The Great Telecom Scam

SUKH RAM'S nemesis crept up on him inrather mundane fashion. Happening as it did in late April, when election feverwas at its peak, it made no splash. It was probably a middle-level official inthe Department of Telecommunications (DOT) who called up a key CBI official with some hot information. He said Advanced Radio Masts(ARM), a Hyderabad-based company, had been paid an excess of Rs 1.68 crore bythe Telecom Ministry and DOT for supplying equipment. The money was paid whenSukh Ram was Union minister for telecommunications. The unidentified source waswilling to back up his claim with relevant files and documents.

The CBI was interested. Keeping a low profile, it chose not to issue an official memo but K. Vijaya Rama Rao, the then CBIchief, directed his sleuths to get cracking. The first to go under theirmicroscope was the man who owned ARM.

Patalu Rama Rao was no industrialist in the conventionalsense. He started off as an employee in the public sector Electronic Corporationof India. In February 1989, he branched out on his own and set up ARM. The firm'sgrowth graph just zoomed. In 1990-91, ARM sold telecom equipment worth Rs 7crore. The next year, sales multiplied more than 12-fold to touch Rs 90 crore.In 1993, Rao announced his plans to set up the Rs 2,500-crore Vijaynagarintegrated steel plant, with a public issue to net funds.

Patalu Rao's success story did not end there, as theinvestigators were to discover in a painstaking process. Joint directors fromthe CBI's north and south zones spent May and June poring over piles ofdocuments—most of them of a highly technical nature—with the assistance oftelecom experts. Once the jigsaw pieces started falling into place, the picturethat finally emerged was that of a series of phantom deals in which telecomequipment worth several thousand crores of rupees were palmed off to DOT and thetele-com ministry with shocking audacity.

By early July, the Bureau filedits secret source verification information, instead of the usual preliminaryenquiry (PE) report, and formally began work on the telecom purchase scam. Thenbegan another tedious spell of perusing documents—a task that remainsunfinished. CBI officials admit the sheer volume of the technical details boggedthem down and several facts are yet to be verified.

And by August, for reasons bestknown to senior CBI officials, things suddenly began to move. On August 8, theCBI filed its FIR naming Sukh Ram, Patalu Rama Rao and Runu Ghosh, who wasdirector, finance, DOT. The charge against them related to sale of the MARRshared radio equipment at "exorbitant" prices. That brought Sukh Raminto the picture. Mysteriously, the former telecom minister had by then gone forhis fourth trip abroad since he demitted office.

On August 16, CBI sleuthsdescended on Sukh Ram's official residence at 12, Safdarjung Lane, Delhi.Raids were also carried out at his house in Mandi, Himachal Pradesh. In Delhi,detectives discovered high-denomination currency notes to the tune of Rs 2.45crore. Much of the money was packed into suitcases and stashed away in the pujaroom, sharing space with bottles of scotch. Sukh Ram's daughter, who was athome, could offer no coherent explanation. At Mandi, sleuths counted another Rs1.16 crore.

THE CBI also recovered note padsand diaries from the Delhi house. Investigators say there's no Jain-type diarybut add that a note pad, where Sukh Ram has jotted down his engagements, mayprovide significant leads. Half-burnt documents recovered from the Mandi houseled to suspicion that Sukh Ram's family was trying to conceal evidence.

The same day, a raid at RunuGhosh's house yielded Rs 1.32 lakh in cash, Rs 1 lakh in foreign currency and1 kg of gold. While all this was happening, a special CBI team from Delhi hadseized documents and cash at ARM's premises in Hyderabad.

Runu Ghosh was promptly taken into custody at theCBI's makeshift lockup at Lok Nayak Bhawan,Delhi. The K.P.S. Gill incident being fresh in memory, and fearing that thehard-nut Ghosh could level charges of harassment, CBI officials didn'tinterrogate her alone. Her husband was called in. But interrogators couldn'tcrack her—she coolly refused to cooperate, beyond talking about officialfiles. Even after a week in custody, she is reportedly relaxed—she frequentlydips into her Agatha Christie when she is not being questioned. When she is, sheapparently remains jovial, cracking jokes. The CBI hopes Patalu Rao, taken intocustody on August 22, will prove more cooperative.

Sukh Ram lent drama to the proceedings by simplyexiting from the stage. His whereabouts were the subject of much mediaspeculation. Reports spoke of the former minister being in London, then Houston,till his son-in-law informed all that he was in England and would be returninghome "within a week".

But what was the extent ofbusiness conducted by the Communications Ministry and DOT during Sukh Ram'sthree-year tenure? The CBI has in its possession a list of companies that didbusiness during Sukh Ram's tenure—they are all being scrutinised.Investigations have till now centred around equipment purchases. By current CBIestimates, Sukh Ram and his handpicked officials purchased equipment worth Rs20,000 crore during the period. Investigators predict a much larger volume oftransactions once the basic telephones tender issue is investigated.

The ARM scam has been traced backto May 13, 1994, when the Narasimha Rao government unveiled its controversialtelecom policy. In a day or two Narasimha Rao was headed for the US, and thegovernment desperately wanted to push through the Telecom Bill in Parliamentbefore that. It did so, despite Opposition protests. The bill effectivelyblocked out the participation of Indian companies in the basic telephones tenderby declaring that only firms which had the experience of laying down one lakhlines could apply. Says CPI(M) MP Nilotpal Basu, who spearheaded the campaignagainst the telecom policy: "The plan lacked Cabinet approval. It wascleared by the PMO." Not surprising, for that same week Narasimha Rao wastalking to telecom corporations in the US about opening up the Indian market.

Crucially, not all Indian companieswere kept out by the bill. Those which had foreign partners with a 49 per centequity were deemed eligible. Even subsidiaries of foreign companies with 10 percent equity could bid, a further rider added. Significantly, no Indian publicsector company was allowed to bid. This led to much criticism and the governmenthad to declare on May 27, 1995, that PSUs could apply with an equityparticipation from the private sector.

EVENTUALLY, 16 companies submittedtheir tenders for 21 telecom circles. The highest bidders: the controversialHimachal Futuristic Communications Ltd (HFCL), along with Israelicompany Bezeq and a Thai one called Shinawatra. They bid Rs 85,000 crore for thelicence to operate in nine circles. This was about five times higher than whatthe Tatas, Ambanis, the RPG group and other players had to offer. The governmenthad put no cap on the number of circles one company could bid for, and themindboggling amount offered by HFCL took the entire business community bysurprise. Soon, there was talk of a deal between the company and the telecomminister.

The controversy was set to rest when ChiefJustice A.M. Ahmadi of the Supreme Court ruled out 'mala fides' in theallotment of the contract to HFCL. The case is not quite over and the CBI iskeeping a close watch on Mahinder Nahata, the HFCL boss, whose name fig-ures asNATA in Sukh Ram's engagement diary. DOT officials describe Nahata as one ofSukh Ram's key 'advisers'—the two used to be closeted for hours in theminister's official chamber. The fortnight also saw raids on Nahata'sresidence at Sarvapriya Vihar, south Delhi, and the HFCL office at Masjid Moth.

Other links were soon to emerge.Narasimha Rao's son Prabhakar Rao, who owns Sinclair Electronics, was doingbusiness with DOT during Sukh Ram's tenure. Investigators say Sinclair wasgiven an "educational order" for the supply of MARR equipment. CBIsources say Patalu Rao is also close to Prabhakar Rao. Also under scrutiny arethe antecedents of another equipment supplier, Natelco, whose promoters arereportedly close to one of the Jains of hawala fame. The agency is also hot onthe trail of Ashok Vij, financial adviser to Sukh Ram who is also currently inLondon. R.S. Khemka of the Hindustan Glass Company is also suspected to be a keyplayer in the deals.

What still baffles CBI officials is the hugeamount of money seized during the raids on Sukh Ram and Runu Ghosh. Says aBureau official: "In the ARM deal, Sukh Ram could not have made more thanRs 60-70 lakh. Where did the rest of the money come from?" According to asource, the initial tip-off came from the Directorate of Revenue Intelligenceand the money found could be linked to hawala transactions. Some leads will beright there on the note-bundles found in Sukh Ram's puja  room—theybear different bank markings, and it won't be difficult to get the name of thepeople who withdrew the cash. However, the official says it may be difficult toestablish it as slush money.

Last year, when Sukh Ram was tryingto wriggle out of the telecom tender controversy, he had written to MPs sayinghe was "pained that some grave charges have been levelled against me on thefloor of the House". The former minister will get his chance to defendhimself when he returns home. But as the CBI has proved time and again, it isone thing to investigate, quite another to prosecute.