which existed solely on paper with no legitimate business operations. These shell companies were allegedly used to siphon off funds obtained through fraudulent loans.
Further complicating the deceit, the audit discovered that DHFL had created a fictitious “Bandra Branch” within its software systems. This non-existent branch was utilized to channel funds towards the aforementioned shell companies, highlighting an elaborate scheme designed to obscure the true nature of financial transactions.
Not to be outdone, the Central Bureau of Investigation (CBI) also alleged that DHFL manipulated government housing schemes by facilitating loans to fake borrower accounts under the schemes. These loans amounted to over ₹14,000 crore.
Multiple legal actions ensued against DHFL’s management and promoters. The CBI filed a charge sheet against 75 entities, including both Kapil and Dheeraj Wadhawan, alleging that they conspired to misrepresent facts, committed criminal breach of trust, and abused public funds to cheat a consortium of lenders out of approximately ₹34,615 crore. Legal proceedings are ongoing.
Jet Airways
In September 2023 India’s Enforcement Directorate (ED) arrested Naresh Goyal, the founder of Jet Airways, and several colleagues in connection with an alleged fraud. According to the ED, Goyal and others allegedly misappropriated public funds obtained as business loans for personal purposes.
The arrest followed a lengthy investigation following the collapse of Jet Airways in 2019. It appears that the prosecution’s strongest evidence relates to alleged misappropriation involving a ₹538 crore loan from Canara Bank (approximately $90 million at the time of the alleged fraud). The enforcement agency accuses Jet Airways of manipulating financial statements to hide losses and debts, and using various fraudulent financial practices to siphon funds from the company. The ED estimates that the total amount diverted from loans sanctioned to Jet Airways could be as much as ₹5,716.34 crore.
Methods allegedly used for siphoning funds involved:
- Payment of irrational and inflated commissions exceeding ₹1,410 crore to general sales agents (GSAs), which did not contribute meaningfully to Jet Airways’ revenue. These GSAs were allegedly controlled by the Goyal family;
- Use of corporate discretionary expenses for personal expenses of Goyal and his family members;
- Loans granted to subsidiary companies that had no business or income, indicating potential misuse of funds. For example, Jet granted loans amounting to ₹2,547.83 crore to Jet LITE Limited (a subsidiary formerly known as Air Sahara). These funds were allegedly misappropriated by writing off loans without proper oversight or accountability;
- The forensic audit conducted by EY highlighted that inflated payouts totaling over ₹1,152 crore were made to professionals and consultants whose businesses did not align with the services they purportedly provided. For instance, payments were made to companies that had no relevant experience or capability in payroll processing.
The Jet Airways scandal incorporated elements evident in other prominent scandals, such as Satyam and Kingfisher Airways, and raised serious concerns regarding the role of auditors and banks in monitoring financial activities. While the auditors have been raided as part of the investigation, there has been significant criticism regarding banks’ failure to adequately oversee fund utilization despite being aware of irregularities.
Legal proceedings are ongoing.
Cox & Kings
Cox & Kings, a prominent travel and tour company in India, entered bankruptcy in October 2019 after defaulting on payments, with debts of approximately ₹5,500 crore (about $800 million) owed to banks and financial institutions. The bankruptcy followed allegations of accounting irregularities and, in particular, news that the company had failed to disclose liabilities amounting to over ₹3,000 crore in its financial accounts.
The financial scandal came to light after a series of audits and investigations. An audit conducted by PricewaterhouseCoopers (PwC) at the request of Yes Bank uncovered that Cox & Kings had manipulated its financial records. This included window dressing its figures to present a healthier financial status than reality.
The investigation highlighted that Cox & Kings had extended loans totaling ₹1,100 crore to Alok Industries, a distressed firm that went bankrupt in 2017. Notably, there was no legitimate business relationship between Cox & Kings and Alok Industries. Furthermore, the chief financial officer (CFO) of Alok Industries was the brother of Cox & Kings’ CFO, raising concerns about conflicts of interest.
In the fiscal year 2019 alone, Cox & Kings reportedly loaned ₹589 crore to at least 11 related parties without executing formal loan agreements. This lack of documentation and requisite approvals suggested potential intent to siphon off funds from the company.
Peter Kerkar, the top promoter of CKL, and Anil Khandelwal, who served as the Chief Financial Officer of the company were both arrested in late 2020 and subsequently incarcerated.
IL&FS
Infrastructure Leasing & Financial Services (IL&FS) was established in 1987 with the objective of providing funding for major infrastructure projects across India. The company initially enjoyed a strong reputation and was backed by prominent institutions like HDFC, UTI, and Central Bank of India.
Over the years, IL&FS expanded significantly, operating through more than 250 subsidiaries in various sectors. Expansion was debt-fuelled and by 2018 IL&FS had accumulated an unsustainable debt burden estimated at around ₹91,000 crores (approximately $14 billion). A debt-to-equity ratio of approximately 18.7 indicated severe financial strain. In addition, there was a significant mismatch between assets and liabilities within the company. Assets were not sufficient to cover liabilities due to poor project execution and delays, often due to complications in land acquisition.
The crisis began to show in July 2018 when two subsidiaries failed to repay loans and inter-corporate deposits to banks and lenders. In September, IL&FS failed to meet debt obligations exceeding ₹1,000 crores to the Small Industries Development Bank of India. The situation escalated when another IL&FS subsidiary defaulted on commercial paper payments. As defaults continued to mount, the Reserve Bank of India (RBI) intervened.
Subsequent investigations found that IL&FS had engaged in fraudulent accounting practices that masked its deteriorating financial condition. The company reported inflated profits while concealing liabilities. Auditors raised concerns about misleading financial statements that masked the true financial position of IL&FS. A whistleblower from Deloitte alleged that there were attempts to “cook the books,” indicating collusion between auditors and management.
The IL&FS scandal caused a liquidity crunch in India’s financial system and is considered one of the largest financial frauds in India, with implications affecting numerous stakeholders including banks, investors, and the broader financial market. The case highlights the common causes of accounting fraud - governance failures, inadequate risk management and regulatory lapses.
Bhushan Steel
Bhushan Steel Limited (BSL) was a major Indian steel maker. The company faced severe financial difficulties, which led to insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) in 2017. In May 2018, Tata Steel acquired BSL as part of the corporate insolvency resolution process.
After the takeover, Tata Steel accused Bhushan Steel of inflating sales figures and hiding debts to the tune of more than ₹56,000 crore (about $7.5 billion at the time) during the insolvency proceedings.
The Enforcement Directorate (ED) initiated an investigation into BSL for alleged bank loan fraud. It was reported that the former managing director Neeraj Singal and his associates created multiple shell companies to rotate funds among them. This practice involved misappropriating funds intended for legitimate business operations.
In addition, investigators found evidence suggesting that BSL’s management prepared forged documents and provided false information to banks to secure loans. These actions included creating fabricated letters of credit and manipulating accounts to present a healthier financial status than actually existed.
Several former executives were implicated in these fraudulent activities, including Pankaj Tewari (former VP Banking), Pankaj Agarwal (former VP Accounts), and Nittin Johri (former CFO). They were accused of being instrumental in executing the fraudulent schemes by providing fake documentation and facilitating the diversion of funds. Following these revelations, the ED arrested several individuals connected to BSL, including Neeraj Singal himself, who was taken into custody in June 2023. A charge sheet was filed against him and others under various sections of the Prevention of Money Laundering Act (PMLA).
Assets worth ₹3.6 billion were seized by the ED across various locations in India, indicating attempts to conceal these assets through shell entities.
The scandal not only affected Tata Steel but also had broader implications for stakeholders involved, including lenders like State Bank of India and Punjab National Bank, which suffered significant losses.
Fortis Healthcare
In 2018, Fortis Healthcare faced allegations of accounting manipulation to misappropriate funds, inflate revenues, and hide losses related to its hospital operations.
In particular, the scandal involved allegations that the company’s founders, Malvinder Mohan Singh and Shivinder Mohan Singh, had diverted funds from the business. The scandal came to light following a media report in October indicating that the Singh brothers had taken substantial funds out of Fortis Healthcare Ltd., or FHL. The allegations suggested that these funds were misappropriated through a series of complex financial maneuvers involving Inter-Corporate Deposits (ICDs) and loans to various entities controlled by them.
Following these revelations, the Securities and Exchange Board of India (SEBI) initiated an investigation into potential violations of securities laws, specifically focusing on fraudulent and unfair trade practices. The investigation aimed to uncover how funds were diverted from FHL and whether there was any misrepresentation involved in financial reporting.
The probe revealed that between FY 2011-2012 and 2017-2018, approximately ₹397 crore (about $70 million at the time) was allegedly diverted from FHL to RHC Holding Pvt Ltd, an entity indirectly owned by the Singh brothers. This diversion was facilitated through a network of companies that received ICDs or short-term loans under false pretenses.
Deloitte Haskins & Sells LLP, the auditor for FHL at the time, refused to sign off on the company’s financial results until clarity regarding these funds was provided.
SEBI imposed penalties on several entities involved in the scheme, including fines totaling ₹24 crore against the Singh brothers and other associated companies. Additionally, the brothers were barred from participating in capital markets for three years. SEBI directed Fortis Healthcare to take necessary steps to recover the misappropriated funds along with interest from the Singh brothers and related entities. This effort is apparently ongoing.
Gitanjali Gems
The accounting scandal at Gitanjali Gems in 2018 primarily involved a fraud involving the fraudulent issuance of Letters of Undertaking (LoUs) by the company, which led to significant financial losses for Punjab National Bank (PNB). The key figures involved in this scandal were Mehul Choksi, the founder and managing director of Gitanjali Gems, and his nephew Nirav Modi.
In early 2018, PNB reported that it had uncovered a fraud amounting to approximately ₹14,357 crore (around $2.2 billion) linked to the unauthorized issuance of LoUs. These LoUs were essentially guarantees issued by PNB to facilitate overseas credit for Choksi’s companies without proper collateral or approval from the bank’s management. This practice allowed Choksi and his associates to secure loans from foreign banks while defrauding PNB.
The fraud involved collusion between bank officials and Choksi’s firms. The fraudulent LoUs were issued based on false information and without any legitimate transactions backing them. This enabled Choksi’s companies to obtain funds from international lenders under false pretenses, leading to substantial financial liabilities for PNB when these loans went unpaid.
The PNB revelation led to investigations by the Central Bureau of Investigation, Enforcement Directorate, and Serious Fraud Investigation Office. Both Mehul Choksi and Nirav Modi fled India shortly thereafter and face numerous charges related to money laundering, conspiracy, and fraud.
The fallout from this scandal was extensive. It affected not only PNB but also impacted investors in Gitanjali Gems, which suffered a collapse in its share price.
Tata Teleservices
Tata Teleservices was embroiled in controversy in 2018 when it reported a staggering impairment loss of ₹7,708.63 crore (approximately $1.1 billion) on its consumer mobility business assets during the September quarter of that year. This loss, categorized as an exceptional item in Tata Teleservices’ financial reports, was based on an assessment of the recoverable value of these assets, indicating that the company had significantly overvalued them in previous financial statements. This led to questions about the integrity of the financial reporting.
In addition to the impairment loss, Tata Teleservices reported a comprehensive loss of ₹454.46 crore for the three months ending June 30, 2018. Revenue from operations fell nearly 40% year-on-year to ₹334.45 crore during this quarter. These figures highlighted ongoing operational difficulties and contributed to investor skepticism regarding the company’s accounting practices and future viability.
On July 19, 2018, Tata Teleservices entered into an agreement with Bharti Airtel for transferring its consumer mobility business on a cash-free and debt-free basis. This move aimed to bolster Bharti Airtel’s market position while allowing Tata Teleservices to mitigate its losses and refocus its business strategy.
The Tata Teleservices scandal highlights the risks associated with asset valuation among companies facing financial challenges.
Reliance Communications
The telecommunications group Reliance Communications (RCOM) became embroiled in controversy in 2017 when Canara Bank issued a notice declaring RCOM’s loan account as “fraud” due to extensive misuse of funds amounting to ₹1,050 crore. This situation arose after RCOM defaulted on repayments and breached the terms of the loans, which were initially intended for capital expenditures and debt repayment. After several attempts to avert bankruptcy, RCOM filed for protection in February 2019.
Following this announcement, the company faced scrutiny from regulatory authorities for allegedly inflating its subscriber base and revenues through dubious accounting practices while accumulating debts exceeding ₹45,000 crore.
A forensic audit conducted by BDO India Ltd., completed on October 15, 2020, revealed significant discrepancies in how the loan funds were utilized. The audit indicated that RCOM and its subsidiaries had collectively received loans totaling Rs 31,580 crore from various banks. Of this amount:
- ₹13,667.73 crore was used to repay loans and financial obligations to other banks.
- ₹12,692.31 crore was transferred to related parties.
- ₹6,265.85 crore was specifically used for repaying other bank loans contrary to agreed terms.
- ₹5,501.56 crore was paid to connected parties.
- ₹1,883.08 crore was invested in instruments that were later redirected for unauthorized purposes.
These findings pointed towards a clear diversion of funds away from their intended purposes.
The forensic audit also highlighted instances where loan funds obtained by Reliance Telecom Infrastructure Ltd. were routed through Reliance Communications Infrastructure Ltd., and subsequently transferred back to RCOM for unauthorized use. Additionally, there were irregularities involving invoice financing where proceeds meant for specific purposes were instead used to settle related party debts. Moreover, it was reported that substantial sums were transferred among RCOM and its subsidiaries without clarity regarding their actual use.
Despite the allegations from the forensic audit indicating fraudulent activities within the company’s financial management practices, Reliance Communications has maintained its stance of denying any wrongdoing.
The company is currently undergoing an insolvency resolution process which complicates potential legal actions against it based on these allegations.
As of now, no formal charges have been filed against specific individuals in connection with the scandal. However, the situation remains fluid as investigations are ongoing. The banks involved, including Canara Bank, State Bank of India, Union Bank of India, and Indian Overseas Bank, have flagged accounts as fraudulent and are conducting deeper probes into the transactions linked to RCOM and its subsidiaries.
The Delhi High Court’s intervention to maintain status quo on account classifications indicates that further developments are expected in upcoming hearings.
Tata Motors
In 2016, Tata Motors faced allegations of accounting irregularities that raised concerns about the integrity of its financial reporting. The scandal revolved around the company’s dealings with its subsidiary, Jaguar Land Rover (JLR). Specifically, the company was accused of manipulating financial statements to present a more favorable picture of its overseas subsidiaries, particularly in relation to their profitability and asset valuations.
The issues came to light amid a broader context of corporate governance challenges within the Tata Group related to the ousting of Cyrus Mistry as chairman in late 2016. Mistry raised concerns about Tata Motors’ accounting practices in an email to the directors. His removal led to heightened tensions and accusations regarding financial mismanagement and lack of transparency.
In 2018, it was revealed that JLR had written off approximately ₹27,000 crores in assets (about $4 billion), indicating that these assets were deemed to have no real value. The write-down appeared to confirm earlier questions about the valuation of these assets, adding support to the view that valuations had been inflated.
From the time of Mistry’s ouster until the market reaction to the news of the asset write down, the value of Tata Motors’ stock tumbled 88%. Uncertainty surrounding the company’s financial health prompted calls for greater transparency and accountability from management.
These developments attracted attention from regulatory bodies who began investigating potential violations of accounting standards and corporate governance norms within Tata Motors and its subsidiaries. No public conclusions were drawn following these investigations, perhaps because the collapse in the share price was deemed sufficient punishment for any alleged wrongdoing.
National Spot Exchange Limited
The National Spot Exchange Limited (NSEL) scandal involved a default on payments amounting to approximately ₹5,600 crore due to fraudulent trading practices. Specifically, the exchange misled investors about the existence of commodities that were supposedly stored as collateral for their trades.
Established in 2005, NSEL was intended to create a national-level market for agricultural products and commodities. It began trading operations in 2008 and quickly became the first electronic commodity exchange for spot delivery contracts in India. However, it operated under a regulatory framework that allowed certain exemptions that ultimately contributed to its downfall.
The Forward Markets Commission (FMC), which was responsible for overseeing commodity exchanges, failed to enforce adequate regulations on NSEL. In particular, NSEL was allowed to conduct forward trading in one-day contracts without proper oversight. This lack of regulation created an environment ripe for abuse. A critical aspect of the scandal involved the issuance of warehouse receipts that were not backed by actual physical commodities. Brokers misled investors by assuring them fixed returns based on these receipts, which purportedly represented stored goods. Investigations revealed that many of these receipts were either fake or exaggerated, leading to significant discrepancies between reported and actual inventory levels.
The crisis surfaced in July 2013, when it was reported that approximately ₹5,600 crore was owed to investors who had purchased these warehouse receipts but could not claim any corresponding goods. Approximately 13,000 trading clients were affected by this crisis.
Subsequent investigations conducted by the Serious Fraud Investigation Office and Economic Offences Wing, uncovered collusion between brokers and defaulters who engaged in fraudulent activities such as hypothecating non-existent stocks and producing fake documents to siphon off funds from investors. The findings led to numerous legal actions against key individuals involved in the operation of the NSEL, including former officials and brokers who played pivotal roles in perpetuating the fraud.
Kingfisher Airlines
Kingfisher Airlines was launched in 2005 by Vijay Mallya, who was a prominent businessman and the chairman of United Breweries Group. Kingfisher initially gained popularity but soon faced severe financial pressure due to mismanagement, rising operational costs, and intense competition in the aviation sector.
By 2012, Kingfisher had accumulated significant debt, amounting to approximately ₹9,000 crore. The scandal came to light when Kingfisher began defaulting on its loan repayments, raising alarms within India’s banking sector. Investigations were initiated by the Central Bureau of Investigation and Enforcement Directorate focusing on allegations of loan defaults and money laundering.
The investigations found that Mallya utilized shell companies and intricate financial transactions to obscure the illicit movement of funds. This complicated the efforts of investigators to trace these activities. As investigations progressed, discrepancies in loan documentation were uncovered, leading to further scrutiny of Mallya’s financial dealings.
Investigations eventually revealed that Mallya presented exaggerated financial projections to secure loans from various banks. Investigators alleged that a significant portion of the borrowed funds were siphoned off into personal accounts and businesses linked to Mallya rather than being used for operational purposes. Despite providing personal guarantees for the loans, Mallya willfully defaulted on repayments, leaving banks with substantial losses.
In March 2016, Mallya fled India for the United Kingdom amid growing legal challenges related to his business practices. Investigators allege Mallya faked earnings to understated losses, and misappropriated funds abroad by making false declarations regarding expenses and over-invoiced services.
Following his departure from India, Mallya was declared a fugitive economic offender under Indian law. The Indian government has since pursued extradition efforts while also seizing assets linked to him under various legal frameworks aimed at recovering lost funds.
The Kingfisher Airlines accounting scandal highlighted significant weaknesses within India’s banking system and led to calls for regulatory reforms aimed at preventing similar incidents in the future.
Satyam Computers
On January 7, 2009, the founder and chairman of Satyam Computer Services, Byrraju Ramalinga Raju, delivered a stunning five-page confession to his board of directors. He had inflated the company’s revenues and profits in the period from 2003 until 2008 and misappropriated approximately ₹7,136 crores of company funds.
The manipulation involved falsifying bank statements, creating fake invoices to show inflated revenues, hiding debt and misappropriating funds for personal real estate investment. The scandal led to significant financial losses for investors and resulted in legal actions against Raju, his two brothers and seven others. It is still regarded by many as India’s worst accounting scandal. For those seeking detail, we are preparing a piece to discuss the Satyam scandal at length.
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