Juicy Scams

Why is Hero MotoCorp's Pawan Munjal in a pothole?

Created on 08 Aug 2023

Wraps up in 6 Min

Read by 2.6k people

Updated on 09 Aug 2023

In recent news, the Enforcement Directorate (ED) carried out extensive searches at the residence and other premises of Hero MotoCorp's Executive Chairman, Pawan Munjal. The searches were conducted under the rules of the Prevention of Money Laundering Act (PMLA). 

Right after touching its 52 week high mark, the share price fell by about 3% after this news. But then today, 8th of July, there came in another news about them receiving over 25,000 bookings for India made Harley Davidson, which increased the share price by little less than 4%. 

This pendulum-like fluctuation in stock prices is expected to keep happening. But let us come back to the article in which we will investigate Hero's alleged money laundering and its consequences.

Who is Pawan Munjal?

Indian businessman Pawan Munjal serves as executive chairman of Hero MotoCorp Limited. He is a well-known figure in the automotive industry and has been crucial to the development and success of the business.

Speaking of the automotive industry, if you're interested in discovering more about the consequences of the cancellation of DVR (Differential Voting Rights) on Tata Motors' business, feel free to click here for more information.

Hero Moto Corp came from Hero Honda Motors Limited which was a joint venture between Hero Group and Honda of Japan, which was initially Hero Cycles, co-founded by Brijmohan Lall Munjal, Pawan Munjal’s father.

Pawan Munjal entered the family business and advanced through the ranks after completing his studies. In 2001, he was appointed Managing Director and CEO of Hero Honda. Under his direction, Hero Honda grew to become one of India's top two-wheeler producers, becoming well-known for its dependable and fuel-efficient motorcycles.

But, but, it's crucial to remember that reputations may change over time. 

Let’s read about…

What exactly happened?

So it all started with an individual who was suspected of having ties to Pawan Munjal. In August 2018, while on a business trip to London, Munjal was accompanied by an executive who was hired from a "third party service provider" company to look after the travel and logistics of Munjal. 

But then The Central Industrial Security Force (CISF) detained the executive at the Delhi airport as they had found over ₹81 lakh in foreign currency in his bag just before he and Munjal were about to board a British Airways flight.

According to foreign exchange regulations, Customs took ownership of the money, and the legal process of this scenario is currently pending.

The person was subject of a complaint from the Directorate of Revenue Intelligence (DRI), which launched the inquiry. 

Proving that Hero MotoCorp has already been the subject of a money laundering probe by the ED. Previously, as part of a tax evasion probe, the Income Tax Department had carried out raids in March of last year. Unke liye ye nayi baat nahi he🤫, toh

Searches by the ED at 12 locations in Delhi and Gurugram turned up shocking information on money laundering on August 1st, 2023. 

The case involves Salt Experience and Management Pvt. Ltd (SEMPL), a third-party service provider company, as well as Pawan Munjal's partners, Amit Bali, Hemant Dahiya, KR Raman, and others. 

So between 2014 and 2019, Pawan Kant Munjal had unlawfully exported foreign cash to a number of nations, according to the Enforcement Directorate. Surprisingly, the money was used to pay for the millionaire businessman's personal costs while he was traveling abroad.

Investigations showed that SEMPL had forcibly exported foreign currency to several nations valued at about ₹54 crore. Additionally, throughout the course of multiple financial years, the corporation handed its officials and staff a total of ₹14 crore in foreign currency in excess of the annual permissible limit of $2,50,000/-.

Additionally, SEMPL has taken out a sizable quantity of foreign exchange and travel forex cards in the names of other employees who didn't even travel abroad. According to the investigation, one of P K Munjal's close associates was able to unlawfully export about ₹40 crore in foreign currency to cover the costs of P K Munjal's international trips for either personal or professional reasons.

The fraudulent acts related to the case were made worse by this dishonest practice.

During the ED raids, authorities confiscated cash, gold, diamond jewelry, and foreign-origin gold totaling ₹25 crore. In addition, various documents, digital data, discs, and mobile phones were seized from homes and offices connected to the investigation.

Let us first understand a little about the Enforcement Directorate before learning more about money laundering.

The Enforcement Directorate (ED)

India's Enforcement Directorate is a specialised financial investigation organisation tasked with upholding financial regulations and preventing financial crimes like money laundering, currency fraud, and economic fraud. Let's separate their functions in simple terms:

1. Prevention of Money Laundering Act, 2002 (PMLA): This law aims to stop the hiding of illegal money and properties gained from criminal activities. The ED investigates and seizes such assets and ensures punishment for offenders.

2. Foreign Exchange Management Act, 1999 (FEMA): It helps regulate foreign trade and payments. The ED investigates and penalizes those breaking foreign exchange laws.

3. Fugitive Economic Offenders Act, 2018 (FEOA): This law prevents economic offenders from escaping Indian law. The ED can seize the properties of those who flee the country to avoid arrest.

4. Foreign Exchange Regulation Act, 1973 (FERA): Although repealed, the ED still handles past cases under this law, where penalties were imposed for breaking foreign exchange rules.

5. Sponsoring agency under COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), the ED can detain people suspected of smuggling and foreign exchange violations.

The Directorate of Enforcement, to put it simply, works as a financial detective, tracking down and holding accountable those who engage in illegal financial activity. They aid in safeguarding the financial system of our nation and prevent criminals from escaping punishment.

Now that we have a general idea of the ED, let's get into the world of money laundering.

What is Money Laundering?

Money laundering is a term used to describe the process of making illegally obtained money (often referred to as "dirty money or black money") appear to be obtained through legal means. Money laundering is a technique used by criminals to conceal the true source of their riches and make them appear to have been earned legally.

After that,

Prevention of Money Laundering Act, 2002

This Act aims to stop money laundering and allows the government to seize property gained from such illegal activities. It covers all related matters and ensures criminals face the consequences

To get into the details of PMLA or to read about the infamous scams relating to Money Laundering, check this article.

My Vishesh Tippani

From my perspective, I frequently notice that people in positions of significant power often avoid the repercussions of their dishonest behaviour. These episodes of wrongdoing can seem to be buried by later success stories, lessening the significance of their original offences.

The Enforcement Directorate's (ED) statistics, which shows that 5,906 occurrences of Enforcement Case Information Reports were recorded. However, it's important to remember that there have only been 531 formal investigation searches. This scenario might suggest that not all alleged wrongdoers are held accountable for their actions.

Nonetheless, it is essential to acknowledge the committed efforts made by our governmental agencies in locating and stopping illegal operations. 

But, but, but, it is important to consider the possible repercussions if a case like Munjal's leads to a decision where accountability is not enforced. 

The Bottom Line

The money laundering probe at Hero MotoCorp's Chairman Pawan Munjal's premises has brought to light the serious problem of financial frauds plaguing the country. Authorities like the Enforcement Directorate are essential in the investigation and prosecution of such offences in order to ensure that justice is served and a preventive measure is put in place for potential offenders.

So, next time you spot a flashy car or a lavish mansion, remember, not all that glitters is gold! Behind the scenes, the ED is busting the illusions, ensuring that justice prevails and financial fraudsters are caught. Keep checking back for more thrilling news from the finance industry.

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Sakshi Dhakre

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Sakshi is an adventurous spirit who enjoys both the intellectual stimulation of Finance and the sensory experiences of good food and nature’s beauty. She has a passion for delving into complex financial topics and distilling them down into easy-to-understand insights. When she's not poring over financial reports, you might find her exploring a new corner of the city, trying out new restaurants and cuisines or admiring the beauty of the night sky.

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