November 29, 2020
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How To Buy Peace, Win Friends And Influence People - Ambani Style

The business-bureaucracy-politics-media nexus has always existed, but no one group has managed to have so many friends in so many high places before.

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How To Buy Peace, Win Friends And Influence People - Ambani Style
How To Buy Peace, Win Friends And Influence People - Ambani Style
outlookindia.com
-0001-11-30T00:00:00+05:53

A sum of Rs 25 crore is not exactly small change. Not even for India's largest privately controlled corporate group with an annual turnover running into tens of thousands of crores. Yet this is the amount of money that had been offered in January 1998 by a company in the Reliance group, promoted by the venerable Ambani family, to "buy peace" with the income tax department. These are words that have been used by an official representative of the group, not conjured by this writer.

Now why would the Reliance group offer to buy peace by shelling out Rs 25 crore? The answer was given in reply to a show-cause notice served by the income tax authorities on the company, Reliance Petroleum Limited, alleging that it had deliberately attempted to show a loss of a bit more than Rs 26 crore by "artificially rotating" shares owned by the company with its funds. The offer to buy peace was made under the provisions of the Voluntary Disclosure of Income Scheme (VDIS) of 1997, a scheme initiated by the then Union Finance Minister Palaniappan Chidambaram which aimed at providing individuals and corporates accused of evading or avoiding taxes amnesty from penalty and litigation.

Reliance Petroleum has technically denied that it evaded or avoided paying taxes. The company predictably claims this is a dispute between a corporate body and the income tax authorities relating to the exact amount of money that is owed to the government. What is evident is that the income tax department did not feel it necessary to follow up its show-cause notice with any further action after the offer to buy peace was made. The questions are quite simple and not far to seek. Would a company offer to fork out Rs 25 crore if it was confident that it was on sure legal ground as far as its dispute with the income tax department is concerned?

Clearly, no person will offer to buy peace with someone harassing him if he is quite certain that he is being unfairly discriminated against, that he is legally and morally in the right and the other person is the one doing something incorrect or illegal. In this instance, it was evident to Reliance Petroleum that there was a strong possibility that it would lose its dispute with the tax department at some stage or the other. Hence, it made its offer to settle the dispute under the VDIS. No other plausible explanation is possible.

All disclosures made under the VDIS are supposed to be confidential. The provisions of the 1997 tax amnesty scheme are such that the Department of Revenue of the Ministry of Finance cannot reveal the names of the individuals or corporate entities that have disclosed their illegal incomes. So how did this information about the Reliance group become public knowledge?

On 17 April, Raashid Alvi, a Member of Parliament belonging to the Bahujan Samaj Party (BSP), addressed a conference of media personnel at his residence in the capital. The MP, who also happens to be a lawyer by profession, released a thick bundle of documents relating to various companies in the Reliance group. In this voluminous bunch of papers, weighing more than a couple of kilograms, was a photocopy of the revealing letter written by the authorised signatory of Reliance Petroleum offering to buy peace by paying Rs 25 crore to the income tax authorities.

Mr Alvi has been carrying out his personal investigation into the affairs of the Reliance group for more than six months. In this connection, he has written a large number of letters, raising a host of questions, to a variety of individuals including the Prime Minister of India, Atal Behari Vajpayee; the Union Finance Minister, Yashwant Sinha; the Minister for Law, Justice and Company Affairs, Arun Jaitley; the Governor of the Reserve Bank of India (RBI), Bimal Jalan; the Chairman of the Securities and Exchange Board of India (SEBI), D R Mehta and the Chairman of the Central Board of Direct Taxes, A. Balasubramanian. All these individuals have acknowledged Mr Alvi's letters and some have stated that they are looking into the allegations that have been levelled. That's all.

The accusations made by the BSP MP against the Reliance group are rather serious. He has claimed that large sums of money raised by group companies through public issues of shares were diverted to satellite firms with the intention of illegally enriching the group's promoters and their associates and also to manipulate the prices of these companies' shares. Mr Alvi has provided a list of over 250 satellite firms that are allegedly affiliated to the promoters of the Reliance group. It can be argued that this is nothing out of the ordinary since a number of family-controlled large industrial conglomerates (the Tatas, the Birlas et al) have set up hundreds of satellite companies to legally avoid paying taxes. In other words, the Ambanis' supporters claim they have done nothing illegal. But the entire affair is not as simple as that.

What Mr Alvi has alleged is that Reliance group companies raised Rs 934 crore and Rs 1,006 crore through two public issues of capital between 1993 and 1995. From the two issues, an amount of Rs 789 crore from the first issue and Rs 886 crore from the second issue were allegedly diverted to "front" companies to enrich the group's promoters and rig share values. The funds raised from the public were meant to implement specific projects and the unutilised portion of the money should have been invested in approved securities. The interesting aspect of Mr Alvi's charges is that various wings of the government are apparently evading their responsibility by passing the buck on to one another. Thus, the RBI says it is the SEBI that is responsible for monitoring the manner in which companies use funds raised from the public. In turn, SEBI says this subject comes within the purview of government-owned financial institutions, in this instance, the Industrial Development Bank of India (IDBI).

The list of allegations against the Reliance group goes on. The BSP MP has annexed reams of documents including balance sheets of companies like Lavanya Holdings, Krishna Associates and CPPL Project Services that are supposed to be "front" companies of the Reliance group. Mr Alvi has further alleged that the audited accounts of Reliance Petroleum for the fiscal year 1994-95 that were circulated among nearly five million shareholders of the company were different from the accounts actually signed by the company's directors and approved by its statutory auditors.

This is hardly the first time the Reliance group has been accused of fudging its books of account. The publicly-distributed prospectus documents of two group companies, Reliance Polyethylene Limited and Reliance Polypropylene Limited - affectionately called Ilu and Pilu - had acknowledged that the values of the shares of these two companies had been artificially ramped up by "thin and circular" trading by investment firms. In other words, thanks to a series of transactions by investment companies, the share prices were jacked up without genuine trading taking place.

Nothing happened when these facts became known. This time round as well, since various wings of the government appear to be dragging their feet, Mr Alvi says he may have no alternative but to seek the intervention of courts by moving a public interest litigation petition. It is not clear to lay persons such as this writer whether there is any truth in the allegations levelled against the Reliance group by Mr Alvi. But the government has to do its job by investigating the veracity of the charges.

As for the Reliance group, instead of issuing a point-by-point rebuttal of Mr Alvi's allegations, it has issued press releases containing blanket statements denying the charges and describing them as unsubstantiated. What is more, company spokespersons have claimed Mr Alvi made the allegations at the behest of the Reliance group's rivals. The BSP MP, in turn, denies this and claims he is acting on his own. He says that even if he was acting on behalf of the Reliance group's competitors, the government still cannot run away from its responsibility of investigating the authenticity of the allegations.

Who remembers the one-time rivals of the Reliance group? Do any of them still exist? Once upon a time, there were groups like Swan Mills and Orkay headed by Kapal Mehra who ran afoul of the powerful Ambanis. Where are these groups today? When the "Indian Express" chain of newspapers carried out a campaign in the second half of the 1980s against the Reliance group by publishing a series of articles authored by Arun Shourie (now Union Minister for Disinvestment in the Vajpayee government) and S Gurumurthy (a chartered accountant and a leading light of the Swadeshi Jagaran Manch which espouses the cause of economic nationalism), it was said that the campaign had the tacit support of Nusli Wadia, head of Bombay Dyeing. Where is Mr Wadia these days? The fortunes of Mr Wadia's companies have certainly seen better days. The same can be said about companies in the Essar group controlled by the Ruia family.

It is often remarked in a jocular vein that the most powerful political party in the country at present is the Reliance Party of India. One would certainly not be guilty of exaggeration if it is stated that sympathisers of the Ambanis exist in each and every political party of any significance in the country. The nexus between big business and politics is nothing new, nor is it unique to India.

Yet there is something to be said about the manner in which successive governments have bent over backwards to accommodate the interests of the Ambanis. It is not as if the government of the day has not helped the Tatas, the Birlas or other families of industrialists. The difference in the infamous business-government nexus could, perhaps, have something to do with the fact that around the time the Reliance group embarked on its meteoric growth path, the Indian economy had started becoming competitive. This was the period when the licence-control raj was coming to an end and the discretionary clout of particular politicians and bureaucrats had diminished somewhat.

It was, therefore, not enough for the Union government to help a particular corporate group along the way. It had, in the process, also to put down the competition. Therein lay the difference. The patriarch of the Reliance group, Dhirubhai Ambani, who started his business career in a humble manner as a clerk in a trading outfit based at Aden, has achieved in a lifetime what no Indian entrepreneur has been able to do. He has made his corporate group the biggest family-controlled business empire in the country. Vimal is a household name in India. But that does not make Mr Ambani or his two dynamic sons, Anil and Mukesh, different from most cynical corporate captains who believe that everyone carries a price-tag, be it a politician or a journalist.

Why did Mr Alvi's allegations merit only a cursory mention in all but a few newspapers, websites and television channels like the Asian Age, tehelka.com and Zee News? Did the bulk of the journalists who attended the 17 April media conference organised by the BSP MP exercise self-censorship? Or were they unable to understand or appreciate the significance of the documents that were circulated? Or did they realise their employers' editorial preferences? Unfortunately for the Ambanis and others who think like them, a few individuals still exist who will not sell their soul for a fancy junket or an expensive Diwali hamper, even if such people are in a woefully small minority. 


(The author anchors "India Talks", a current-affairs interview and discussion programme broadcast on the CNBC India television channel. The programme has been on air since November 1995.)


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