ITC - The FERA Violation Story


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Case Details:

Case Code : BECG016
Case Length : 14 Pages
Period : 1996 - 2001
Pub. Date : 2002
Teaching Note : Available
Organization : Enforcement Directorate (ED), Customs and Department of Revenue Intelligence (DRI), ITC
Industry : Food, Beverages and Tobacco
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Allegations

A majority of ITC's legal troubles could be traced back to its association with the US based Suresh Chitalia and Devang Chitalia (Chitalias). The Chitalias were ITC's trading partners in its international trading business and were also directors of ITC International, the international trading subsidiary of ITC.

In 1989, ITC started the 'Bukhara' chain of restaurants in the US, jointly with its subsidiary ITC International and some Non-Resident Indian (NRI) doctors. Though the venture ran into huge losses, ITC decided to make good the losses and honour its commitment of providing a 25% return on the investments to the NRI doctors.

ITC sought Chitalias' help for this. According to the deal, the Chitalias later bought the Bukhara venture in 1990 for around $1 million. Investors were paid off through the Chitalias New-Jersey based company, ETS Fibers, which supplied waste paper to ITC Bhadrachalam...

FERA Violations

The ED found out that around $ 83 million was transferred into India as per ITC's instructions on the basis of the accounts maintained by the Chitalia group of companies. According to the ED officials, the ITC management gave daily instructions to manipulate the invoices related to exports in order to post artificial profits in its books.

A sum of $ 6.5 million was transferred from ITC Global to the Chitalias' companies and the same was remitted to ITC at a later date. Another instance cited of money laundering by ITC was regarding the over-invoicing of machinery imported by ITC Bhadrachalam Paperboards Ltd., from Italy.

The difference in amount was retained abroad and then passed to the Chitalias, which was eventually remitted to ITC. The ED issued chargesheets to a few top executives of ITC and raided on nearly 40 ITC offices including the premises of its top executives in Kolkata, Delhi, Hyderabad, Guntur, Chennai and Mumbai...

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