Business Ethics and Corporate Social Responsibility MGN-645

A Write up On Unethical practices of reliance industries

SUBMITTED TO: Mr. AMIT kumar sharma

SUBMITTED BY: Manrit kaur walia MBA (Hons.) Rq1201a01

INTRODUCTION
Ethical and Unethical Business Practices Business ethics are moral values and principles that determine our conduct in the business world. It refers to commercial activities, either with other business houses or with a single customer. They can be applied to all aspects of business; from generation of an idea to its sale. Businesses use the society for its resources and functioning, thereby obligating it to the welfare of the society. While the objective of any business is to make profits, it should contribute to the interest of the society by ensuring fair practices. However, greed has led the present business scenario towards unethical business practices, legal complications and general mistrust. Some means of unethical practices are as followed: Not conforming to approved standards of social or professional behavior; "unethical business practices" Lacking moral principles; unwilling to adhere to proper rules of conduct. Not in accord with the standards of a profession The prefix un- means "not," so something or someone who's unethical is literally "not ethical." In other words, that someone is lacking principles or morals. Because being unethical involves going against social or professional expectations of what's right, it's a word that's often used to describe bad behavior or immoral conduct

Code of Ethics Many organizations now implement the code of ethics in their company polices, which they implement during induction and regular training. A Code of Ethics "is generally a more blanket statement of values and beliefs that defines the organization or group" (Brandl and Maguire). It is primarily for the following areas: Company's assets, funds and records Conflict of interest

Management and employee practices Information on competition Ethical Business Practices

Unethical Business Practices The financial sector is abuzz with acts of violation of norms to amass wealth in an unethical manner. Following are some of the activities that come under the ambit of unethical practice. Resorting to dishonesty, trickery or deception. Distortion of facts to mislead or confuse. Manipulating people emotionally by exploiting their vulnerabilities. Greed to amass excessive profit. Creation of false documents to show increased profits. Avoiding penalty or compensation for unlawful act. Lack of transparency and resistance to investigation. Harming the environment by exceeding the government prescribed norms for pollution. Invasion of privacy used as leverage, for obtaining personal or professional gains. Sexual discrimination

UNETHICAL PRACTICES OF RELIANCE INDUSTRIES LTD

The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is India's largest private sector enterprise, with businesses in the energy and materials value chain. Group's annual revenues are in excess of US$ 100 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India. However, the company has been involved in various unethical business practices like corruption, scams, violation of laws, influence on government etc. Below mentioned are details of the some unethical activities of Reliance Industries Ltd. 1) RILs 2000 crore stock market scam: The following facts relate to violation under Fraudulent and Unfair Trade Practices Regulations, relating to RIL. In November 2007, the company secured an illegal gain of Rs. 513 crores. Under the law, RIL was liable for a penalty of three times the gain that is, Rs. 1539 crores and the disgorgement of its profit of Rs 513 crores, taking the total amount to Rs.2056 crores. Factoring in interest, this amount would increase by another Rs. 200 -500 crores. More importantly, the violation could also entail criminal prosecution under IPC punishable with seven years imprisonment as unsuspecting g investor shad been defrauded/cheated of Rs. 513 crores. A clean (or, more accurately, dirty) profit of Rs. 513 crores earned unlawfully in five days by shorting the market on the basis of information not available to investors is most impressive, even by the standards set by Reliance. It bears noting here that Rs.7.85 crores shares were sold for Rs. 210 were the very same shares allotted for Rs.10 a year back and that they earned a 20-fold profit (approximately Rs. 1400 crores)to the promoters of RIL in less than a year. In addition, it is relevant to note that RIL had the guts to indulge in this fraudulent practice in 2007, when SEBI had been around for 15 years, speaks volumes of their complete confidence in the support of the present political dispensation which, incidentally, is almost identical to that of 1983 when Fiasco and Crocodile

Investment were used as Benami foreign fronts by Reliance to bring in money through Channel Islands. 2) Reliance KG Gas Scam: The CAG (Comptroller and Auditor General) has shown that the Directorate General of Hydrocarbons (DGH) allowed Reliance Industries and other private operators to gold-plate the capital costs of the plant allowing them to make huge profits. The Production Sharing Contract pegged the profit share of the private operators and the Government to something called an Investment Multiplier, which meant that higher the capital cost, the larger the share of the profits of the private parties. The capital costs in the KG Basin D-6 Block went up from $2.4 billion in the initial contract to $8.5 billion. This was the pattern followed in other gas and oil fields also, involving Reliance, Cairn Energy and others. In all this, the modus operandi was to submit a bid which shows a certain capital cost and during the operation of the contract, inflate the capital cost by a huge amount with the connivance of DGH and the Ministry of Petroleum. The Management Committee in which the Government had 2 nominees out of 4 played no oversight role in such inflation of contracts. For inflating the capital costs, the familiar route is of course over-invoice through sweetheart deals from friendly sub-contractors, sometimes even a Reliance family company. While the CAG has not computed the loss to the exchequer, it has held that the Government has suffered large losses on this account. It has also held that the Production Sharing Contact being followed by the Government of India has very little controls on the investment costs, unlike for example, Bangladesh, where the Management Committee which has 50% Government nominees as in India, has to approve any expenditure above $500,000.The CAG Draft Report has also brought out that while the contract envisaged that if the company did not develop certain areas within the contracted area within the stipulated time, it should have been relinquished. Instead, the DGH and the Ministry of Petroleum allowed the whole area to be designated as discovery area in violation of the contract. As we shall show below, there are two sets of scams that have taken place, CAG having looked at only one of them. One is of course various violations of the Production Sharing Contract as pointed out by CAG; the second is the high price of Reliance gas -- $4.2 per Million BTU (MBTU) -- set in 2007 by the Empowered Group of Ministers headed by Pranab Mukherjee. Reliance itself admitted in the Court case between it and NTPC/Anil Ambani Group that its production cost was $1.43 per MBTU. Reliance Industries Ltd. (RIL) had initially agreed to

supply gas at $2.34 to both NTPC and Anil Ambani Group, which it subsequently reneged once the EGOM set the price at $4.2. It might be noted that by its own calculations, RIL would have made profits of 50% if it had supplied gas at $2.34.Gold-plating Capital Costs in KG D6 Block and the role of DGH. The Gas and oil field in question is known as KGDWN-98/3 (Block D-6), and consists of 8,100 sq. Km. of off-shore area in the Krishna Godavari basin. Block D-6 was awarded to Reliance Industries (90%) and Niko Resources Ltd (10%) under New Exploration Licensing Policy 1 (NELP-1) bidding round under a Production Sharing Contract. Initially, the D6 was to produce 40 million MMSCD (Million Cubic meters per day), which was subsequently revised to 80 MMSCD. The initial development cost in the contract was $2.4 billion which was revised through an addendum in 2006 to $5.2 billion in the first phase and $3.3 billion in the second phase. CAG has also observed that the $3.3 billion for the second phase has every possibility of being hiked up in the same way as the first phase.

3) NICL SCAM: RIL NICL Scam Rs. 273.12 crore CBI files charge sheet against Reliance Industries Limited National Insurance Company Limited. The complaint alleged irregularities in issuance of insurance policies - for coverage of default payments - by NICL to RIL. Case or Investigation Started in year 2005 and CBI file charge sheet on December9, 2011. CVC said that two MoUs were signed between the private telecom provider and the NICL, where terms deviating from the standard policy and favorable to the party were incorporated, "Deviating means departure from what is described or expected: not following rules and laws. Different not as per law or policy. On the basis of the MoUs, NICL issued two Special Contingency Policies (SCPs) from its Kalyan office. CVC said officials of NICL's regional office in Mumbai and Kalyan branch committed "serious illegalities in connivance with officials of telecom provider which resulted into a wrongful loss of Rs 273.12 crore." As per NICL circulars premium rates chargeable for laptops/mobile electronic equipments was to be between 1% and 1.5% but NICL officials did not follow the guidelines and fixed a low rate of 0.25%. NICL also surrendered the basic right of the insurer to review and opt for cancellation the policy in case negative trends are noticed. CVC said that a majority of subscribers under the default insurance cover for telecom services policy could not be located due of inaccurate addresses. NICL officials with dishonest

intention by abusing their official position, processed the bogus claims amounting Rs 120.60 Crore lodged without proper verification. NICL officials abused their official position and processed bogus claims amounting to Rs 26.81 Crore lodged by the private telecom provider without proper verification, loss of Rs. 26.81Crore. CBI found that the NICL officials violated internal circulars, no risk analysis was done nor there was "application of mind made by the officers of NICL. According to a status report from the Central Vigilance Commission (CVC).The Central Bureau of Investigation (CBI) has filed a charge sheet in a Mumbai court against Reliance Industries Limited (RIL) and four retired employees of National Insurance Company Limited (NICL), including a former CMD, under provisions of the Prevention of Corruption. Act for criminal conspiracy and other charges. The CBI has also sought prosecution sanction against five serving NI CL employees. It caused wrongful loss totaling Rs 147.41 crore to NICL and wrongful gain to the private telecom provider.

4) Violation of the Revenue Act: Reliance Industries do not put Revenue Stamps on the bills receipts. This is in direct violation of the Revenue Act. Its estimated that by this Reliance earns a sum of Rs. 25 crores a year. 5) Illogical accounting pattern: The Company has an illogical accounting pattern. They shift between Reliance InfoTech and Reliance Industries where payments are concern. Well but then they do not debit or credit the company and thus their accounting pattern is wrong too. Thats why in a 25 years the company has captured most of Indian Industries 6) Unethical corporate practices of Insider Trading: It is of Public Knowledge that Mukesh Ambani & Group, inherited Promoter of Reliance Industries Ltd involved in one of the most unethical corporate practices of Insider Trading in his own company shares prior to merger of Reliance Petroleum Ltd with the former. SEBI the stock market watchdog did uncover the insider trading scam. 7) Involvement in the 2G Scam: The Reliance industry under the Anil Dhirubhai Group was also held responsible in one of the biggest scam of the country that is 2G spectrum scandal. Reliance ADAG charged with abetment to cheating, bribing government servants and forgery. 120 licenses were issued in a single day. 85 out of the 122 licenses issued in 2008 were issued to companies that did not satisfy the eligibility criteria set by The Department of Telecommunication, these licenses were issued to companies which were not directly

involved in telecommunication sector and who sold major share of their corporate or in many cases, resold licenses to other telecommunication companies for higher rates. The case is under trail in the SC of India and the decision is still pending.

SUGGESTIONS:
The heads of companies that find themselves at the center of a business crisis usually have several traits in common. Arrogance, greed, conflict of interest and a lack of transparency and accountability all lead them to possess a skewed view of reality and ultimately contribute to ethics violations. Unethical behavior is really the result of other behaviors that blind us from seeing what is really happening. To prevent unethical behavior and the business crises that can result from it, companies should operate around a set of core values that don't place outsized importance on maximizing profit at the risk of, say, ensuring safety. Some points that need to be considered are: Create Policies and Practices Hire Right Develop People's Understanding Incent the Right Thing Put Controls in Place Build a Culture of Transparency, Openness, and Communication Leadership Must Walk the Talk