TATA FINANCE LIMITED
In the years following the Enron fiasco in the United States, several countries experienced
their own “Enron.”
In India, the business press labeled an accounting and financial reporting
scandal involving Tata Finance Limited as that country’s “Enron.”
Tata Finance is one of nearly
one hundred public and private companies that make up the massive business conglomerate
known as the Tata Group.
During the late 19
and early 20
centuries, J.N. Tata, the founder of
the Tata business empire, established India’s first steel company, textile factory, shipping line,
cement factory, and the country’s first scientific university.
Tata’s descendants would give India
its first airline, automobile manufacturer, and domestically-owned bank.
Presently, the Tata
Group is India’s largest private sector employer and accounts for nearly 3% of the country’s
annual Gross Domestic Product (GDP).
In 2001, Tata Group’s senior management retained India’s largest accounting firm, A.F.
Ferguson & Co. (AFF), to investigate the Tata Finance fraud.
That fraud had greatly
embarrassed the Tata Group, including its chief executive, Ratan Tata, the great-grandson of
Throughout its long history, the Tata organization had been known for its
uncompromising ethics and commitment to public service.
In fact, J.N. Tata had decreed that
two-thirds of the organization’s profits be contributed to charitable causes, a policy that the Tata
Group follows to this day.
Ratan Tata and the other senior executives of the Tata Group believed that the person
responsible for the Tata Finance fraud was that company’s former “managing director” or chief
However, that individual insisted that he had kept the Tata Group executives,
including Ratan Tata, fully informed of Tata Finance’s financial affairs.
As a result, Ratan Tata
and his colleagues hoped that the AFF investigation would not only establish that the former
managing director was responsible for the fraud but that the investigation would also “clear their
The Tata Group executives were shocked when the AFF report on the Tata Finance scandal
linked them to that fraud.
Eventually, AFF withdrew the report and fired the three individuals
responsible for writing it, including one of their senior partners, Y.M. Kale, who was among the
most prominent members of India’s accounting profession.
AFF’s retraction of its report on the
Tata Finance fraud and the subsequent firing of Y.M. Kale created a storm of controversy
focusing on the Tata Group and AFF.
India’s business press charged that Kale was being made
a scapegoat and that the Tata Group senior management had forced AFF to retract its report and
Although AFF was not the statutory auditor of Tata Finance, the headline-grabbing
scandal threatened to undercut the credibility of the nation’s independent audit function since it
suggested that accounting firms routinely kowtowed to their major clients.