ONE measure of success in the US is when you get sued, even if for trivial reasons. Going by that dictum, New Delhi's move to raise money from the Indian diaspora around the world is a success.
In what came as a surprise to the banking industry here, a New York financial planner has sued the State Bank of India and Bank of India, alleging they illegally restricted US sales of the Resurgent India Bonds (RIBs) exclusively to people of Indian descent. The suit filed by Leonard Schoenfeld, of North-port in Long Island, NY, in the Supreme Court of New York in Manhattan on August 21, added Citibank as a defendant on August 24 and seeks class-action status.
Schoenfeld's attorney, D. Daniel Engstrand of the law firm Doniger & Engstrand, said: "These banks are slapping Americans in the face by offering these bonds only to Indians. It boggles my mind; any company, including banks, doing business in the state (of New York) is not allowed to refuse to do business or refuse to sell or trade on the basis of that person's nationality or heritage or origin."
The lawsuit seeks $487.5 million in damages. The five-year, 7.75 per cent bond issue, which closed on August 24 with a total of $4 billion in the SBI's kitty, is obviously seen as more lucrative in the US compared with the local government's 5.21 per cent five-year bonds.
The suit claims the banks, starting around August 5, began offering the bonds "only to those persons of Indian ancestry, and they each refused to sell them (bonds) to any person of non-Indian ancestry who wanted to purchase and invest" in them.
"As a result of the defendants' refusal to sell Resurgent India Bonds to plaintiff Leonard Schoenfeld and to any and all other persons of non-Indian origin, the plaintiff and all other persons of non-Indian origin residing in the US who were denied the opportunity to purchase and invest in Resurgent India Bonds sustained significant monetary loss," the suit said.
Engstrand said the banks, by selling the bonds in such a restricted fashion, were violating federal and state anti-discrimination laws. Schoenfeld is claiming damages of $387.5 million and punitive damages of $100 million.
Dismissing the lawsuit as a mere "pinprick," Romesh Diwan, a professor of economics at the Rensselaer Polytechnic Institute in Troy, New York, said: "The involvement of the Indian diaspora raises India's image and makes foreign governments take India more seriously. Thus the unsubstantiated idea that sanctions will hurt, so much talked about by the Western press, has virtually disappeared from the headlines. Even the US government felt the need to virtually eliminate it. The NRI involvement makes such sanctions, even in the future, irrelevant."
Engstrand said that the banks' New York offices asked prospective investors if they were of Indian descent. And turned away investors who said they weren't. He also charged that the banks on their Internet sites had stated that the bonds were available only to Indians who could prove citizenship with an Indian passport or some other documentation.
He said: "They can't do this here. There's a federal law that says any foreign bank doing business in this country must abide by the anti-discrimination statute in which they are doing business, as well as the federal anti-discrimination statutes. I find it intriguing that Citibank, with all these Wall Street lawyers working for them, is also a part of this bond offering. Being an American bank they should know the US laws better. "
A spokeswoman for Citibank, a unit of Citicorp, while confirming it had been served with the lawsuit, declined further comment. SBI officials too declined comment, while Rajiv Khanna, a New York-based lawyer for the Bank of India, said the suit "is without merit and the bank intends to protect its interests vigorously".
The RIBs have been well received by the Indian American community here and the general feeling among the Indians here is that this was a chance for them to pitch in and help India when the US had imposed sanctions. And as Prof. Diwan points out: "The RIBs have helped develop a valuable rapport between the Indian society and NRIs. They have a soft corner for India and very much want India to gain in strength—economically as well as militarily."