How strong is the nexus between big business and politics? Was India's largest private corporate group responsible for the federal government withdrawing its nominee from the country's largest state-owned mutual funds organisation?
To be more specific, was the Ambani-family controlled Reliance group responsible for the Union finance ministry's decision to withdraw its nominee from Unit Trust of India's board of trustees?
A former head of UTI thinks so, but a panel of 30 lawmakers has sidestepped this important question.
The Joint Parliamentary Committee report inquiring into last year's stock market scam that was made public on Thursday, December 19, has quoted former UTI Chairman P S Subramanyam saying Reliance was responsible for the government withdrawing its nominee from UTI's board of trustees.
In 1994, the UTI board -- in a highly controversial decision -- invested more than Rs 1,000 crore (Rs 10 billion) in Reliance Industries Limited shares through an off-market private placement.
The shares were purchased at rates that were above the prevailing market prices.
More controversial than the large investment itself was the provision that the funds invested by UTI in Reliance would be 'locked in' for a period of five years. The UTI chairman at that time was S A Dave.
Deposing before the JPC, Subramanyam had claimed: 'I understand that the government nominee was withdrawn in the wake of a large investment that had taken place in a mega-group company.'
He added: 'I understand it was Reliance because it happened in the earlier period. This is what I understand. The government did not want any embarrassment on that issue and, therefore, I understand the nominee was withdrawn.'
After UTI was set up by an Act of Parliament in 1963, the country's central bank and apex monetary authority, the Reserve Bank of India, played a primary role in controlling the affairs of the Trust.
Then, in 1975, after the passage of the Public Financial Institutions Laws (Amendment) Act, the RBI's powers got vested in the Industrial Development Bank of India. Thereafter, IDBI would dominate the working of UTI's executive committee and board of trustees.
Since its inception, an official of the rank of joint secretary or higher at the finance ministry has represented the Government of India on UTI's board of trustees.
The only time the finance ministry was not directly represented on the UTI board was between May 2, 1997 and July 20, 2001, a period of a little more than four years.
According to a pro-Reliance corporate source, who spoke on condition of anonymity, Subramanyam's claim could have carried greater credibility had the government nominee on UTI been withdrawn around the time UTI made its investment in Reliance in 1994.
The fact that the government nominee was removed in mid-1997, three years after UTI's investment in the Reliance group company made this source wonder what really motivated Subramanyam to make the claim he did before the JPC.
When asked by the JPC about the reasons for withdrawing the IDBI-government nominee from the UTI board in 1997, the then finance secretary, Ajit Kumar, had the follow to state in the verbatim record of evidence:
'. . .the overall position since 1991 in a regime which is liberalised has been that these bodies in the financial markets should move towards as much autonomy as possible. The government or the ministry should not interfere in its day-to-day working. The people who are appointed there are responsible and they should be allowed to function.'
The JPC then asked the then finance secretary why the government nominee had been re-appointed in 2001.
He replied: '. . .I would put it this way that the government had been adopting this hands-off policy since 1991. Now, after the debates in Parliament on these issues, we do realize that the presence of the representatives of the ministry of finance on the UTI board would be useful to keep the ministry informed constantly as to what is happening.'
When current UTI Chairman M Damodaran was asked the reason for the withdrawal of the government's nominee from the board, he stated he was unaware of the reasons.
Who is telling the truth? Former finance secretary Ajit Kumar or disgraced former UTI chairman P S Subramanyam?
The report of the committee of MPs has made the following remark: 'Whatever may have been the intention of the government in withdrawing its nominee from the (UTI's) board of trustees, the stated purpose of letting the institution function autonomously and having a hands-off policy did not, in retrospect, bring about any improvement in the functioning of UTI '
The JPC came to the conclusion that the presence or absence of a government nominee on the UTI board 'did not result in improvement or deterioration of the functioning of UTI.'
Elsewhere, the JPC stated it could not probe the nexus between scam-scarred brokers and corporates for want of time and necessary expertise and suggested the formation of a separate committee to investigate this nexus.
Was the JPC correct in claiming it did not have the wherewithal to probe the nexus between brokers and company promoters?