NEMESIS caught up with ITC in the form of its insignificant, low-profile, ever-ready-to-oblige partners, brothers Suresh and Dewang Chitalia of New Jersey, US, now turned approvers for the Enforcement Directorate (ED).
A six-year-long relation has soured as a slew of legal battles are being bitterly fought between the groupspecifically ITC Ltd and ITC Global Holdings Pte Ltd (ITCG) of Singaporeand the Chitalias, allegedly owning/controlling a string of companies: EST Fibres, Vaam Impex and Warehousing, Sunny Trading, RS Commodities, Sunny Snack & Foods, and Lokman Establishment at Liechtenstein. The Chitalias claim that these companies were created by ITC to act as conduits for sale of commodities and paid money received from third-party buyers as directed by ITC.
After an aborted attempt to patch up with the Chitalias in June, through former ITCG chairman R.K. Kutty, ITC slapped a $16-million notice on the Chitalias for damages suffered on export deals. They retaliated in September by suing the company for over $55.6 million on a host of counts, including $15 million in punitive damages and $25 million for character defamation.
It was a $5-million deal for a Russian cargo vessel involving the Chitalias that went sour in 1994 and put a stop to the murky transactions engineered by ITC through its front companies, which would suffer losses against a third party, so that the ailing companies of the group could show non-existent profits. (For instance, rice was brought back from EST Fibres at $165 per tonne against the actual invoicing of $350.) Overnight, the friends who had helped ITC shore up even its GDR issue in 1993 and paid $25,000 for Chairman Y.C. Deveshwars treatment (which was later reimbursed), turned foes. The 800-page special audit report by Lovelock & Lewes referred to the deposition made by Suresh Chitalia before the New Jersey District Court that "under pressure from the ITC chairman, sales of Rs 1.8 million achieved in 1992-93 were shown to have been made in 1993-94, which inflated the turnover figure for that year by a nonexistent Rs 45 million".
EST Fibres suffered substantial losses on commodity export deals in 1992-93 and 1993-94 with associated expenses totalling $12.57 million. These losses gave rise to liquidity problems but it continued to pay ITCs international business divisions export bills, given the benefit of continued trading and longer 165-day credit, much higher than given to other global buyers. Said the audit report: "The EST group, apart from normal business terms, enjoyed extra facilities in terms of pricing, extended credit period and funding from ITC Global by way of trade advances which remained outstanding for over nine months."
Over the year, the Chitalias provided many services. Hup Hoon Traders, for instance, was incorporated in Singapore in 1990 and it issued 80,000 shares of $1 each to Suresh Chitalia, its main shareholder, who ITC claims was holding them for the company as RBI rules were too strict to allow such ownership. When in 1992, the RBI relaxed rules, ITC Global asked Chitalia to sign a blank transfer deed, which he did. Chitalia, however, claims now that the shares were to be transferred at an agreed price of $1 million which ITC never paid up. The Chitalias even set up a Swiss company just for the sake of subscribing to ITCs 1993 GDR issue. This company, Usena Foods, received $0.9 million from Hup Hoon, and picked up shares issued by ITC on behalf of ITC.
The entire sordid saga began when the Bukhara restaurants ITC had opened in New York and Chicago in partnership with some NRIs began running up large losses. J.N. Sapru was then chairman, K.L. Chugh chairman-designate, and Deveshwar chief of ITC Hotels. ITC took it as a prestige issue, and looked for a way to hide the losses. Enter the Chitalias, who bought out the other NRIs and picked up the tab for the losses. ITC paid them back through shady export and import deals. Since then, the Chitalias and ITC were inseparable. From suppliers to friends in need, the Chitalias had graduated fast, for the sole purpose of tiding over myriad financial messes. Needless to say, the strategy boomeranged on ITC.