Reliance: A history of controversy

nrj

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Most disputes concerning Reliance Industries have been covered extensively by the media

Reliance Industries Ltd, named by activist-turned-politician Arvind Kejriwal in an expose on Wednesday, isn't exactly a stranger to controversy. And unlike other exposes by Kejriwal, the controversy surrounding Reliance's D6 block in the Krishna Godavari basin (KG-D6) has been covered extensively by media (and also with far better clarity than what Kejriwal and his colleague Prashant Bhushan managed during a press briefing). Mint's own coverage can be found here. (read here)

Indeed, most controversies concerning Reliance Industries have been covered extensively by the media. Most of the early controversies can be found in two excellent pieces of journalism. One, by Paranjoy Guha Thakurta in Seminar magazine, in 2003, details Reliance founder Dhirubhai Ambani's proximity to politicians, his enmity with Bombay Dyeing's Nusli Wadia, the exposes by the Indian Express and Arun Shourie (who later started seeing Reliance through friendlier eyes) about illegal imports by the company and overseas share transactions by shell companies, and the botched attempt to acquire Larsen & Toubro. (read here)

Another, by Sandipan Deb (now a Mint columnist) and a few others in Outlook magazine in 1996, addresses other controversies related to fake and switched shares; insider trading; and a nexus with the state-owned Unit Trust of India. (read here)

To be sure, allegations of insider trading seem to be a constant through Reliance's relentless march through the decades. In 2009, India's stock market regulator started investigating whether companies associated with the promoters had indulged in insider trading by taking short positions in futures of Reliance Petroleum after coming to know that the promoters themselves would sell shares soon.

Reliance initially denied the claim, reported by Mint (read here), and a few other newspapers in May 2009 was initially denied by Reliance Industries. It later emerged that Reliance and the stock market regulator were engaged in settling the case through a consent order (where the company chooses to pay a fine but isn't accused of any wrongdoing). The process seems to be continuing. (read here)

Controversies have also dogged the Reliance group, the name of the entity carved out of the Reliance Industries empire when brothers Anil Ambani and Mukesh Ambani carved out their inheritance in 2004 after a bitter and all-too-public fight. In 2011, Reliance Infrastructure and Reliance Natural Resources, both companies controlled by Anil Ambani reached a settlement with the stock market regulator for alleged violations of foreign investment norms.

Later the same year, Reliance Securities, also part of the same group, settled another case with the regulator, this one related to violations of rules regarding brokerages. (read here)

To return to Wednesday's events, barring the unsubstantiated allegation about former petroleum minister Japial Reddy being removed because he was anti-Reliance, much of what Kejriwal said is ground that has been covered, and extensively so, by the business press.
 

nrj

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The two faces of Dhirubhai Ambani

HE achieved what almost everybody would consider impossible. In a life spanning 69 years, he built from scratch India's largest privately controlled corporate empire. Dhirajlal Hirachand – better known as Dhirubhai – Ambani would often say that success was his biggest enemy. He was a man who aroused extreme responses in others. Either you loved him or you hated him. There was just no way you could have been indifferent to this amazing entrepreneur who thought big, acted tough, knew how to bend rules or have rules bent for him. He was a visionary as well as a manipulator, a man who communicated with the rich and the poor with equal felicity, who was generous beyond the call of duty with those whom he liked and utterly ruthless with his rivals – a man of many parts, of irreconcilable contrasts and paradoxes galore.

Dhirubhai Ambani expired on Saturday July 6, roughly ten minutes before midnight, at Mumbai's Breach Candy Hospital where he had been admitted after he suffered a vascular stroke on the evening of June 24. This was his second stroke – the first had occurred more than sixteen years earlier, in February 1986, leaving the right side of his body paralysed. At his cremation, the well-heeled rubbed shoulders with the ordinary. No Indian businessman ever attracted the kind of crowd that Dhirubhai did on his last journey. After his cremation on the evening of Sunday July 7, his elder son Mukesh reminded those gathered on the occasion that in 1957, when Dhirubhai arrived in Mumbai from Aden in Yemen, he had only Rs 500 in his pocket.


He was not exactly a pauper since Rs 500 meant much more than what the amount means in this day and age. Nevertheless, one could not ask for a more spectacular 'rags-to-riches' tale. The second son of a poorly paid school-teacher from Chorwad village in Gujarat, he stopped studying after the tenth standard and decided to join his elder brother, Ramniklal, who was working in Aden at that time. (Not surprisingly, Dhirubhai ensured that his two sons went to premier educational institutions in the US – Mukesh was educated at Stanford University and Anil at the Wharton School of Business.)

The first job Dhirubhai held in Aden was that of an attendant in a gas station. Half a century later, he would become chairman of a company that owned the largest oil refinery in India and the fifth largest refinery in the world, that is, Reliance Petroleum Limited which owns the refinery at Jamnagar that has an annual capacity to refine up to 27 million tonnes of crude oil.

When he died, the Reliance group of companies that Dhirubhai led had a gross annual turnover in the region of Rs 75,000 crore or close to US $ 15 billion. The group's interests include the manufacture of synthetic fibres, textiles and petrochemical products, oil and gas exploration, petroleum refining, besides telecommunications and financial services. In 1976-77, the Reliance group had an annual turnover of Rs 70 crore. Fifteen years later, this figure had jumped to Rs 3,000 crore. By the turn of the century, this amount had skyrocketed to Rs 60,000 crore. In a period of 25 years, the value of the Reliance group's assets had jumped from Rs 33 crore to Rs 30,000 crore.

The textile tycoon's meteoric rise was not without its fair share of controversy. In India and in most countries of the world, there exists a close nexus between business and politics. In the days of the licence control raj Dhirubhai, more than many of his fellow industrialists, understood and appreciated the importance of 'managing the environment', a euphemism for keeping politicians and bureaucrats happy. He made no secret of the fact that he did not have an ego when it came to paying obeisance before government officials – be they of the rank of secretary to the Government of India or a lowly peon.

Long before Dhirubhai entered the scene, Indian politicians were known to curry favour with businessmen – licences and permits would be farmed out in return for handsome donations during election campaigns. The crucial difference in the business-politics nexus lay in the fact that by the time the Reliance group's fortunes were on the rise, the Indian economy had become much more competitive. Hence, it was insufficient for those in power to merely promote the interests of a particular business group; competitors had to simultaneously be put down. This was precisely what happened to the rivals of the Ambanis.

Who remembers Swan Mills? Or Kapal Mehra of Orkay? Even Nusli Wadia of Bombay Dyeing is a pale shadow of what he would certainly have liked to be. The undivided Goenka family that used to control the Indian Express chain of newspapers – which carried on a campaign against the Reliance group in 1986-87 – is currently divided into three factions. Whereas the multi-edition newspaper has not entirely lost its feisty character, it is yet to fulfil its late founder Ramnath Goenka's cherished dream of becoming a market leader in at least one of its many publishing centres.





A popular joke starts with a question: Which is the most powerful political party in India? Answer: the Reliance Party of India. Others divide the country's politicians into two groups: a very large 'R-positive' group and a very small 'R-negative' section. It is hardly a secret that Dhirubhai's support base would easily cut across political lines. Very few politicians have had the gumption to oppose the Ambanis, just as the overwhelming majority of journalists in the country preferred not to be critical of the Reliance group. The Indian media, most of the time, has chosen to lap up whatever has been doled out by the group's public relations executives. The bureaucracy too has, by and large, favoured the Ambanis, not merely on account of the fact that many babus have got accustomed to receiving expensive hampers on the occasion of diwali.

While Dhirubhai did not have too many scruples when it came to currying favour with politicians and bureaucrats, what cannot be denied is the fact that perhaps no businessman in India attracted the kind of adulation he did. He was more than just a legend in his lifetime. He successfully convinced close to four million citizens, most of them belonging to the middle class, to invest their hard-earned savings in Reliance group companies. He was fond of describing Reliance shareholders as 'family members' and the group's annual general meetings acquired the atmosphere of large melas attended by hordes.

What cannot also be refuted is the fact that the Reliance group believed in rewarding its shareholders handsomely. Much of the credit for the spread of the so-called 'equity cult' in India in recent years should rightfully go to Dhirubhai, even if the Reliance group was often accused of manipulating share prices. Two group companies that once carried the cumbersome names of Reliance Poly-Ethylene and Reliance Poly-Propylene – popularly called Ilu and Pilu – went to the extent of blandly stating in the fine print of their public issue prospectus documents that the value of the shares of the companies had been increased though thin and circular trading. On another occasion in January 1998, a functionary of Reliance Petroleum replied to a show-cause notice served on the company by agreeing to shell out a sum of Rs 25 crore to 'buy peace' with the income tax authorities.

When, after having spent eight years in Aden, Dhirubhai returned to Mumbai, his lifestyle was akin to that of any ordinary lower middle class Indian. In 1958, the year he started his first small trading venture, his family used to reside in a one room apartment at Jaihind Estate in Bhuleshwar. After trading in a range of products, primarily spices and fabrics, for eight years, Dhirubhai achieved the first of the many goals he had set for himself when he became the owner of a small spinning mill at Naroda, near Ahmedabad. He did not look back.

He decided that unlike most Indian businessmen who borrowed heavily from financial institutions to nurture their entrepreneurial ambitions, he would instead raise money from the public at large to fund his industrial ventures. In 1977, Reliance Industries went public and raised equity capital from tens of thousands of investors, many of them located in small towns. From then onwards, Dhirubhai started extensively promoting his company's textile brand name, Vimal. The story goes that on one particular day, the Reliance group chairman inaugurated the retail outlets of as many as 100 franchises.

He had by then already succeeded in cultivating politicians. Indira Gandhi returned to power in the 1980 general elections and Dhirubhai shared a platform with the then prime minister of India at a victory rally. He had also become very close to the then finance minister Pranab Mukherjee, not to mention the prime minister's principal aide R.K. Dhawan. He realised that it was crucial to be friendly with politicians in power, especially at a time when the group had embarked on an ambitious programme to build an industrial complex at Patalganga to manufacture synthetic fibres and intermediates for polyester production.

In 1982, Dhirubhai created waves in the stock markets when he took on a Kolkata-based cartel of bear operators that had sought to hammer down the share price of Reliance Industries. The cartel badly underestimated the Ambani ability to fight back. Not only did Dhirubhai manage to ensure the purchase of close to a million shares that the bear cartel offloaded, he demand physical delivery of shares. The bear cartel was rattled. In the process, the bourses were thrown into a state of turmoil and the Bombay Stock Exchange had to shut down for a couple of days before the crisis was resolved.

The mid-eighties were a period during which the Reliance group got locked in a bitter turf battle with Bombay Dyeing headed by Nusli Wadia. The two corporate groups were producing competing products – Reliance was manufacturing purified terephthalic acid (PTA) and Bombay Dyeing, di-methyl terephthalate (DMT). Wadia lost the battle and reportedly became the source of information for many of the articles against the Ambanis that subsequently appeared in The Indian Express. In 1985, the Mumbai police accused a general manager in a Reliance group company of conspiring to kill Wadia, a charge that was never established in a court of law. Many years later, a newspaper owned by the Ambanis would accuse Wadia of illegally holding two passports and played up the fact that he was Mohammed Ali Jinnah's grandson.

1986 was a crucial year for Dhirubhai. He suffered a stroke in February that year. A few months later, the Express began publishing a series of articles attacking the Reliance group as well as the Indira Gandhi regime for favouring the Ambanis. These articles were coauthored by Arun Shourie who, ironically, as Union Minister for Disinvestment in the Atal Behari Vajpayee government, presided over the sale of 26 per cent of the equity capital of the former public sector company, Indian Petrochemicals Corporation Limited (IPCL), to the Reliance group in May this year. By gaining managerial control over IPCL, the Reliance group would now be able to dominate the Indian market for a wide variety of petrochemical products.

Shourie's coauthor for the famous series of anti-Reliance articles was Chennai-based chartered accountant S. Gurumurthy who happens to be a leading light of the Swadeshi Jagaran Manch, an outfit that espouses the cause of economic nationalism and is closely affiliated to the Rashtriya Swayamsevak Sangh (RSS), the ideological parent of the ruling Bharatiya Janata Party (BJP). The Express articles written by Shourie and Gurumurthy meticulously detailed a host of ways in which the government of the day had gone out of its way to assist the Ambanis. One article was on the subject of how the Reliance group imported 'spare parts', 'components' and 'balancing equipment' of textile manufacturing machinery to nearly double its production capacities. The article provocatively claimed the Ambanis had 'smuggled' in a plant.

Another story detailed how companies registered in the tax haven, Isle of Man, with ridiculous names like Crocodile Investments, Iota Investments and Fiasco Investments had purchased Reliance shares at one-fifth their market prices. Curiously, most of these firms were controlled by a clutch of nonresident Indians who had the same surname, Shah. Though Pranab Mukherjee had to change a reply he gave in Parliament on the investments made by these firms, an inquiry conducted by the Reserve Bank of India could not find any evidence of wrongdoing. Yet another article detailed how the group had been the beneficiary of a 'loan mela' – a number of banks had loaned funds to more than 50 firms that had all purchased debentures issued by Reliance Industries.

Vishwanath Pratap Singh was one of the few politicians who took on the Ambanis. In May 1985, as finance minister in Rajiv Gandhi's government, he suddenly shifted imports of PTA from the OGL (Open General Licence) category. At that juncture, Reliance needed to import this product to manufacture polyester filament yarn. It was found that the group had 'persuaded' a number of banks to open letters of credit that would allow it to import almost one full year's requirement of PTA on the eve of the issuance of the government notification changing the category under which PTA could be imported. It was hardly a coincidence that soon after V. P. Singh fell out with Rajiv Gandhi, various tax agencies of the Indian government raided the premises of the Express group.

Things got difficult for the Ambanis after V.P. Singh became prime minister in December 1989. In 1990, government-owned financial institutions like the Life Insurance Corporation and the General Insurance Corporation stonewalled attempts by the Reliance group to acquire managerial control over Larsen and Toubro, one of India's largest construction and engineering companies. Sensing defeat, the Ambanis resigned from the board of the company after incurring large losses. Dhirubhai, who had become L&T chairman in April 1989, had to quit his post to make way for D. N. Ghosh, former chairman of the State Bank of India.

Once again, in an ironical twist of fate, more than eleven years later, the Reliance group suddenly sold its stake in L&T to Grasim Industries headed by Kumaramangalam Birla. This transaction too attracted adverse attention. Questions were raised about how the Reliance group had increased its stake in L&T a short while before the sale to Grasim had taken place. The watchdog of the stock markets, the Securities and Exchange Board of India (SEBI) instituted an inquiry into the transactions following allegations of price manipulation and insider trading. Reliance had to later cough up a token fine imposed by SEBI.

These are hardly the only controversies involving the Reliance group. Two senior executives of the Reliance group, including one who was known to be close to Dhirubhai, have been accused of violating the Official Secrets Act after a Cabinet note was found in their office during a police raid. One of these executives reportedly had links with a mafia don. Earlier, there had been a major uproar in the stock exchanges over alleged cases of 'switching' of shares and the issue of duplicate shares. Some of these transactions pertained to Dhirubhai's personal physiotherapist.





More recently, last year, Raashid Alvi, a Member of Parliament belonging to the Bahujan Samaj Party, levelled a large number of allegations against the Reliance group. He distributed a voluminous bunch of photocopied documents to journalists that included the letter in which a Reliance group company had sought to 'buy peace' with the income tax department. The MP accused the Reliance group companies of manipulating their balance sheets and annual statements of account.

A week after Dhirubhai's death, the Department of Company Affairs (DCA) confirmed that there was basis to some of the allegations raised by Alvi and that there were certain discrepancies in the balance sheet issued by Reliance Petroleum seven years ago. A group spokesperson sought to dismiss the discrepancy as a minor printing error that had been inadvertently committed. The DCA subsequently confirmed that different Reliance group companies had transferred interest income to one another in a questionable manner.

The plethora of scandals and controversies surrounding the Reliance group left Dhirubhai's supporters completely unmoved. His supporters – and there was no dearth of them – would argue that there was no businessman in India whose track record was lily-white. Had the textile tycoon himself not acknowledged once to Time magazine that he was no Mother Teresa, they would ask. Even Hamish McDonald's unflattering portrayal of Dhirubhai in his book The Polyester Prince – published in Australia by Allen and Unwin and not available in India – acknowledges his remarkable entrepreneurial talent that made him one of the few Indians on the Forbes list of the world's wealthy and placed Reliance among the leading 500 companies in the developing world compiled by Fortune magazine.

Senior journalist T.V.R. Shenoy, in a tribute to Dhirubhai entitled 'A Superman named Ambani' posted on the rediff.com website, points out that the Reliance group accounts for three per cent of India's gross domestic product (GDP), five per cent of the country's exports, 10 per cent of the Indian government's indirect tax revenues (excise and customs duties), 15 per cent of the weight of the sensitive index of the Bombay Stock Exchange and 30 per cent of the total profits of all private companies in the country put together. Another journalist, Manas Chakravarty, concluded his not-so-adulatory article in the Business Standard with the following sentence: '"¦it was (Dhirubhai's) common touch combined with his uncommon vision that was the secret of his success.'

Dhirubhai's supporters like to recall instances of his 'common touch' and his ability to interact with individuals from different walks of life. In 1983, he had hosted a lunch for 12,000 of his company's workers on the occasion of the marriage of his younger daughter Dipti. The departed Reliance group patriarch would often wonder aloud that if he could achieve what he did in a lifetime, why could a thousand Dhirubhais not flourish. He was sure that there were at least one thousand individuals like him in the country who would dare to dream big. And if all these entrepreneurs could achieve their ambitions, India would become an economic superpower one day, he would remark.

Dhirubhai's managerial skills were undoubtedly exceptional and he would repose his faith in professionals, many of whom had earlier worked in much-maligned public sector organisations. Whether it was the building of the petroleum refinery at Jamnagar in three years at a capital cost that was 30 per cent lower than comparable projects, or the restarting of the Patalganga plant in one month's time after sudden floods had occurred in July 1989, the Reliance management team displayed their competence on many occasions.


The Ambanis often scored because they stuck to their knitting or focused sharply on their areas of 'core competence'. The group flopped when they entered new areas, be these the print medium or financial services. The group's foray into power generation too has so far not yielded significant results. Dhirubhai's sons, Mukesh (45) and Anil (43) are keen on effectively implementing their plans of diversifying into the 'new economy', into new areas like telecommunications, life sciences and insurance. The Reliance group intends proving telecom services in many parts of the country and is currently building an optic fibre based broadband internet network connecting 115 cities. Only time will tell whether Mukesh and Anil prove to be worthy successors to their father. But one thing seems certain: they will try their level best not to be as controversial as Dhirubhai was.
 

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What about the polyester prince or something, a book he got banned which details some of the exploits of the Late Ambani
 

nrj

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Blind Ambition​

Is Reliance guilty? It does not matter. This is the biggest battle it has ever faced. And it may have lost already.

There has never been an Indian company like this.

In a country where "business ethics" is considered a contradiction in terms, where mutterings about the "business-political nexus" raises only a few tired eyebrows today, the Reliance group continues to draw extreme responses. From the creator of unequalled wealth for lakhs of shareholders to Devil incarnate, an amoral behemoth which has brutally subverted the nation's politico-economic system to have its cake and devour it, at every opportunity it has got.


If a clerical error is the best explanation for the duplicate shares, the worst case scenario is that Reliance knowingly issued them.


Says S. Gurumurthy, veteran Reliance-basher: "Most of the major houses have broken many rules and grown because of their proximity to the political leadership. But everyone has a notion of a lakshman rekha which they never transgress. Reliance does not have such a dividing line."

The five allegations that are haunting Reliance, and which have plunged the Indian capital markets into a period of uncertainty unsurpassed since the days of the securities scam are:

That Reliance has issued fake shares.

That it has switched shares sent for transfer by buyers to make illegal profits.

That it has indulged in insider trading in shares.

That it has established an unholy nexus with the Unit Trust of India (UTI), to raise huge sums of money to the detriment of UTI subscribers.

That it has, through front companies, attempted to monopolise the private telecom services market.


This may be the biggest battle the Ambanis have ever fought, even for a family that has been dogged by controversy for years. "Reliance's success is the product of a corrupt government and a corrupting company," alleges Gurumurthy. "Of course, Reliance complies with the rules. The only catch is that they get the rules amended to suit their goals." But this time round, whether or not Reliance is found guilty of any malpractice or crime, deep damage has already been done to all the dreams that Dhirubhai Ambani's vaulting ambition had conjured up.


The conspiracy theory is that Reliance does not want to come to the forefront in telecom.


The dream of being one of the biggest businessmen on the planet.

Scratch the surface of that ambition, and you find the raw sensitiveness of a businessman who has been incredibly successful, but is still hankering after some sort of elusive respectability, what he considers a rightful place in the Indian business pantheon. At the Bombay Stock Exchange (BSE) and the Mulji Jetha Market in Bombay, most old stockbrokers and traders love to regale listeners with tales about Dhirubhai. "When he was trading yarns and fabrics," says an old-timer, "Dhirubhai often had to wait for hours to meet Bombay Dyeing chief Nusli Wadia. Reliance Industries is an answer to all the humiliation he suffered at the hands of the traditional business bigwigs."

With blind ambition has also come the arrogance that rags-to-riches men are easy prey to. Reacting to charges of financial irregularities and political manipulation lev-elled at him by Indian Express some years ago, he told a business magazine: "It's a price to be paid for success. My skin fortunately is very thick. The fact is that when an elephant walks, dogs tend to bark."

This time round, the dogs may have drawn more blood than the elephant had expected. Though Dhirubhai can feel good about one aspect at least. A symptom of the awe that Reliance generates is the fact that of more than a dozen industrialists, stockbrokers and investment bankers Outlook spoke to, none would go on record for anything other than mundane generalities.


The Ambanis won't go to jail. But the Reliance image has again been deeply damaged, and they will need years to rebound to top form.


Yet, it is high time each of the controversies was dejargonised and reduced to its basic points.

The Duplicate Share Controversy​

In January 1994, broker R.D. Choksey delivered 26,650 Reliance shares (worth around a crore at that time) belonging to Dr Rajul Vasa to the BSE clearing house for passing on to the next buyer. In April, Vasa wrote to Reliance Consultancy Services (RCS), the group's registrar and share transfer agent, that she had lost these shares. RCS followed procedures, and issued duplicate shares. Meanwhile, however, these "lost" shares had been bought by a company called Opera Investment & Trading, through its broker V.K. Jain, and lodged with RCS for transfer to Opera's name.

RCS did not transfer these shares, claiming —reportedly verbally, to Jain—that the signatures did not match. Jain complained to the BSE, whose arbitration committee awarded Rs 1.066 crore against Choksey, who had, after all, delivered these shares. But Choksey had, by that time, been termed a defaulter by the BSE. The defaulters committee of the BSE then held that RCS had no business issuing duplicates for these shares. Because while the duplicate issue procedure was going on, the "lost" shares were first in RCS' possession, having been delivered there by V.K. Jain, and then with the BSE, where Jain took the shares for arbitration. Reliance claimed that this was a bureaucratic bungle due to the volume of share transfer work that RCS does. It paid up the Rs 1.066 crore to the BSE.

THAT seems fine, the only problem being that Dr Rajul Vasa is Dhirubhai Ambani's personal physiotherapist, and that Opera Investment is an associate company of Reliance. So, if a clerical error is the best case scenario, the worst case scenario is that Reliance knowingly issued duplicate shares to Vasa. In this scenario, RCS would refuse to transfer the lost shares lodged by Opera (RCS obviously cannot transfer the same shares twice), and Opera would simply take the shares back and sit on them. Vasa would then sell her newly acquired duplicate shares (which she did), thus paying for only one set of shares, and selling two. If such was the case, then the plan went bust when Jain went ahead and complained to the BSE. The caper works out only if Jain does not complain and the "lost" shares are shredded at Opera's end.

Whatever the case, legally, Reliance is in the clear. It has accepted its mistake, and paid a fine. But not so Vasa and Choksey. If Vasa sold the shares through Choksey, she should have been paid by Choksey within 14 days or so. If so, then she was clearly lying when she claimed three months later to RCS that the shares were lost. So too, if the broker had not paid her. Alternative explanation: Choksey stole the shares from Vasa; so, naturally the signatures did not match, as RCS claimed. Vasa is reportedly attending a month-long medical conference in Sweden or Switzerland.

The Share-Switching Controversy​


In February 1992, just before the securities scam broke, Fairgrowth Financial Services, later accused as one of the perpetrators of the scam, bought 15 lakh Reliance shares through its broker (also to be scam-tainted pretty soon) Pallav Sheth. These were sent for transfer to RCS, but for reasons that are still unclear, Fairgrowth gave Pallav Sheth an authority letter to withdraw the shares before transfer. Within months, the scam was out, Fairgrowth was notified by the Government, and for three years, Fairgrowth claims, it got neither its shares back nor money in lieu of the shares. While Sheth stalled Fairgrowth's inquiries, RCS did not furnish any details about what had happened to these shares in spite of repeated requests from Fairgrowth. Finally, when, on November 20, 1995, the Special Court asked RCS to furnish the details, it was found that these shares were now divided between the UTI, Canfina and several other companies.

Nothing wrong with that. Sheth may have taken the 15 lakh shares back from RCS and sold them to these parties, and conveniently forgot to pay Fairgrowth back. The only problem was that the UTI transaction had taken place in November 1991, three months before Fairgrowth asked Sheth to sell them. That is, the UTI had received the shares three months before they had been sold!

The UTI had in fact sent 24 lakh Reliance shares to RCS in November 1991 for transfer. But RCS replaced 8.7 lakh of these shares with the ones sent by Fairgrowth. In fact, it has since come to light that RCS may have, over the years, replaced more than 45 lakh shares sent for transfer by the UTI. Again the best case scenario is the Reliance explanation. That among the myriad finance companies that the Reliance group has, some are "holding companies" (let's call them A group companies) which buy Reliance shares at the issue price and simply hold on to them, never selling them. Others are "investment companies" (B companies), which play the market.

Some B companies sold more shares to the UTI than they had in their possession at that point of time, a common enough stockmarket practice. When it came time to deliver the shares, it borrowed some shares from A group companies and gave them to the UTI. When the UTI sent these to RCS for transfer, the B group companies took the borrowed shares back and replaced them with some other shares belonging to them. For, if the A group shares had been transferred to the UTI, the A companies would have to pick up the same number of shares again from the market, that is, at a far higher cost, and since the UTI was interested in buying any 24 lakh Reliance shares and not any par -ticular ones, it made no difference to the UTI if the shares it had sent for transfer were not the ones it received back.

But, again, questions remain. If RCS replaced 8.7 lakh A company shares with an equivalent number of B company shares, then it only proves that Fairgrowth had bought these shares from Reliance group B companies, because remember, these shares had never been transferred in Fairgrowth's name, so they remained in the names of the people who sold these shares to Fairgrowth.

Charges CPI MP Gurudas Dasgupta: "Reliance replaced the UTI's shares to get rid of scam-tainted shares. It is time that Reliance is meted out the proper punishment, as an example to other corporates."

The worst case explanation​

Sheth took the price of the 15 lakh shares from Fairgrowth, and lent it, with or without Fairgrowth's knowledge, to some Reliance group companies against the shares. These shares were never meant to be transferred, so they were withdrawn by Sheth, who may have, for all one knows, borrowed more money against these shares from other parties, with or without the collusion of the Reliance companies which owned these shares. Then the scam broke, the Special Court froze these shares, banning all transaction in them, and the pre-Fairgrowth owners were stuck with them. These shares needed to be concealed, and the best place to hide them was in the UTI, which owns such a huge number of Reliance shares that only a stroke of huge bad luck would lead to the discovery of a mere 8.7 lakh shares among them—a needle in a haystack. That stroke of bad luck, according to the worst case scenario, then was Sheth who, out of greed or lack of funds, did not pay Fairgrowth back. If this is true, that involves these Reliance companies in illegal activities at the heart of the securities scam.

The Insider Trading Controversy​


The formal decision to merge Reliance Polypropylene (RPPL) and Reliance Polyethylene (REPL) with Reliance Industries (RIL) was taken by the RIL board on November 8, 1994, and conveyed to the BSE on the same day. If a canny investor got wind of this decision earlier, he should have bought huge amounts of REPL and RPPL shares, and then after the merger was announced, converted them into lucrative RIL shares. In the five months before RIL announced its decision, while the national stockmarket index moved between 20 to 30 per cent, REPL and RPPL shares appreciated by 262 per cent, from a low of Rs 40 on June 1 to a high of Rs 105 on November 8.

Among the top buyers of these two shares during this period were Taurus Mutual Fund, floated by Creditcapital Corporation, in which RIL has a 10 per cent stake; Kothari Pioneer Mutual Fund, whose promoter has married into the Ambani family; Amar Investment Company and Vatsa Industries which are alleged to be associate companies of Reliance, and Dr Rajul Vasa.

The best case scenario: that this is totally circumstantial evidence, with not a shred of the sort of proof that is admissible in court. And the worst case? Recalls a top stockbroker: "When the price started going up in June 1994, these shares had no intrinsic value; even the civil works had not started for their projects. These two shares used to be referred to derisively in the market as Illu and Pillu. These shares would be highly overpriced even at Rs 40."

The UTI Controversy​

Between November 1994 and March 1995, the UTI invested about Rs 1,000 crore to buy RIL shares in two private placement deals: at a price of Rs 385 a share aggregating to Rs 773 crore in November 1994, and at a price of Rs 401 per share aggregating to Rs 300 crore. And the Rs 773-crore deal comes with a five year lock-in provision; the UTI cannot sell these shares before November 1999. Assuming even a 50 per cent dividend on RIL shares, the UTI will make about Rs 14 crore every year on the investment.

Paradoxically, the Rs 1,000 crore that RIL has reportedly invested over the past one year in the Unit 64 scheme (which has no lock-in provision) should net RIL around Rs 190 crore a year, assuming a 26 per cent dividend.

Be that as it may, the point that anti-Reliance circles are making is that at a time when money for industry is frighteningly scarce, RIL has managed to mop up funds at a mere 16 per cent, several percentage points below the average industrial borrowing rate prevailing. The UTI can, of course, say that it found the investment an attractive one, and if the RIL share price took a big dip after the transaction, that's common market risk. Twenty-five CPI(M) MPs have asked for a probe into the "Reliance-UTI nexus".

The Telecom Controversy​

Also on December 18, the CPI's Dasgupta revealed that among the top buyers of REPL and RPPL shares in the five months leading up to the merger was Himachal Futuristic Communications (HFCL), already notorious for its alleged role in the basic telephone services privatisation mess. HFCL bought 10,19,500 REPL shares in that five-month period, and 10,01,800 RPPL shares, which, post-merger, were converted to 5,55,415 RIL shares. The immediately-in-circulation conspiracy theory was that HFCL is a front organisation for Reliance, which had declared huge ambitions in telecom, but which ended up with seven cellular telephony circles, and five of the least attractive basic telephony circles.

The hate-Reliance theory being circulated: that Reliance did not want to come to the forefront in telecom, knowing that this would be asking for some controversy or the other. So it got HFCL to take care of the most lucrative circles, while it took care of the lower end. Some years later, Reliance will silently take control of HFCL and get the monopoly it is looking for. But if that is so, then this seems to be one case where the Ambanis, supposedly so adept at getting Congress governments on their side, have really messed it up. Because, after the Government's decision to limit the maximum number of circles allowed to a company, and the announcement of new reserve prices, Reliance will have to bid again for all the circles that it had won, and bid manifold higher than its original bids. Besides, forming an alliance with another company is definitely not illegal.

But, says Dasgupta, even with what the alleged alliance has, it would still manage something of a monopoly. "The Reliance-Nynex combine having seven out of the 19 state-wide cellular circles, and HFCL's bids in four basic telecom circles being accepted by the Department of Telecommunications goes against the communications minister's policy of capping which, in the first place, was introduced to prevent replacement of public sector monopoly with that of the private sector," says he.

THE Government has ordered a probe into the duplicate share and share-switching charges. Maybe probes will be ordered into the others too. But already it seems highly unlikely that the Ambanis will be found guilty of any wrongdoing. In the Vasa case RCS is in the clear, in the share-switching case it may take years to fig-ure out the chain of shares through hundreds of Reliance group finance companies, if such a trail at all exists. It is very improbable that any concrete evidence, beyond the circumstantial variety, exists to prove insider trading. Says L.C. Gupta, member, SEBI: "It is very difficult to convict people on charges of insider trading. All around the world the percentage of conviction in cases of insider trading is very small. But that doesn't mean that you don't try." The UTI allegations will most likely take its place among those many supposed scandals that are bandied about, and then vanish one day from the front pages. The telecom conspiracy cannot be proved.

Besides, cynicism about probes by Government agencies abounds. Dasgupta wants either a Joint Parliamentary Committee (JPC), or an all comprehensive judicial probe. But Samata Party MP George Fernandes has little faith in any probes. "After the failure of the JPC on the securities scam, I wash my hands of any other JPC. I have no faith in JPCs anymore," he says. "Knowing the clout of Reliance and the fact that few people who are not in cahoots with them, one will have to be cautious in weighing the outcome of this probe. If the Government is keen on unearthing Reliance's rackets, it should order the appropriate investigative agency to take charge of all shares of RIL's bogus companies —which would easily number over 1,000, including those in offshore islands. By taking charge of these shares lodged with banks, financial and term lending institutions, it would be possible to find out how may bogus shares of Reliance are there, which would be a colossal amount. " BJP General Secretary Pramod Mahajan disagrees. "Since even the assassins of Mahatma Gandhi and Indira Gandhi were given a fair trial, which took a few years to complete, Reliance, the country's premier private sector company with three million shareholders, should not be pre-judged and condemned without a proper probe." And, he says, other corporates too may be guilty of what Reliance is being charged with: duplication of shares, insider trading and price rigging. "Their shares have not been bathed in the Ganges." He sees no point in setting up a JPC. "Today RIL has been put in the dock, tomorrow it may be the turn of another top business house, and yet another next. Is it possible for us to go on constituting one JPC after another?" he asks.

The Ambanis will not go to jail. But Reliance will be deeply damaged, and will need years to rebound to top form. If, as Reliance sources claim, that this is all a conspiracy hatched by the conglomerate's business rivals to hurt Reliance, then they would have achieved their purpose.

This is the way Reliance has been damaged. Its image, which had recovered a great deal from the beating it took throughout the '80s, is now back in the dumps. Reliance will find it difficult to raise money through its beloved share issue route for some time to come; at the very least, it will not be able to charge a large premium. It will have to stay away from the UTI's funds for some time. It will not be able to raise money through Euro-issues and Global Depository Receipts.

And foreign institutional investors, already scared of the lack of systems and transparency in the Indian markets, won't touch Reliance scrips for some time.

And not only Reliance scrips. "Reliance has particularly added to the negative perception of the fund managers. What is frightening is the sheer lack of accountability of the custodians," says Mark Mobius, president, Templeton Emerging Markets Fund. Forget whether Reliance is guilty of any malpractice or crime. What cannot be denied is that in India, the registrar and share transfer agent (in this case, RCS) is not at arm's length distance from the company whose shares it registers (RIL), the norm in all good capital markets. "What I find is absolutely amazing is how companies are allowed to have an in-house registration company for share transfer. They just need to have autonomous and professional back-room operations," says Mobius.

What also cannot be denied is that there may be various other unheard-of activities like share-switching taking place. That the market watchdog, SEBI, failed to do its duty when it remained silent throughout the media and Parliament uproars. The SEBI did not need to be told by the Government to probe the issues dogging India's most-traded scrip; it has the power—and the duty—to move on its own, even without a single complaint being lodged. And that there's no indication that the most dangerous charge of all—that of insider trading—against India's largest private sector corporation will be investigated at all.

Would you, if you were an American with the choice of putting your money in other markets, place your bets in a market that is suddenly resembling a casino gone out of control? And you would also begin to believe that Reliance's turn-of-the-century targets look very difficult to achieve indeed.

Blind Ambition | Sandipan Deb
 
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Ray

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The Ambanis, if the stories are true, proved that India is a greater land of opportunity than the US, and the bold and bolder became the beautiful of the Nation!
 

SADAKHUSH

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This name came under my radar screen during the Technology Market crash in 2002. Ever since than, I have wondered how in a short period of time they have been able to achieve the domination of market in certain sectors while it took giants like TATA to get there over 100 years. Thanks to the relationship between politicians and business houses who are willing to bend over for MONEY. I am amazed as is Mobius that there has not been a crash of Indian stock exchange as yet but it will take place once we have the right person to hold these companies accountable for their actions and behind the door activities become transparent and the thugs who are manipulating the market for their own monetary gains are exposed.
 

nrupatunga

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Of Reliance, by Reliance, for Reliance
The government has used fallacious arguments to double the price of gas and hand over windfall profits to India's richest company
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@Singh Am not sure if polyester prince ban is still valid. But the same author (hamish mcdonald) has come up with next book 'Ambani and sons" covering the saga untill the split between brothers. This book is available for sale. If am not wrong, this book has the famous rumour prevalent in power corridors of delhi
" Budget wasn't leaked to reliance in advance, but reliance leaked the budget to govt".
 
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TrueSpirit

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Most disputes concerning Reliance Industries have been covered extensively by the media

Reliance Industries Ltd, named by activist-turned-politician Arvind Kejriwal in an expose on Wednesday, isn't exactly a stranger to controversy. And unlike other exposes by Kejriwal, the controversy surrounding Reliance's D6 block in the Krishna Godavari basin (KG-D6) has been covered extensively by media (and also with far better clarity than what Kejriwal and his colleague Prashant Bhushan managed during a press briefing). Mint's own coverage can be found here. (read here)

Indeed, most controversies concerning Reliance Industries have been covered extensively by the media. Most of the early controversies can be found in two excellent pieces of journalism. One, by Paranjoy Guha Thakurta in Seminar magazine, in 2003, details Reliance founder Dhirubhai Ambani's proximity to politicians, his enmity with Bombay Dyeing's Nusli Wadia, the exposes by the Indian Express and Arun Shourie (who later started seeing Reliance through friendlier eyes) about illegal imports by the company and overseas share transactions by shell companies, and the botched attempt to acquire Larsen & Toubro. (read here)

Another, by Sandipan Deb (now a Mint columnist) and a few others in Outlook magazine in 1996, addresses other controversies related to fake and switched shares; insider trading; and a nexus with the state-owned Unit Trust of India. (read here)

To be sure, allegations of insider trading seem to be a constant through Reliance's relentless march through the decades. In 2009, India's stock market regulator started investigating whether companies associated with the promoters had indulged in insider trading by taking short positions in futures of Reliance Petroleum after coming to know that the promoters themselves would sell shares soon.

Reliance initially denied the claim, reported by Mint (read here), and a few other newspapers in May 2009 was initially denied by Reliance Industries. It later emerged that Reliance and the stock market regulator were engaged in settling the case through a consent order (where the company chooses to pay a fine but isn't accused of any wrongdoing). The process seems to be continuing. (read here)

Controversies have also dogged the Reliance group, the name of the entity carved out of the Reliance Industries empire when brothers Anil Ambani and Mukesh Ambani carved out their inheritance in 2004 after a bitter and all-too-public fight. In 2011, Reliance Infrastructure and Reliance Natural Resources, both companies controlled by Anil Ambani reached a settlement with the stock market regulator for alleged violations of foreign investment norms.

Later the same year, Reliance Securities, also part of the same group, settled another case with the regulator, this one related to violations of rules regarding brokerages. (read here)

To return to Wednesday's events, barring the unsubstantiated allegation about former petroleum minister Japial Reddy being removed because he was anti-Reliance, much of what Kejriwal said is ground that has been covered, and extensively so, by the business press.
Hi, could you please fix the links ? None of the links (your references to old articles) are working for me.
 

nrupatunga

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The current edition of outlook magazine covers the current gas price saga, titled


"UPA's Rs 54,500 Crore* Gas Rip-Off "
A scam-prone government brazenly doubles gas prices that will eventually benefit Reliance. A 2014-fixated BJP's muteness on the gas-pricing issue
Bjp's or most parties muteness is understandable, with elections around the corner. But how come media is coming out against reliance???
 

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