THE first people to get down from the Black Maria that stopped in front of Calcuttas Bankshall Court at 2:20 on November 1, were two pickpockets picked up the night before: business as usual. Then came business as unusual as India has ever known:Kishan Lal Chugh, former ITC chairman, the man who fought "neo white imperialist" BAT, and the avuncular Jagdish Narain Sapru, Chughs predecessor at the tobacco giants helm. Within minutes, their bail pleas were being heard by Chief Metropolitan Magistrate Asit Dasgupta. Within minutes, their pleas had been rejected; the court remanded the two men in custody under Sections 8, 9, 18 and 48 of the Foreign Exchange Regulation Act (FERA) relating to transfer, acquisition and borrowing of foreign exchange without approval and permission from the Reserve Bank of India. Chugh, Sapru and Indias largest professionally-managed (that is, not family- or government-run) company had been pitchforked back into their continuing nightmare.
How the mighty have fallen. After politicians, it was now corporate Indias turn to be in the interrogation room with the lights turned on their ashen faces.
The nightmare began late on the night of October 29, Tuesday, when four senior offi-cials of ITCs International Business Division (IBD) were arrested. ITC director and former chief of IBD, G.K.P. Reddy, director and current chief R.K. Kutty, vice-president, IBD, R.B. Ravindranath, and export manager M.B.Rao were picked up from their homes and flown to Calcutta. Next morning, the crackdown continued with startling ferocity. By 7 am, Enforcement Directorate (ED) investigators had barged into ITC offices and residences of top managers, sealing off apartments and entire office floors in a countrywide search-and-seize operation. The raids were conducted in eight premises each in Calcutta and Hyderabad and two each in New Delhi and Mumbai.
Sealed off were the posh directors apartments at Fountain Court, a stones throw away from the most famous business address in Calcutta: Virginia House, 37, Chowringhee, ITCs headquarters. Chugh and former ITC Global Holdings chief Ashutosh Garg were interrogated in Delhi, Sapru, vice-chairman Saurabh Mishra, director Biswadev (Bishu) Mitter in Calcutta, Chairman Yogesh Chandra (Yogi) Deveshwar in Delhi.
Before long, the EDs young deputy director in charge of the investigations, K.K. Kabir Panthi, was announcing that Reddy had already started spilling the beans, confessing his involvement in the retention of $4 million abroad in the controversial Bukhara deal (see box on Chitalias). Kabir Panthi told Outlook (see interview) that the ED has enough evidence to send a fair chunk of the ITC top management to jail for the biggest FERA violation in Indian corporate history: to the tune of over $100 million (Rs 350 crore) since 91. Investigations, he said, began six or seven months ago, after an audit by accounting firm Lovelock & Lewesan audit BAT had insisted onproduced damning evidence that ITC had systematically set up and created a worldwide chain of front companies and bank accounts, with the help of a shady US-based NRI family, the Chitalias, to hide losses, shore up profits and maintain its Chugh-set image of being a successful global corporation. "We have suffi-cient evidence to show that ITC parked fictitious profits which were being brought back to India," says an ED sleuth involved in the swoop. All the companies and bank accounts were in the name of the Chitalias, but were operated on ITCs instructions. Kabir Panthi claimed that the ED had already seized more than 20,000 faxes sent by ITC managers to the Chitalias over the last three years giving instructions for transferring illegal funds.
The Directorate claims that ITC had artificially hiked its profits by over-invoicing imports and later transferred the excess funds to India as export proceeds. There were also several instances of under-invoicing of exports and retention of the excess foreign exchange abroad to be used later to show profits on loss-making export deals. ITC had also apparently siphoned off huge amounts of funds from its subsidiary companies and transferred to the Chitalias; this money was then remitted to India as export proceeds. A key company in this chain of dirty money was Singapore-based ITC Global Holdings, which has been rendered bankrupt by all the murky transactions. ITC managers allowed ITC Global to die rather than have ITC taking on any responsibility for its dishonest and finally inept international trading operations.
When contacted, ITC Global managing director Sriram Khattar said with a nervous chuckle: "Ive read a newspaper report that I would be arrested in Singapore and taken to India for questioning." But he claimed that the ED had not contacted him yet, and neither had ITC asked him to return to India. Khattar was in ITCs London office when he was offered the Singapore job, after Ashutosh Garg, who had set up ITC Global, left rather hurriedly last year. Khattar asked for 10 days time to consider the offer. Then he accepted.
Set up as a one-man representative office for ITC in September 1989, ITC Global became a full-fledged company in 1992. By 1993,it employed 100 people, was thinking of setting up seven offices worldwide, and talking of a $1-billion turnover. By 1993, it was doing so well that the Singapore Government gave it Approved International Trader status, the first Indian firm to get that stamp which entitled it to concessional tax rates. By October 31, 1996, as ITC managers and their wives held a desparing vigil outside the EDs Lindsay Street office in Calcutta, with two former chairmen being grilled mercilessly, ITC Global had been reduced to a dying whipping boy for hiding export losses. Chughs much-publicised dream of making ITC the first truly Indian global corporation were just so many shards of coloured glass. That dream had definitely turned sour by 1993, and Indian laws were apparently flouted every day to keep up appearances. The ED framed specific charges on eight counts, but all that didnt matter. A proud corporation and its supposedly brilliant managers had been caught inflagrante delicto.
When it became clear to the milling ITC crowd outside the ED office that Chugh and Sapru would definitely be arrested, it did what the desperate do to save face, some face. It jammed the staircases and attempted to cordon off the main door, so at least the press photographers would not be able to click the two ex-chairmen as they were taken off.
The ED had by then been interrogating Sapru, 65, one of the most respected Indian managers alive, for more than 12 hours at a stretch. The previous day, he had been questioned from 11 in the morning straight through to 2 am and then asked to present himself again at 11 am. Chugh had been flown in in the morning from Delhi, and had been rushed to the EDs office from his suite at the Oberoi Grand at 2.30 pm. Finally, shortly after 11 pm, the ED decided to arrest both of them. Shortly after midnight, as Sapru and Chugh were being brought out of the building, all hell broke loose, as ITC executives tried to block them off from public view. Scuffles started, and the police had to give a stern warning to back off.
Chugh and Sapru were then taken to the police lock-up at Taltolla in central Calcutta and then shifted to the police headquarters lock-up at Lalbazar for security reasons. The only man who had led ITC in the 90s and was still outside prison was Deveshwar.
Deveshwar had been questioned in the afternoon, but was allowed to fly back to Delhi for "an important meeting", and present himself again for interrogation on November 4. What was this "important meeting"? For 15 days before the crackdown, Deveshwar had been in Delhi, apparently lobbying hectically to postpone the inevitable. Deveshwars political connections are supposed to be strong. In 1991, the Government chose him, then chief of ITC Hotels, to be Air Indias chairman. He used the two years he spent in Air India, corporate circles claim, to build up formidable allies in the corridors of power.
How, then, did this crackdown happen at all? There are two theories doing the rounds. One, that the enormity of the fraud was such that the Government was forced to act. It was also pushed in this direction by the bidi lobby, headed by Congress MPand bidi magnatePraful Patel. Two, that ITCs estranged parent BAT had managed to pull enough strings in North Block to put the ITC management on the mat, and would now be able to saunter into Virginia House and take control.
The white Victorian-style building, now dwarfed by the glimmering black glass of the ITC Centre, became off-limits for outsiders as soon the ED operation began. Gates were locked, and entries and exits were thoroughly screened. Curious Calcuttans milled around, peering through the iron gates. Inside, the building wore a deserted look. Virtual evacuation orders were served by the company to avoid any information leakage. When this correspondent managed to enter the building, he was greeted by cryptic "no comments" from the few managers present.
By November 2, the spotlight was shifting to Deputy Chairman Feroze Rustam Vevaina, financial mastermind of the group, and the man who had set up ITC Global. Called to Calcutta for interrogation by the ED, Vevaina flew in from Mumbai but missed the afternoon appointment, claiming to be unwell. By evening, he had been admitted to a nursing home.
While Vevaina was falling ill in Calcutta, Deveshwar was meeting a PTI correspondent. The interview is a masterpiece of fighting on two fronts simultaneously. Chugh brought the Chitalias to ITC, he said, "he was very friendly with them." Regarding his responsibilty as chairman of ITC for the alleged misdeeds, he said: "Its not possible for the man at the top to play god and spot all misdeeds."
He then wondered why BAT used to route payments for tobacco imports through a Singapore-based company, ITC World Trade Corporation having a paid-up equity capital of two Singaporean dollars, instead of directly paying it to ITC. According to him, millions of dollars were transacted between ITC and BAT through this company. He also said that BAT funds were used to keep ITC Global alive. "BAT will try to induct someone else as the next ITC chairman," he said. Deveshwar, the sole winner of the ITC-BAT battle last year, has his biggest test on hand. The veiled threat to BAT is unmistakable. Unsaid was the belief that BAT is behind the crackdown.
When contacted at BATs Windsor House, London, headquarters, BAT spokesman Michael Prideaux said the whole ED "exercise had come to BAT as a surprise". "As far as BAT is concerned, there are no irregularities from our side," he said categorically. He added that BAT would not insist on a management change at this stage. BAT, he said, was working closely with the FIs and further action would be decided in consultation with the FIs. "At the moment, we are keeping safe distance to take clear stock of the situation," he said.
The troubles of ITC began when BAT wanted to raise its stake in the company in April 1994. Chugh turned it into a white man-brown man war. The most unfortunate aspect of ITCs current problems is that if ED allegations are true, then a perfectly well-run company overextended itself and broke laws to satisfy the personal brown-man hubris of its chairman. And has ended up besmirching the entire breed of Indian managers in the eyes of the world. n