PNB Scam – Who are the Culprits and what is the remedy?

Last two blogs were on the details as to how this scam occured and why it remained undetected for so long. Still, the question remains that whom should be hold responsible for this entire scam.

First and foremost, there is Nirav Modi (NiMo) who is mastermind of the entire scam. It is believed that NiMo along with his uncle Mehul Choksi has diverted around Rs. 11,400/- Crores through fake LoU’s issued by PNB. These LoU’s are issued in favor of various companies floated by NiMo and Choksi. Like Kingfishers Vijay Mallya, NiMo too left India few days before the scam was detected. Passport of NiMo was seized yesterday by GoI. However, it is learned that NiMo is an Belgian citizen. So he can travel any where in the world on Belgian passport as well. As of date, NiMo is currently staying in five star hotel at Newyork.

NiMo and Choksi are believed to be the primary suspects, but there are many other who have helped them in one way or other. Staff of the PNB involved in above scam are equally responsible. First arrests made in the case was of Clerk and Deputy Manager of PNB who actually issued the LoU’s. They are currently in the CBI custody for further investigations. After the duo, CBI has also arrested the Chief Manager of Brady House Branch of PNB, where entire scam occured. CBI had also arrested the General Manager of PNB recently. Chief Manager and General Manager arrested are not personally involved in the issuance of LoU’s, however it is accused that they knew the fraud was happening, but they purposly ignored it. Apart from PNB officials who are arrested, CBI has also arrested few executives working for NiMo’s Company.

Finance Minister Shri Arun Jaitly has blamed the auditors for their ignorance and lethargy in detecting the fraud. ICAI, which is the apex body of the country governing CA profession, has already issued show cause notices to the PNB auditors seeking the information. However, affixing the responsibility on CA firms for misconduct / gross negligence while auditing PNB books is quite lengthy process, which is expected to take few years. Nevertheless, ICAI has assured speedy disposal of this case.

Modi Govt which have assured to bring ‘achche din’ in India, is facing tremendous attack due to this entire scam. However, the efforts of CBI and ED in this entire case is worth appreciating. From the date the scam was detected, ED has conducted massive raids throughout India on the properties / assets on NiMo and his companies. ED has till date seized gems and diamonds of Rs. 5,816/- Crores. NiMo and Choksi owns substantial immovable properties in India as well. ED and CBI have also attached properties located at Mumbai, Nashik, Surat and Pune amounting to approx Rs. 2,500/- Crores. ED has also seized movable assets like imported watches, appearls etc. which can fetch some value if sold. Total assets seized by ED till date in this entire case is above Rs. 8,800/- Crores. CBI and ED expects that majority of the sipphoned funds can be recovered from these properties. Over and above, ED has also sent Letter Rogatories (LR’s) to about 17 countries seeking financial info of the prime accused. Info received from these countries can again be used for recovery from Nimo and his allies.

This entire scam is a result of non integration of SWIFT system with CBS of PNB. RBI has recently directed all the banks to link SWIFT and CBS latest by 01/04/18. This will ensure that another fraud with same modus operandi will not occur in future. 

Whatever has happened in this entire scam, cant be reverted back. Damage caused is irreparable and consequences in near future are unavoidable. Stern measures taken by reguators like RBI, CBI, ED and ICAI can have check on such frauds in future so that such fraud wont take place. If at all scams occur, they are at least detected at primary stage so that future damage caused can be minimised.

Ordinery citizen of India can hardly expect any thing more than this.

Will try to update the developments on this in coming blogs too. Till then, stay tuned and happy reading. 

PNB Scam – How it remained undetected for so long?

PNB scam is undoubtedly the largest scam which has hit the Indian banking industry till date. In last blog we have seen how the LoU’s were used cleverly by NiMo (Nirav Modi) to defraud the bankers. As per initial data available, fraudulent LoU’s were issued through SWIFT since 2011. However, prime accused has today admitted to CBI that this practice of misuee of LoU’s was going on since 2008. (For details as to how the scam took place, please refer earlier blog).

Considering the huge quantum of Rs. 11,300/- Crore and long time period of 6 years, everyone is wondering how it remained undetected for so long. Banking industry, since it deals with public money, has to undergo extensive audit procedures throughout. To name a few, first there is internal inspection, then comes concurrent audit, then there is a Internal audit and lastly there is Statutory audit which is essentially done by empanelled CA firms. On top of it, there is annual inspection by RBI, which is done by employees of RBI. Its quite surprising that PNB scam went undetected through all these layers of audits and inspections.

Main reason due to which the scam went undetected is the fact that there was scope for human intervention in SWIFT operations at PNB. As per initial info obtained, SWIFT software at PNB was not integrated with their CBS i.e. main banking software. SWIFT is used only for foreign transactions that too, only as a mode of communication. Actual banking operations like accepting deposits, giving loans, receiving cash, payment of cheques, booking of income and expenses etc is all done through Core Banking Software (CBS). All the auditors check CBS extensively, since its the main software through which banking is done. Since SWIFT and CBS at PNB was not integrated, entries in SWIFT was to be entered in CBS manually. Fraudsters took benefit of this loophole. They issued fake LoU’s through SWIFT and never entered the same in CBS. Since auditors relied on CBS alone, misuse of SWIFT was not detected.

Take it other way round. Mr. A is using watsapp as well as email. All the frauds were done on watsapp. But these messages were never shown in email. Auditors went on checking emails but never bothered to verify the watsapp. Thus, they found everything in order. Same thing happened at PNB. Scam was done through SWIFT but everyone was busy checking the CBS!

Subsequently, when the LoU’s became due for payment, they were simply rolled over by issuing additional LoU’s. Eg. First LoU is of Rs. 50 Crore. This became due for payment. What NiMo did? He raised another fake LoU of Rs. 70 Crore. From this, payment of earlier LoU of Rs. 50 Crore was done. This went on for years, till the amount of fake LoU’s rose upto mammoth figure of Rs.11,300/- Crores.

By reading this, it seems quite simple. Isn’t it? But its not so. It requires very cunning mind and preplanned set up to cheat and deceive the entire system. And one more thing, letting this thing happen for years, is surely not one person job. Who are probably involved in this and who are the culprits of this entire scam, will try to see in the next blog.

Till then, stay tuned and happy reading 😊

PNB Scam – What happened Exactly?

Fraud of 11,300/- Crores which happened at Punjab National Bank (PNB) has shattered the banking industry of India. PNB is the second largest state owned bank of the country and has a very strong presence in north India. Alleged fraud of Rs. 11,300/- Crores is the largest till date in the Banking Industry of India and thats the reason why it is in limelight in Social and Print media.

So what exactly happened in PNB?

Hero of our story (or may be the villan for the time being) is Mr Nirav Modi. Print Media has abbreviated his name as NiMo. NiMo is in the business of trading and cutting polishing of diamonds. Like any other businessman he also needs bank loans for his business. He approached PNB for the loan. Till the day before fraud was exposed, NiMo was very resourceful, wealthy and had good track record with banks in India. When he asked for loan, PNB agreed and said we can lend you at say 11%.

Nimo then enquired with Foreign banks. Foreign Banks are lending at say 4%. (How thats possible and why Interest rates in India are high and foreign rates are lower, can be a subject of seperate blogs. For time being lets accept we can get loan from foreign banks at much much cheaper rates). Like every rational person, NiMo thought if I can get funds at 4% in abroad why should I take loan from Indian Banks? Here comes the twist in the story. NiMo is very rich, resourceful person but foreign banks dont know this. NiMo has no track record with Foreign Banks. Also, while getting loan, we need to offer some security. Most of the NiMo properties are in India. Foreign banks wont accept these properties. So how can NiMo get loan from Foreign Banks?

Here comes the modus operandi of the entire fraud. NiMo went to PNB and said, “look, you know me. You know that if I borrow, I will pay you on time. Why dont you tell this simple fact to foreign banks? I will pay you commission for this”. PNB agreed. PNB told foreign banks that NiMo is a good fellow. If you give him loan, he will pay you back on time. And if he fails to pay, then dont worry, we will pay you back. This assurance which PNB gave is called as Letter of Undertaking (LoU) or Letter of Comfort (LoC) in banking terminology. This LoU’s are issued through SWIFT software. It is a well established practice in the banking Industry. 

NiMo got huge huge money through these LoU’s from foreign banks. These LoU’s were infact guarantee given by PNB. So for foreign banks there was no risk. They were sure in case NiMo fails to pay back, PNB has assured them to pay.

Unfortunately, the worst case scenario came to realty. NiMo failed to pay. Foreign banks took the LoU’s and came running to PNB for the repayment. And here came the shocker! PNB said we have never issued these LoU’s!! All the LoU’s you have brought to us are forged and fraudulent!!! We cant pay you on basis of this!!!!

Why PNB cant pay? PNB said some of our employees have misused the SWIFT software to issue this fraudulent LoU’s. This LoU’s are not sanctioned by us. Someone has misued the SWIFT software and have issued these fake LoU’s in name of PNB. How can we pay you for this? 

Amount of these LoU’s were Rs. 11,400 Crores. Indian Banking Industry has shattered due to this. PNB as well as banks wjo have lend NiMo are absolutely clueless as to what stand they should take in this case. There is a twin loss to the banks due to this. Banks who have lend to NiMo, need to classify their loans as NPA. And PNB might have to pay for this, if authorities orders accordingly.

This blog was just to discuss the modus Operandi of the fraud. What can be the consequences of this and how it could have been prevented, will try to see in next blogs. 

Till then, stay tuned and Happy Reading 😊

120 Days of GST

Its around 4 months have passed, we have entered in the GST regime. Like any other major change, GST is also facing teething problems, which are expected to be sorted out in coming few months.

This blog will try to comment on performance of GST in first 120 days.

Biggest achievement of GST is quantum of the tax collection. GST collected so far is in line with the estimates provided by the govt at the time of rollout. As per latest data released by finance ministry, GST collection was above Rs. 95,000/- Crores in July 17 and was above Rs. 91,000/- Crore in August 17. Collection in September 17 was at Rs. 92,150/- Crores. Figures of October are awaited. However, point to be noted is this is only the collection of GST. This is not the actual revenue for govt. Because, from this collection, govt has yet to pay the refunds to eligible assessees. Collection net of GST can be termed as actual revenue for the govt. Nevertheless, gross collection as well is impressing.

Some financial experts and socialists were arguing that there will be huge protest from small businessmen against GST. Fortunately, it is not so. GST is well accepted by entire strata of society and people are adapting to it.

However, there is major cause of concern as well. Thing to worry about is the fact that even July months GST returns are not yet filed completely. (People have collected GST and paid it to govt, but return filing process is pending). Due date for filing GST Returns for July 17 have been extended again and again and as of date, it is 30/11/2017. Govt. has claimed that it has established fully automated system with almost nil human intervention which will ensure transperancy and accuracy. However, even after 120 days post implementation, no one knows how that system works exactly. Reason being, not even the first months returns have been filed yet! Govt and tax payers are blaiming this on each other. As per govt, people are not yet used to it, and as per tax payers, system is too complicated to get accustomed with it.

For certain sectors, GST rates are too high, and govt. has revised it last couple of months. Though govt is paying attention to the troubles of various industries, it wont be possible for the govt. to satisfy all of them! Thus, some sort of resistence will always remain.

Lets see, what happens next!

Till then, stay tuned and keep reading!!

GST – How it Works – Part 2 (Scope and Taxable event)

In last blog we have seen three main type of GST Levies – CGST, SGST and IGST. We have also seen which levy will be applicable in which case.

Before going into the intrecacies of GST, it is important to know exact scope of GST. Scope of any tax is decided on the basis on taxable event. We have seen the meaning of the term ‘taxable event’ in last blog. We have also seen that in GST taxable event is ‘Supply of Goods and Services‘. Let us try to discuss this in detail.

By mere reading of this term, it is very simple to understand that in all cases where any goods and services are supplied, GST will be payable. What is worth noting is that GST law uses the term ‘Supply’ and not ‘Sale’. When I use the term ‘Sale’, here also goods are supplied by seller to buyer. But intention of sale is very clear, i.e. seller will give goods to buyer and will receive money from buyer for the same. However, like GST law says, when we use the term ‘Supply’, its scope become much much wider. As per GST law, Supply includes any of the following terms:

1) Normal Sale Transactions / Providing of Services

2) Gifts / Donations  / Free Samples (All these activities are done without an intention for receipt of money or revenue generation. But still, there is ‘Supply’ of goods from donor to donee. Even if goods are donated or services are provided to charitable trusts, GST is payable.)

3) Exchange of goods (Here too, there is no movement of money. But still, there is ‘Supply’ of goods from one person to another. This may also include Barter exchange. Thus, all the cases where supply is done in kind, GST becomes applicable.)

4) Renting / Leasing out the Property (This includes Supply of immovable property. All the leave and license agreements, lease agreements etc. will be covered here)

5) Transaction between Principal and Agent

6) Import of services in India

7) Permanat transfer / disposal of Business Assets where input tax credit is already claimed

8) Transfer of right to use the goods without transferring title to the goods (eg. rent a cab, renting of machinery, providing free accomodation, free transportation etc)

9) Construction activity (Though there was huge resistance, this activity was covered in Vat. Same is covered in GST as well. In all first sale transactions i.e. from builder to first buyer, GST is payable. However, if entire sale consideration is paid after completion certificate is received, GST is not applicable.)

10) Any perks or services provided by Employer to Employee exceeding Rs. 50,000/- per year. This comes in the ambit of Supply of services and hence, GST will be payable.

Above points cover only broad and widely used ideas of the term ‘Supply’. There are many other clauses incorporated in the act which make meaning of ‘supply’ in GST virtually unlimited. 

Along with supply, levy of GST is equally dependent on ‘Place of Supply’. Will try to cover this in next blog. Till then, Stay Tuned and Happy Reading 😊.

GST – How it works? Part 1

Thanks for the overwhealming response given to the last two blogs on GST 😊.

In next few blogs will try to speak about working of GST. To start with, who is liable for GST? If annual turnover of business exceeds Rs. 20.00 Lakh, person is liable for GST. This limit is Rs. 10.00 Lakh for some under-developed states and north eastern states. 

After this, we need to know what is the taxable event in GST. Taxable event means moment at which tax becomes due. For eg. In case Income tax, tax becomes due when we earn money. In case of customs / import duty, tax becomes due when goods are received in India. Similarly, in GST, taxable event is supply of goods and services. I.e. once the goods or services are supplied by one person to another, GST becomes due. Now what does supply mean under GST and what is included in supply is very vast aspect on which entire levy of GST is based. Will try to cover this in may be next blog.

But before that lets know three main type of GST – SGST, CGST and IGST. Now, what is this? In earlier blogs we have seen that GST is going to replace host of indirect taxes levied by state govt and central govt. That means when we will pay GST, some portion of it will go to state govt and some portion will go to central govt. 

When person supplying the goods / services and place where goods/services are supplied are in the same state, CGST and SGST are levied. For eg. If you take dinner in AC Restaurant in Mumbai, you will have to pay GST @ 18%. Here, Restaurant owner is resident of Mumbai. Place where he is supplying service (i.e. the restaurant) is also in Mumbai. Thus, in this case you will pay CGST and SGST. Both levies are equal. This means out of total 18% GST, central govt will get 9% GST (Central GST – CGST). Remaining 9% will go to state govt. (State GST – SGST). At the time of depositing the GST to govt, restaurant owner will deposit CGST to central govt and SGST to state govt. Funda is simple here.

But this is not so simple for IGST. It refers to Integrated GST (I – GST). IGST is payable when person supplying the goods and place of supply are in different states. Eg. If seller in Maharashtra sells goods in Gujarat, he will charge IGST. This entire IGST will be deposited with central govt. Central govt will thereafter give the share of tax to individual states.

Apart from these three, there is fourth type as well. This is known as UTGST (Union Territories GST). This is applied when goods are sold / supplied in Union Territories. Logic is same as SGST.

In all the above cases, credit of GST paid at earlier stage will be available. However, since CGST will go to centre and SGST will go to state, CGST and SGST cant be set off with each other. IGST can be set off with any of these.

Will try to write more in my next blog on working of GST. Till then stay tuned and Happy Reading 😊.

GST Tax Rates – Whats Costlier and Whats Cheaper

Thanks for overwhealming response given to the last blog!😊☺😊. Last blog “GST aayo re” has got maximum views till now!😄

As GST is implemented now, we broadly have 5 tax rates in place – 0%, 5%, 12%, 18% and 28%. Lets see how much tax is charged on various goods and Services.

0% Tax Rate

0% tax (i.e. in fact no tax) will be applicable as on date to Fresh meat, fish, chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery, hulled cereal grains, Bindi, sindoor, kajal, human hair, bangles, Drawing or colouring books, stamps, judicial papers, printed books, newspapers, jute and handloom, Bones and horn cores, hoof meal, horn meal, bone grist, bone meal, etc.

In case of services, 0% tax is applicable for Grandfathering service and low budget hotels and lodges with room rent below Rs 1,000/-.

5% Tax Rate 

5% tax rate will be applicable to fish fillet, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice, clothes/garments below Rs 1000, footwear below Rs 500, Bio gas, kerosene, coal, medicines, insulin, stents used in surgery, agarbatti, kites, fertilizers, first-day covers and lifeboats.

In services 5% tax will be applicable to railway travel, air travel of economic class and small restaurants

12% Tax Rate

12% tax will be applied on frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, namkeen and ketchup & sauces, mobile phones, Cutlery items like Spoons, forks, ladles, skimmers etc, Ayurvedic medicines, diagnostic kits, tooth powder, umbrella, sewing machine, spectacles, playing cards, chess board, carom board and other board games like ludo, clothes / Apparel above Rs 1000.

Services in 12% tax are Non-AC hotels, business class air travel, state-run lottery and work contracts.

18% Tax Rate

18% tax will be paid on biscuits, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings, mineral water, Footwear costing more than Rs 500, Printed circuits, camera, speakers and monitors, printers, electrical transformer, CCTV, optical fiber cable, bidi leaves, tissues, envelopes, sanitary napkins, note books, steel products, pencil sticks, headgear and its parts, aluminium foil, weighing machinery, bamboo furniture, swimming pools and padding pools.

18% tax Services include AC hotels that serve liquor, telecom services, IT services and financial services like Banking, Insurance, Share Broking etc.

28% Tax Rate

28% tax will be levied on  gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, Deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen lotion, Paint, wallpaper, ceramic tiles, Water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers and hair clippers, Automobiles, motorcycles and aircraft for personal use. Services include 5-star hotels, race club betting, private lottery and movie tickets above Rs 100.

Gold is taxed at special rate of 3.00%

Above list is of general used items which can affect the common man. Exhaustive list is as per HSN system (Harmonised System of Nomenclature) which was prevalent in erstwhile excise law.

You can observe that some items are included in two tax rates. Footwear or wearing clothes or restaurant services for eg. This is because their rates are determined by quality of service they are providing or value they are charging. For eg. if you are eating in non ac restaurant, GST is lower and for ac restaurant, its higher. Similarly, if you buy formal shirt costing below Rs. 1000/-, GST is lower and above rs. 1000/- GST is higher.

There is wide spread allegation that keeping so many tax rates will create a problem. Further keeping two or more tax rate for single item will increase complications. But govt justifies this by saying, if you are earning more and spending more, you need to pay more.

Will try to focus more on GST in next blog.

Stay tuned and Happy Reading. 😊.

GST aayo re…

Long awaited and most discussed GST is finally implemented from today!

No tax in India is discussed so extensively like GST. From last 17 years we are discussing that we need to have something like GST. As our PM Modiji correctly commented in his address in the launching ceremony, “There are 500 type of taxes that play there role. Today we are getting rid of them. From Ganganagar to Itanagar and from Leh to Lakshdweep its One Nation One Tax.”

Benefits of GST are already discussed in the last blog. Europian union (EU) is already having free movement of goods and services among the member nations which facilitates ‘ease of doing business.’ Unfortunately, in India, though we are a Single nation, till now each state had different tax rules and different tax structure. Now with GST since we are having one tax, undoubtedly, our Country will develop into single unified market.

There were different taxes levied by different govt. which had different set of rules. This not only resulted in multiple compliances but also created cascading effect of taxes. (Please refer earlier blog to know more about cascading effect of taxes). It was also resulting in artificial scarcity and inflation in certain cases. GST tries to eliminate most of the problems given above. Govt also claims it will increase the national income, investment, exports and will generate employment.

Our Hon PM also made one more statememt at launching program. He said that GST is Good and Simple Tax. GST is Good (not only good, the ideology is so good, it can even be termed as best). But whether its Simple, only time can tell.

Along with the benefits, there are many allegations that the way in which GST is implemented and the compliances expected to be met under GST, will be troublesome for small businessmen. 

On this background, have you ever wondered why our all tax laws are so Complex? The reason is we Indians are most notorious in evading the taxes. Look at some of the cases pending at ITAT or CESTAT, you will be amazed to see the innovative ways people find out to evade the taxes. Ultimately, aim of any tax law is to collect the tax. If people are evading the taxes by finding new ways, govt is ought to make new provisions which will curb the malpractices. This circle goes on and our tax laws become highly complex. If all of us decide to pay the taxes very honestly and tranparently, our tax laws will become as simple as nursery poems! Personally, as far as complexity of tax laws is concerned, I feel, first blame should be on the taxpayers and letter on the Govt.

Will try to focus more on various aspects of GST in next blogs. But one thing is sure, like surgical strike and demonetisation, implementing GST is bold step to make India stronger and better. Personally, I welcome it with all the positivity!!!

Welcome GST Welcome!!!

Snapdeal Softbank fallout – Part 2

Last blog was about investment done by Softbank in Snapdeal. Nikesh Arora (the then Investment head of Softbank) was pioneer to bring Softbank to India. When Softbank took 33% stake in Snapdeal, it was the biggest investment done in e-commerce company till that time. 

Situation has changed now. Romance between Softbank Snapdeal is over and both are talking now in business terms. Fight and the main conflict was of the business model to be adopted. 

Before that, have we ever wonder how its possible for e-commerce companies to offer such huge discounts? Hefty discounts which even make the goods lower than manufacturing Cost? Its because, these companies presently do not work for profit, they work for business!! Performance of e commerce companies is measured in the terms of GMV (Gross Merchandise Volume) which refers to the value of total items sold from a particular site / platform. E Commerce firms are running behind increasing the GMV, offering hefty discounts and thereby increasing the losses. ‘Dont earn Profit but grow your business’ funda was working till the time Nikesh Arora supported it. After his exit from Softbank, situation changed.

When Nikesh Arora left Softbank, all controls were taken over by Masayoshi Son who wanted Profit. At present, Softbank is the largest shareholder of 33% in Snapdeal. Being the largest stakeholder, Masayoshi Son insisted for focusing on Profit rather than GMV. This was the moment rift between Snapdeal and Softbank started to widen. 

Snapdeal founders (Bahl and Bansal) advocated for higher GMV, since e commerce in India is at very nascent stage. In order to get maximum market share, its imperative to give huge discounts. As per Bahl Bansal duo, it may result in loss in initial year, but that is justified for surviving in the Industry. Softbank is against this funda. Softbank has invested crores in Snapdeal and expect handsome returns from it. So Softbank people wanted to Snapdeal to focus on profit, about which Snapdeal founders weren’t much comfertable.

Softbank cant sell out the investment, since the market value as on date is much much lowet than original. Hence its planning to merge Snapdeal with Flipkart. (In Flipkart too, Softbank is stakeholder). There is resistence, but it wont matter much, since Softbank is the major shareholder of Snapdeal. Post merger, one giant e commerce entity will emerge, which can survive in the market better and can strive for Profit, which Softbank badly needs as of now. Merger talks are in process, and entire activity is expected to complete within month or two.

This is only one story of Venture Capital investment in India. Ola, Paytm, Uber and many new startups run on venture capital funding. May be, more such stories will unfold in future!!!

Snapdeal Softbank fallout – End of valuation Saga?

Snapdeal is in news now a days. Not because it has launched new discount scheme, but because its very existance is in doubt.

Softbank Inc, largest shareholder of snapdeal has decided to sell the company to its industry rival, flipkart. As we all know, Snapdeal is e-commerce company floated by Kunal Bahl and Rohit Bansal. Company was started by them in 2010 as start up venture in e-commerce industry.

Like any new company, snapdeal also needed finance to grow. And like any other new startups, it had same problems – no security, no track record and no repayment capacity. Snapdeal was surviving hand to mouth, until it got backing of financial behemoth, softbank group.

Softbank group is a giant financial conglomerate from Japan. Majority stake of Softbank is held by Masayoshi Son, its founder member. This company has huge cash surplus and was willing to invest the same in most profitable avenues. Technological advancements, favorable govt policies and rise in tech savvy population made India a lucrative option to invest in. But where to invest? India was an unknown territory to Softbank and Masayoshi Son. For this, Softbank hired Mr. Nikesh Arora, a former google executive. Softbank gave a free hand to Mr. Nikesh Arora in 2014 to find investment opportunities in India. And here Nikesh Arora found Snapdeal.

In October 2014, Softbank invested $627 million in Snapdeal. Against this, it got ownership of 33% stake of Snapdeal. $627 million amounts to Rs. 3700 Crores, which was astronomical amount for Snapdeal. Snapdeal, which was facing liquidity crunch, suddenly got flooded with the cash due to Softbank investment.

With Softbank funds, in next year or two, Snapdeal grew by leap and bounds and became the fastest growing e-commerce company in India. It acquired smaller e-commerce companies like freecharge, Grabbon, Shoppo etc. Soon the competition turned into oligopoly with only three major players in the market – Snapdeal, Flipkart and Amazon. Softbank, Nikesh Arora, Snapdeal everyone was happy till the the time braking news came in June 2016.

In June 16, it was a shocker to know that Nikesh Arora had resigned from Softbank due to differences with Masayoshi Son. Departure of Nikesh Arora from Softbank was a heavy setback to Snapdeal since he was the bonding agent between Snapdeal and Softbank. All the controls were taken over by Masayoshi Son, and it was the beginning of problems for Snapdeal.

Things which were very positive till June 2016 suddenly changed within year, and may be in next one month, snapdeal will not be in existance…

What was the exact problem? And what will happen to Snapdeal now? 

Stay tuned to read the concluding part in next blog.