Eyes Wide Shut

This is probably what successive governments never wanted the 35 lakh Reliance shareholders to know—the Reserve Bank of India (RBI) had accused the Ambani family of diverting money mopped through its various public issues and raised through loans to play the stockmarket. While the late Dhirubhai Ambani was being lauded for his "innovative" business practices, the authorities had charged his group of "insider trading".

In '95, a snap scrutiny by RBI's department of financial companies found that Reliance Industries Ltd (RIL), Reliance Petroleum Ltd (RPL), Reliance Industrial Infrastructure Ltd (RIIL) and Reliance Filaments Ltd (RFL) were "diverting the funds obtained from banks, public issues/right issues, including Euro-issues if any, to...satellite companies, perhaps with a view to boosting up of their own share prices." The RBI listed 215 little-known satellite companies, many of them investment firms controlled by the Ambanis, and analysed seven of them. The report concluded: "In view of the above, insider trading in the shares of RIL and other group companies could not be ruled out. We may advise the fact to the sebi and other appropriate authorities for information and necessary action."

The income tax (IT) department investigated these allegations and the money flows to some of the satellite firms listed by the RBI. So did the department of company affairs (DCA), once the Rajya Sabha MP Rashid Alvi went public in '01 with evidence collected by Mumbai's IT department. But no action was taken against the Ambanis or any of their firms.

What the RBI found was startling. Lavanya Holding and Trading Pvt Ltd, a satellite company, received Rs 175 crore from RPL on March 2, '94, to supply project materials like steel. But Lavanya distributed the money to 72 other satellite companies to buy units and bonds. But never supplied steel to RPL. In fact, it was never involved in steel trading. Yet RPL earmarked 30 per cent of its budget for steel materials to Lavanya.

Two other firms, Riyaz Trading Ltd and Bloom Trading Ltd, which received a part of Lavanya's largesse, used the amounts as advances "towards supply of shares. Prima facie, the entire amount had gone to finance securities/shares transactions." In '93, Bloom was actively trading in scrips like l&t, a company that the Reliance group tried to take over, but failed.

Again, in May '94, Lavanya received Rs 30 crore for the supply of "steel and other materials" from RIIL (formerly Chembur Patalganga Pipelines Ltd), and this too was distributed among 16 firms to buy debt instruments. Fidelity Shares & Securities Ltd, yet another satellite company, received a similar amount from RIIL for the supply of project materials. It was given to seven others as "advance payment" without assigning any purpose. Fidelity didn't supply any materials to RIIL, and merely returned the money by raising Rs 30 crore from eight different satellite companies as advances towards sale of shares.

Going by the RBI report, Vinod Ambani, RIL's company secretary and a director in Fidelity, was in charge of all the satellite companies which, by the central bank's "rough estimate", were functioning "from the same premises: 84, Mittal Court, Nariman Point." And these firms were engaged in share-trading activities and the source of funds were either from each other or from publicly listed firms like RIL and RPL.

For instance, Fidelity received Rs 163 crore from RIL in June-July '94 for sale of units to the parent company. Fidelity distributed this amount among several of Reliance's satellite companies. Says the RBI report, "Fidelity neither had any stock of units with it nor had it acquired any units till the last date of scrutiny and as such, the question of delivering the units to the RIL did not arise.The end use of the funds could be ascertained only if the chain of transactions were traced out. "

But then, the RBI did not pursue its own scrutiny to its logical conclusion.