February 22, 2020
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Probe Hamstrung

CBI officials gunning for Prabhakar Rao are being reprimanded

Probe Hamstrung

THREE weeks after the Rs 133-crore fertiliser scam broke, investigators dealing with the case believe any serious headway is possible only with the arrest and systematic interrogation of Prabhakar Rao. But as a sequence of events over the fortnight indicate, the arrest is being thwarted at the highest levels in the CBI. Sources say that in the third week of June, CBI Joint Director S. Gopalachari, heading the probe, told his superiors about his intent to pick up the former prime minister's son for questioning, making it clear that it would be a regular judicial arrest. Shortly, a team of officials met him and conveyed CBI Director K. Vijaya Rama Rao's opposition to this.

The arguments, sources say, went on for a full two hours before Gopalachari was forced to succumb to the diktat of the CBI chief. Says a key official, half in jest: "Prabhakar Rao will be arrested in the first week of August," referring to the fact that July 31 is Rama Rao's last day in office.

Prabhakar Rao, meanwhile, is casual. In Hyderabad, after the first round of questioning in mid-June, he categorically stated he had not been 'summoned' by the agency. Before the second round, CBI officials said he was being interrogated only on 'specific' issues. The CBI's tentative approach is being largely attributed to P.V. Narasimha Rao's threat that the Congress may withdraw support if the United Front Government "commits grave mistakes". He is reportedly upset with the CBI over the swift arrest of accused Sanjeeva Rao, his relative.

Sources indicate that the CBI is trying to brush under the carpet the crucial statement recorded during the interrogation of M. Sambasiva Rao, a crucial player in the entire deal (see box). "Prima facie, it could have led to the arrest of Prabhakar Rao, had the officials wanted," points out advocate Abani Sahu, who is preparing for an extensive public interest litigation in the case.

Even as the probe meanders, other facts have come to light. For instance, the first contract between the National Fertilisers Limited (NFL) and Turkish firm Karsan was signed in July 1995. The only significant change in the contract signed that November and finally executed, not surprisingly, related to the question of advance payment. The July contract was signed by London-based A.E. Pinto on behalf of NFL, and Tunkay Alankus on behalf of Karsan. Says the CBI in a petition before the Special Judge, Delhi: "They (NFL officials) are reluctant to disclose the transactions made by A.E. Pinto" and on the "underhand deals done by them with Prakash Chandra" (son of ex-Union minister Ram Lakhan Yadav).

But in a high-stake deal like this, the one question investigators seem eager to duck is how such a huge sum went out of the banks without a hitch. This puts a question mark on the Reserve Bank of India's (RBI) much-touted audit system. The audit report of the State Bank of India's (SBI) South Extension branch, New Delhi, brought to light several discrepancies in forex transactions, but fails to mention its greatest ever remittance—$38 million made in November 1995.

The 24-day audit was conducted by an RBI team under Section 43 of FERA. SBI's internal team of auditors took about three weeks to audit all the accounts of the branch, as against the three weeks-plus taken by RBI auditors in inspecting just the forex accounts. Keeping clear of the NFL deal, the audit noted: "During the inspection of the accounts and other records relating to the foreign exchange business of your branch by us from March 4 to March 27, several irregularities/discrepancies were observed. These relate to export transactions, imports and several NRI accounts."

Interestingly, the RBI audit report pulled up the SBI on its failure to seek the credentials of overseas suppliers in several cases—again, with no mention of the $38 million or the NFL deal. The violation was on two counts. One, the remittances were effected without the bank guarantee. Two, the schedule for the delivery of urea was beyond the stipulated norm of 90 days in case of advance payment.

Why were irregularities of this scale overlooked? Says one senior SBI official: "When we wrote to the RBI seeking clearance, officially we were told to use our discretion. Unofficially, we were told the amount had to be cleared because there was pressure from the PMO." The RBI seems to be trying desperately to wash its hands of its responsibility as the central banking regulatory authority. In an official communique this fortnight, it openly accused the SBI of violating FERA for foreign remittances saying it wasn't given "timely information" on the urea deal. "The scrutiny (RBI's) concluded that the transaction violated FERA. It (RBI) asked the SBI central office to fix staff accountability. RBI also asked the Enforcement Directorate to take action."

In the carefully worded release, the central bank notes: "The documents along with the R-form submitted by the SBI branch certified that the exchange control regulations in the NFL case were complied with." R-forms detail forex transactions put through by authorised dealers and are periodically submitted by banks to the RBI.

Speculation is rife that this week the CBI will question Narasimha Rao in the JMM case, in which Rao is accused of buying off MPs to stave off a no-confidence motion against his government. Sources in the agency, however, denied any move to question Rao immediately. The point is, when will it be done? For, by August 2, the CBI has to conclude the case. 

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