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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.

A sum of Rs 25 crore is not exactly small change. Noteven for India's largest privately controlledcorporate group with an annual turnover running intotens of thousands of crores. Yet this is the amount ofmoney that had been offered in January 1998 by acompany in the Reliance group, promoted by thevenerable Ambani family, to "buy peace" with theincome tax department. These are words that have beenused by an official representative of the group, notconjured by this writer.

Now why would the Reliance group offer to buy peace byshelling out Rs 25 crore? The answer was given inreply to a show-cause notice served by the income taxauthorities on the company, Reliance PetroleumLimited, alleging that it had deliberately attemptedto show a loss of a bit more than Rs 26 crore by"artificially rotating" shares owned by the companywith its funds. The offer to buy peace was made underthe provisions of the Voluntary Disclosure of IncomeScheme (VDIS) of 1997, a scheme initiated by the thenUnion Finance Minister Palaniappan Chidambaram whichaimed at providing individuals and corporates accusedof evading or avoiding taxes amnesty from penalty andlitigation.

Reliance Petroleum has technically denied that itevaded or avoided paying taxes. The companypredictably claims this is a dispute between acorporate body and the income tax authorities relatingto the exact amount of money that is owed to thegovernment. What is evident is that the income taxdepartment did not feel it necessary to follow up itsshow-cause notice with any further action after theoffer to buy peace was made. The questions are quitesimple and not far to seek. Would a company offer tofork out Rs 25 crore if it was confident that it wason sure legal ground as far as its dispute with theincome tax department is concerned?

Clearly, no person will offer to buy peace withsomeone harassing him if he is quite certain that heis being unfairly discriminated against, that he islegally and morally in the right and the other personis the one doing something incorrect or illegal. Inthis instance, it was evident to Reliance Petroleumthat there was a strong possibility that it would loseits dispute with the tax department at some stage orthe other. Hence, it made its offer to settle thedispute under the VDIS. No other plausible explanationis possible.

All disclosures made under the VDIS are supposedto be confidential. The provisions of the 1997 taxamnesty scheme are such that the Department of Revenueof the Ministry of Finance cannot reveal the names ofthe individuals or corporate entities that havedisclosed their illegal incomes. So how did thisinformation about the Reliance group become publicknowledge?

On 17 April, Raashid Alvi, a Member of Parliamentbelonging to the Bahujan Samaj Party (BSP), addresseda conference of media personnel at his residence inthe capital. The MP, who also happens to be a lawyerby profession, released a thick bundle of documentsrelating to various companies in the Reliance group.In this voluminous bunch of papers, weighing more thana couple of kilograms, was a photocopy of therevealing letter written by the authorised signatoryof Reliance Petroleum offering to buy peace by payingRs 25 crore to the income tax authorities.

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Mr Alvi has been carrying out his personalinvestigation into the affairs of the Reliance groupfor more than six months. In this connection, he haswritten a large number of letters, raising a hostof questions, to a variety of individuals including thePrime Minister of India, Atal Behari Vajpayee; theUnion Finance Minister, Yashwant Sinha; the Ministerfor Law, Justice and Company Affairs, Arun Jaitley; theGovernor of the Reserve Bank of India (RBI), BimalJalan; the Chairman of the Securities and ExchangeBoard of India (SEBI), D R Mehta and the Chairman ofthe Central Board of Direct Taxes, A. Balasubramanian. All these individualshave acknowledged Mr Alvi's letters and some havestated that they are looking into the allegations thathave been levelled. That's all.

The accusations made by the BSP MP against theReliance group are rather serious. He has claimed thatlarge sums of money raised by group companies throughpublic issues of shares were diverted to satellitefirms with the intention of illegally enriching thegroup's promoters and their associates and also tomanipulate the prices of these companies' shares. MrAlvi has provided a list of over 250 satellite firmsthat are allegedly affiliated to the promoters of theReliance group. It can be argued that this is nothingout of the ordinary since a number offamily-controlled large industrial conglomerates (theTatas, the Birlas et al) have set up hundreds ofsatellite companies to legally avoid paying taxes. Inother words, the Ambanis' supporters claim they havedone nothing illegal. But the entire affair is not assimple as that.

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What Mr Alvi has alleged is that Reliance groupcompanies raised Rs 934 crore and Rs 1,006 crorethrough two public issues of capital between 1993 and1995. From the two issues, an amount of Rs 789 crorefrom the first issue and Rs 886 crore from the secondissue were allegedly diverted to "front" companies toenrich the group's promoters and rig share values. Thefunds raised from the public were meant to implementspecific projects and the unutilised portion of themoney should have been invested in approvedsecurities. The interesting aspect of Mr Alvi'scharges is that various wings of the government areapparently evading their responsibility by passing thebuck on to one another. Thus, the RBI says it is theSEBI that is responsible for monitoring the manner inwhich companies use funds raised from the public. Inturn, SEBI says this subject comes within the purviewof government-owned financial institutions, in thisinstance, the Industrial Development Bank of India(IDBI).

The list of allegations against the Reliance groupgoes on. The BSP MP has annexed reams of documentsincluding balance sheets of companies like LavanyaHoldings, Krishna Associates and CPPL Project Servicesthat are supposed to be "front" companies of theReliance group. Mr Alvi has further alleged that theaudited accounts of Reliance Petroleum for the fiscalyear 1994-95 that were circulated among nearly fivemillion shareholders of the company were differentfrom the accounts actually signed by the company'sdirectors and approved by its statutory auditors.

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This is hardly the first time the Reliance group hasbeen accused of fudging its books of account. Thepublicly-distributed prospectus documents of two groupcompanies, Reliance Polyethylene Limited and ReliancePolypropylene Limited - affectionately called Ilu andPilu - had acknowledged that the values of the sharesof these two companies had been artificially ramped upby "thin and circular" trading by investment firms. Inother words, thanks to a series of transactions byinvestment companies, the share prices were jacked upwithout genuine trading taking place.

Nothing happened when these facts became known. Thistime round as well, since various wings of thegovernment appear to be dragging their feet, Mr Alvisays he may have no alternative but to seek theintervention of courts by moving a public interestlitigation petition. It is not clear to lay personssuch as this writer whether there is any truth in theallegations levelled against the Reliance group by MrAlvi. But the government has to do its job byinvestigating the veracity of the charges.

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As for the Reliance group, instead of issuing apoint-by-point rebuttal of Mr Alvi's allegations, ithas issued press releases containing blanketstatements denying the charges and describing them asunsubstantiated. What is more, company spokespersonshave claimed Mr Alvi made the allegations at thebehest of the Reliance group's rivals. The BSP MP, inturn, denies this and claims he is acting on his own.He says that even if he was acting on behalf of theReliance group's competitors, the government stillcannot run away from its responsibility ofinvestigating the authenticity of the allegations.

Who remembers the one-time rivals of the Reliancegroup? Do any of them still exist? Once upon a time,there were groups like Swan Mills and Orkay headed byKapal Mehra who ran afoul of the powerful Ambanis.Where are these groups today? When the "IndianExpress" chain of newspapers carried out a campaign inthe second half of the 1980s against the Reliancegroup by publishing a series of articles authored byArun Shourie (now Union Minister for Disinvestment inthe Vajpayee government) and S Gurumurthy (a charteredaccountant and a leading light of the Swadeshi JagaranManch which espouses the cause of economicnationalism), it was said that the campaign had thetacit support of Nusli Wadia, head of Bombay Dyeing.Where is Mr Wadia these days? The fortunes of MrWadia's companies have certainly seen better days. Thesame can be said about companies in the Essar groupcontrolled by the Ruia family.

It is often remarked in a jocular vein that the mostpowerful political party in the country at present isthe Reliance Party of India. One would certainly notbe guilty of exaggeration if it is stated that sympathisers of the Ambanis exist in each and everypolitical party of any significance in the country.The nexus between big business and politics is nothingnew, nor is it unique to India.

Yet there is something to be said about the manner inwhich successive governments have bent over backwardsto accommodate the interests of the Ambanis. It is notas if the government of the day has not helped theTatas, the Birlas or other families of industrialists.The difference in the infamous business-governmentnexus could, perhaps, have something to do with thefact that around the time the Reliance group embarkedon its meteoric growth path, the Indian economy hadstarted becoming competitive. This was the period whenthe licence-control raj was coming to an end and thediscretionary clout of particular politicians andbureaucrats had diminished somewhat.

It was, therefore, not enough for the Union governmentto help a particular corporate group along the way. Ithad, in the process, also to put down the competition.Therein lay the difference. The patriarch of theReliance group, Dhirubhai Ambani, who started hisbusiness career in a humble manner as a clerk in atrading outfit based at Aden, has achieved in alifetime what no Indian entrepreneur has been able todo. He has made his corporate group the biggestfamily-controlled business empire in the country.Vimal is a household name in India. But that does notmake Mr Ambani or his two dynamic sons, Anil andMukesh, different from most cynical corporate captainswho believe that everyone carries a price-tag, be it apolitician or a journalist.

Why did Mr Alvi's allegations merit only a cursorymention in all but a few newspapers, websites andtelevision channels like the Asian Age, tehelka.comand Zee News? Did the bulk of the journalists whoattended the 17 April media conference organised bythe BSP MP exercise self-censorship? Or were theyunable to understand or appreciate the significance ofthe documents that were circulated? Or did theyrealise their employers' editorial preferences?Unfortunately for the Ambanis and others who thinklike them, a few individuals still exist who will notsell their soul for a fancy junket or an expensiveDiwali hamper, even if such people are in a woefullysmall minority. 

(The author anchors "India Talks", a current-affairsinterview and discussion programme broadcast on theCNBC India television channel. The programme has beenon air since November 1995.)

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