The Serious Fraud Investigation Office (SFIO) is probing whether investments by so-called shell companies linked with Reliance Industries Limited (RIL), headed by Mukesh Ambani, caused intentional losses to the company's shareholders. The investments were made during 2009-10 in companies that were part of the INX Media (now 9X Media) group which owns and operates television channels.
The ongoing investigation by the SFIO (which is part of the government of India's Ministry of Corporate Affairs or MCA) is sensational not only because it may involve India's richest man heading the country's biggest privately-owned corporate conglomerate and his close associates. The probe is also looking into the role played by multinational private equity firm, New Silk Route, which has investments in INX/9X Media.
The founders of New Silk Route include Rajat Gupta, former managing partner, McKinsey and Company, Raj Rajaratnam, former managing partner of the Galleon group, Victor Menezes, former vice chairman, Citigroup, Anil Kumar, former senior partner, McKinsey, and Parag Saxena, former managing partner of Invesco Capital and Vedanta Capital. All these five individuals have, at different points in time, either been targets of investigation relating to, or found guilty of, violations of civil and criminal laws in the United States of America, including the law against insider trading in stocks and shares.
There's yet another twist to the tale. In an interview to Shougat Dasgupta published in Tehelka on October 23, two days after he quit his job as editor of The Hindu newspaper, Siddharth Varadarajan was quoted as saying: "On the day I quit I was editing a blockbuster of a story involving RIL, Mukesh Ambani and a private media company. I am not sure that story — and other hard-hitting investigative pieces, especially on corporate issues — will ever make it to print now. I hope I am wrong. I would be the happiest man if I were proved wrong."
It is reliably learnt from sources who spoke on condition of anonymity that the story Varadarajan was referring to relates to the SFIO investigation into RIL and its "shell companies" that invested indirectly in the INX/9X Media group. It is also confirmed from sources with knowledge of the "highly sensitive" investigation being conducted by the SFIO that a particular government official has suggested that the alleged violations of company law in the entire set of transactions could lead to criminal prosecution proceedings against Mukesh Dhirubhai Ambani and his close associate, Manoj Modi.
Whether such proceedings will at all take place is, of course, a different matter altogether. When contacted, SFIO director Nilimesh Barua refused to discuss the subject, neither confirming nor denying the investigation.
The SFIO is a multi-disciplinary organisation under the MCA with experts from various disciplines such as accountancy, forensic auditing, law, information technology, investigation, company law, capital markets and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds. The charter and responsibilities of the office are:
- Detecting and prosecuting or recommending for prosecution white-collar crimes/corporate frauds;
- The SFIO normally takes up for investigation only such cases which are characterised by
- complexity and having inter-departmental and multi-disciplinary ramifications;
- substantial involvement of public interest to be judged by size, either in terms of monetary misappropriation or in terms of persons affected; and
- the possibility of investigation leading to or contributing towards a clear improvement in systems, laws and procedures.
The SFIO does not initiate any investigation on its own, based on any complaints/documents received from any source. The cases are taken up for investigation as and when ordered by the government, that is, the MCA under Sections 235, 237, 239 and 247 of the Companies Act,1956.
It is reliably learnt that under Section 235 of the Act, inspectors appointed by the MCA exchange notes about suspected frauds committed by promoters and directors of companies. Thereafter, they prepare notes recommending whether or not there is a fit case for launching prosecution proceedings against the persons concerned. The final sanctioning authority granting approval of prosecution is the MCA. (The MCA is currently headed by the Minister for Corporate Affairs Sachin Pilot.)
It is also learnt that documents relating to the investigation are available not only with journalists working with The Hindu but also with a public interest lawyer and political activist. Copies of these documents could be made public in the near future.
The issue of "shell companies" linked to the RIL group investing in INX/9X Media group, which owns and operates the English television news channel, NewsX and some entertainment channels, has been reported in the media. Importantly, it figures in the telephone conversations of corporate lobbyist Niira Radia, who counted RIL's Mukesh Ambani as one of her most important clients.
What follows are selected excerpts from transcripts (first published in Open and Outlook) of conversations Radia had with Jehangir Pocha, editorial head of NewsX and a former colleague of hers, one Yatish, relating to a financial crisis in the television channel. The recordings were made by officials of the Income Tax Department in May 2009.
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Pocha to Radia: Listen, we have a big problem here. Our salaries are due but money has not come in yet...
Radia: Listen to me, naa. Today is Friday. Even if it comes (on Monday) we have to issue our own money and cheques....
Radia to Yatish: Yatish, do one thing. Speak to Chander first. Monday morning we have a conference call with Hari and Raja to freeze on that budget. I spoke to them yesterday. Salaries for NewsX have to be released without budget being approved.
Yatish: Hmm.
Radia: We need to freeze on all these. I also indicated to him that we need to have a conference call on Monday itself.
Yatish: Okay.
Radia: Yesterday the vendors turned up with the police. There was a lot of drama at the NewsX office....
Yatish: Okay.
Radia: Basically what you have to do is to send a mail to all that we are going to have a conference call. We are waiting for Hari to confirm at 9 when Raja will be free to discuss the budget for NewsX. And tell us what time is convenient to them in the afternoon. Also we would like to have list of creditors to be cleared. We cannot have people turning at the office along with cops.
Yatish: Okay.
Radia: There are one-time items which we talked about. What are the one-time items that we might discuss? Most critically is also to discuss clearing all the past creditors. What is the timeline? How they want to play with?
Yatish: Hmm...
Radia: That has to be separated from the operational budget that would be discussed on Monday. The one-time item that needs discussion on Monday clearing of previous creditors before we took over the company.
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Internal reports based on the Radia telephone taps were prepared by Director-General Income Tax (Investigations) Milap Jain and joint director Ashish Abrol and letters were exchanged between them and Vineet Agarwal, deputy inspector general, anti-corruption branch, Central Bureau of Investigation. In a letter dated November 16, 2009, Agarwal wrote to Jain stating the following (grammar uncorrected):
"Radia and Jehangir Pocha have been in touch with (presumably Vinay) Chhajlani from Nayi (usually spelt Nai) Dunia (a Hindi newspaper published out of Indore, Madhya Pradesh). They wanted Nayi Duniya to front for someone else who wants to control a news channel in India, which later as per conversation turns out to be NewsX taken over from Peter and Indrani Mukherjee...
"There appear to have been some cross-border transactions in this acquisition (of NewsX). Radia is also spreading business connections to Africa, including investments in Guinea and Senegal through Global Minerals. There are several conversations in this regard, including reference to a mail from Muthuraman (presumably B. Muthuraman, former managing director, Tata Steel) and by Baijal (presumably Pradip Baijal, former chairman of the Telecom Regulatory Authority of India), her associates...Baijal appears to be getting Reliance people on the pipeline regulatory agency."
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Here is an excerpt from an article written by K S Narayanan that appeared in the New Indian Express on January 9, 2011:
"This is how the NewsX deal happened: Vinay Chhajlani, who owns Suvi Info Management and its 100 per cent subsidiary Nai Duniya News and Network Pvt Ltd, was funded to the tune of Rs 38 crore through a transfer by Aarthik Commercials Pvt Ltd to Suvi Info. Aarthik Commercials is a private company and an amalgamation of Reliance Petromarketing Infrastructure, Jamnagar Kandla Pipeline Co, Agni Fuels, Avalanche Fuels, Jubilant Autofuels Trading and Steadfast Fuel Trading. It is owned by Mukesh Ambani, according to well-informed sources. Chhajlani wouldn’t have been able to buy NewsX if he hadn’t got the funds from Aarthik even though, in the final analysis, there may be no direct connection between Mukesh and NewsX.
"The annual returns of Suvi Info Management (Indore) Pvt Ltd ending March 2007... show Vinay Chhajlani and his wife Sunita Chhajlani as shareholders and directors of the company.
"Importantly, the balance sheet of Suvi Info under Schedule C investments shows 67,34,700 equity shares were owned in Nai Dunia News and Network Pvt Ltd at Rs 57.50 per share amounting to Rs 38,72,45,300 or Rs 38 crore. Interestingly, Schedule B of Suvi Info’s balance sheet (for) 2006-07 shows an unsecured loan by Aarthik Commercials amounting to Rs 38 crore.
"During the year Suvi availed an interest-free unsecured loan of Rs 387, 145,300.00, out of which it had already availed Rs 146,000,000.00 during the last financial year from M/s Aarthik Commercial Private Limited... said the second annual report and audited accounts of Suvi Info signed by Vinay Chhajlani for the year ending March 31 2007.
More or less similar information was provided by an anonymous blogger (which has not been contradicted).
An unedited excerpt from the blog is being reproduced below:
"The Annual Returns filed by Aarthik Commercials, 307 Parekh Market, 3rd Floor, 39, Jagannath Shankar Seth Road, Opra House, Mumbai list all the names given above. Each of these entities Jubilant, Avalanche, Agni, Reliance Petromarketing, Steadfast Fuel and Jamnagar Kandla own 10,000 shares between them in the company. And the address for all these entities a dead giveaway – Ground Floor, Chitrakoot, Shreeram Mills Compound, Gantpatrao Kadam Marg, Worli, Mumbai 400013, a known RIL establishment."
Both Narayanan's article and the blog were based on information available to many (including this writer) in 2009-10 from sources close to Anil Ambani who was at that time engaged in a furious fratricidal fight with his elder sibling Mukesh Ambani.
The NewsX channel was part of a corporate entity acquired jointly by Vinay Chajlani and former BusinessWorld editor Pocha for a reported sum of Rs 50 crore. While the sources of funds of Chajjlani may be attributed to RIL associate Aarthik, there is no clue as to where Pocha raised funds to invest in a loss-making television news channel. Control over the channel moved to the Piccadilly group of companies controlled by former Industries Minister of Haryana and Congress leader Venod Sharma, better known as the father of Manu Sharma who was convicted for the murder of model Jessica Lal. NewsX is currently managed by Manu Sharma’s brother Kartikeya Sharma. The group also operates a Hindi television news channel, India News and a newspaper Aaj Samaj.
In April 2012, the Chajjlani family sold their stake in the company that publishes Nai Duniya to the Jagran Prakashan group for a reported sum of Rs 150 crore.
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As already stated, the SFIO is examining whether or not the transactions relating to RIL's associate companies and the firms related to the INX/9X Media group violated the government's norms on foreign direct investment (FDI) in corporate entities providing television broadcast services.
According to government norms prevalent since 2003, foreign investment proposals involving uplinking of television broadcast services from Indian soil may be allowed to Indian companies having a minimum 80 per cent of Indian shareholding and Indian management control. The foreign direct investment (FDI) limit for non-news and current affairs television channels is 100 per cent while that for news channels is 26 per cent.
On 10 April 2012, the government of India's Department of Industrial Policy and Promotion (DIPP) issued guidelines clarifying that an Indian company could uplink a news and current affairs television channel subject to the condition that the portfolio investment from FII/ NRI (foreign institutional investor/non-resident Indian) shall not be from persons acting in concert with FDI investors as defined in the Securities and Exchange Board of India or SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The limit on foreign investments of all kinds (FDI and FII) on non-news television broadcasters remained pegged at 100 per cent while that on news broadcasters at 26 per cent. (The Telecom Regulatory Authority of India or TRAI has recommended that the last mentioned limit be increased to 49 per cent.)
On September 25, 2013, an article in Business Standard by Reghu Balakrishnan stated that the international private equity group, New Silk Route, which owns roughly 80 per cent of the shares in 9X Media (the current avatar of INX Media) had begun discussions to sell its controlling stake, quoting Darius Pandole, partner, New Silk Route (NSR) Advisors.
Pradeep Guha, managing director, 9X Media, who holds an unspecified minority stake, was quoted saying: "I have not yet decided to sell off my stake. Whether I can continue or not is dependent on if the new buyer shares my vision...I can say the business has grown in the past couple of years. We launched a Punjabi music channel, which has been No. 1 since Day One. Our retro music channel, 9X Jalwa, is also among the top channels. Our Marathi channel is also No 1. I can say it’s an 80 per cent success story."
NSR has reportedly appointed an investment bank to find a buyer for 9X Media. It had raised its stake in 2009, after the original promoters Peter Mukherjea and his wife Indrani Mukherjea decided to quit the company. Launched in 2007, INX Media started operations with a Hindi general entertainment channel, a music channel called 9X to which was added another music channel, 9XM, and NewsX, the English news channel of the group.
In January 2009, the network sold the English news channel to Indi Media. The Hindi GEC was sold to Zee Entertainment Enterprises in June 2010. INX Media was renamed 9X Media in August 2010 to concentrate on music television. The company currently operates four channels, 9XO (international music), 9X Jalwa (classic Bollywood music), 9X Tashan (Punjabi) and 9X Jhakaas (Marathi).
NSR, a venture capital firm focussed on making investments in Indian and Asian companies, was established in 2006 with assets under management worth $1.4 billion. Over and above the five individuals mentioned earlier in this article, the founders of NSR included Abdul Hafeez, finance minister of Pakistan and Mark Schwartz, former chairman of Goldman Sachs Asia and CEO of Soros Fund Management. Among the Indian companies NSR has invested in is Reliance Telecom Infrastructure.
It is not known if the SFIO's investigations have found any violation of FDI norms by NSR or any other company, including those associated with RIL and/or 9X Media (INX Media). When asked how SFIO documents had found their way to at least one journalist and a lawyer, government sources said the source of the leaks would also be looked into.
The last is yet to be heard about this episode on the relationship between the media and big business in India. Meanwhile remarkable little is being reported in the business press about the investigation.
Downloads:
- http://thehoot.org/web/simages/2014/03/28/2014-03-28~Serious%20Fraud%20…
- http://www.thehoot.org/web/simages/2014/03/31/55.pdf
- http://www.thehoot.org/web/simages/2014/03/31/sfio.pdf
Disclaimer: The writer of this article worked with NewsX for a fortnight in August 2010.
