By S Gurumurthy 13th December 2012 12:00 AM
This follow up of Gadkari Probe I and II [New Indian Express 12/13, November 2012], confirms that lack of forensic depth in the investigation on Nitin Gadkari by sections of media has forced them into bias and errors of judgement. And therefore into wrong, even bizarre conclusions.
It also unravels the misconceptions on facts and logic in the probe by a well-known English daily [‘investigation’] titled “Gadkari family held shares in 3 Purti ‘shell’ cos”. [November 25, 2012] The ‘investigation’ claims that I might have been “hasty” in exonerating Gadkari and that “the source of money into Purti” has been buried under several layers of “fictitious” companies.
Minimum, the claims lack legitimacy. Because, instead of challenging, the ‘investigation’ intriguingly ducks, the Gadkari Probe I [NIE 12.11.2012] which points out that the sources of Purti equity are genuine Mehta companies and other known corporates.
Does it need a sage to say whether the Purti equity is from genuine investors or not is really at the heart of the Gadkari probe? If it is from identified investors, then money laundering charge becomes fake. The further probe here reaffirms that the Purti equity is from identified sources. The media expose, which sidesteps this main story, is just a juicy sideshow.
Purti’s Rs 68.91cr equity genuine
First, the arithmetic. Look at the history of Purti’s equity which now stands at Rs 68.91cr. From its inception till 2005, Purti had received Rs 55cr equity; on 30.3.2009, it received a further Rs 4.98cr; on 1.1.2010, it got Rs 1.51 cr more—aggregating to Rs 61.51cr from private investors. Several thousand farmers put in the balance Rs 7.40cr to complete the total of Rs 68.91cr.
The equity of Rs 55cr received by Purti up to 2005--80 percent of its present total--is really the core issue. It flowed in thus. First, Rs 47.34cr from 12 genuine Mehta companies: Parshwa Forging, Shreyans Machinery Handlers, Empire Forgings; Fargo Finvest, Godwana Eng, Creators Handicraft India,
Heritage Parks, Rushabha Forging, Coronation Shrines India, Aarya Infrastructure, Aarya Com and Parshwa Agrico. Next, Rs 3.62cr from IRB Nagpur [Rs 1.85cr], Nagpur group [Rs 0.25cr] and individuals [Rs 1.52cr]. Third, the balance [Rs 4.04cr] came from 9 of the 14 Mehta-controlled - now questioned - companies mentioned in Gadkari Probe I. Purti’s Rs 55 cr equity in 2005 [Mehta’s Rs 51.38cr plus Rs 3.62cr from others] was subject to tax probe on Mehtas and Purti in 2006, and accepted. The ‘investigation’ has ducked this crucial fact.
Purti, set up to benefit farmers in drought-prone area--so, economically unviable-- predictably turned sick by 2008. Its loans to cooperative banks had become Non Performing Assets in 2005-6; to State Bank of Indore [SBI Indore] and Bank of Maharashtra [BoM] in 2006-7; to IREDA in 2007-8. Purti needed more equity. And got it in two tranches. The first tranche [Rs 5cr] came on 30.3.2009--Rs 3.11cr again from 9 of the 14 companies; Rs 1.57 cr from Last Mile Infrastructure, belonging to Arun Lakhani [local businessman and an original Purti promoter]; Rs 0.30 cr from four other companies [Skylark, Viewpoint, Jasmine, and Aim Merchant] equally. The next tranche [Rs 1.51 cr] came on 1.1.2010, from the IRB group [which had earlier invested Rs 1.85 cr]. This took the total private equity in Purti to Rs 61.49 cr. The balance Rs 7.42 cr had come from thousands of farmers over a period. This completed the total Purti equity of Rs 68.91 cr. Now two facts stare. One, the entire equity of Rs 68.91cr into Purti is from identified investors. Two, Mehtas held Rs 54.79cr on 30.3.2009--79.5 per cent. Yet, the ‘investigation’ says that I have put “the blame” of Rs 47cr on Mehtas! on the ground that the 14 companies are “fictitious” companies. But, are they?
14 Cos genuine till 15.2.2011
While the ‘investigation’ pejoratively labels companies now holding the 4/5th Purti equity as “fictitious”, it does not say what “fictitious” means. Given its dictionary meaning as “imaginary” “unreal” “false” “pretended” or “deception”, and shocked by ‘fake’ offices and directors, the ‘investigation’ labels the 18 companies “fictitious”. First, take the case of 14 companies which had subscribed to Purti shares worth Rs 4.04cr till 2005 and Rs 3.11 cr in March 2009, and to which, the 12 Mehta companies transferred their Rs 47.34cr equity by October 2009. They had identifiable directors and valid registered offices when they subscribed to Purti shares from 2002 to 2009. They remained so as late as 15.2.2011. That Mehta’s had owned them in 2003 itself has been established in Gadkari Probe I by tracing how Mehtas had substituted 11 of the 14 companies as their alter ego to give guarantees on their behalf to IREDA and how the other three had substituted for Mehta to guarantee BoM and SBI Indore in 2004. [see NIE Gadkari Probe I dated 12.11.2012]. Undeniably, none of them was “fictitious”--then or later-- till 15.2.2011. Why only till, and what after, 15.2.2011, will unfold later.
See their history. In 2003, seven of the 14 had registered offices in Nagpur originally, four of them had offices in Mumbai, two in Amravati, and one in Bengal. In October-November 2003, Mehtas shifted their registered offices, except the one in WestBengal, to Nagpur. From then till 17.2.2011, 13 of them had valid registered offices in Nagpur; one, in West Bengal. And in each of them Mehta nominees--the combination of R K Powell, J Pahade, Anil Chandak, R Kela, Ketan Baheti, and J K Verma--were directors till Sept11 2009. Earlier, on 24.7.2009, persons associated with Gadkari were nominated as directors and they remained as directors till 15.2.2011. Why? That will be clear tomorrow.
It was when the Gadkari associates quit on 15.2.2011 that directors with doubtful identity entered their boards and two days later, on 17.2.2011, their offices shifted from genuine to doubtful addresses. But the ‘investigation’, which failed to ask why these changes took place, gives false impression that these companies were always “fictitious”, thus suppressing the vital fact that they were not at least till 15.2.2011.
Therefore, its conclusion that “the source of money into Purti” is buried under “fictitious” companies is hasty at best and false at worst. The ‘investigation’ also wrongly lists Arun Lakhani’s Last Mile Infrastructure among the “fictitious” 18. It doesn’t share the features of the rest. Its directors are different; its office was always in Nagpur. With the story of the 14 being known, the facts about the remaining three, which incidentally did put any equity in Purti directly, will unveil tomorrow.
The sideshow
The ‘investigation’ which falsely insinuates that “fictitious” companies had put equity in Purti is therefore qualitatively uninspiring. The clue to where the ‘investigation’ probably lost its way is to be found in its remark that [only] “in the last couple of years directors, their addresses and those of the companies have flitted from Nagpur”. Any agile investigator would have asked himself “why did the 17 companies flit from genuine to fake offices and directors” years after they put equity in Purti. That would have made him realise that the changes of registered offices and directors that happened long after were just a juicy side-show and that would not question genuineness of their equity in Purti. But, because of competitive sensationalism, the media became obsessed with just half, not even the whole, of sideshow, perverted the truth and projected genuine equity in Purti as bogus.
The full sideshow will reveal why and how Gadkari’s associates became directors of the 17 companies and Gadkari family members held shares in three of them, briefly; how and why did the 17 companies which had genuine directors till February 2011 and offices come to have suspect directors and registered offices. Await tomorrow.
Comments(1)
It is time we realize this indisputable fact that people who are still maligning Gadkari, are doing so purely on basis on their political affiliations. They are refusing to listen to arguments and facts on purpose, because they want to milk the issue by spreading lies through tag line and headlines. The only way forward will be for Gadkari to file suite for 1 Cr or more against each of these shenanigan makers and rumourmills. I am sure he will bag more than 1,00000 Crore in this bargain.
Posted by kamal at 12/13/2012 15:45 Reply to this Report abuse
http://newindianexpress.com/opinion/article1377094.ece
Blind-men-and-elephant like probe
By S Gurumurthy 14th December 2012 12:00 AM
Sideshow: Prologue
A prologue to the sideshow: As Purti’s loans to IREDA and banks had become NPA, a sick Purti began working from early 2009 for One- Time Settlement [OTS] of their dues. Purti had approached Global Safety Vision P Ltd [belonging to the D P Mahiskar family, Nagpur] for loan of Rs 164 cr for OTS. A willing Global asked, besides charge on Purti’s assets, pledge of promoter shares and guarantees of directors of the 14 shareholding companies. But Global obviously had unexpressed reservations about accepting pledge and guarantee from Mehta group. Result, the loan proposal got stuck for months.
Therefore, Mehtas decided to transfer the equity [`47.34cr] held by the 12 operating companies to the 17 [14+3] companies and to substitute non-Mehta nominees in place of theirs on the latter’s boards. Why? To facilitate the pledge of Mehta group holdings of Rs 54.79cr in Purti and promoter guarantees to Global without involving Mehtas in either. The decision forced Mehtas to scramble for new directors to stand substitute for their nominees in the companies. The choice inevitably, but perhaps unfortunately, fell on some Gadkari associates. They were co-opted briefly as directors to help achieve the OTS. See how things move at breakneck sequence.
2009-2011 Changes and OTS
First, on July 24 2009, four persons associated with Gadkari--K Zade, M Panse, N Agnihotri and S Kotwaliwale--were co-opted as directors in one or the other of the 14 companies. Second, on September11 2009, the Mehta nominees--J Pahade and J K Verma--quit their boards. Third, by October 2009, the Rs 47.34cr equity in Purti held by 12 Mehta companies was transferred to the 17 companies. By now, the 17 companies, with Gadkari associates as directors, held the group holdings of Purti [`54.79cr]. Fourth, immediately, on 22.10.2009, Purti filed loan application with Global, corroborating the earlier steps as necessary preparations for the Global loan. Fifth, Global forthwith disbursed the loan--Rs 28.82cr in November; Rs 53.51cr in December; and Rs 24.61cr in January 2010 and by 26.2.2010, the entire Rs 164cr. Sixth, Purti got Global to drop guarantees of Gadkari associates on the boards of the 17 companies, substantiating that their presence on the boards was for secretarial need, not by proprietorial right. Seventh, Purti completed OTS with banks by March 2010. Eighth, with Purti out of NPA issues, after a decent interval, Manish Mehta rejoined--yes rejoined--Purti Board on 27.12.2010 as additional director. He had quit Purti’s Board in December 2002 to protect Purti when other Mehta companies’ had NPA issues and, later, to protect his other companies, he deferred rejoining Purti till its NPA issue was sorted out. On 29.9.2011, he became a regular director of Purti. He remains so now. [The ‘investigation’ was wrong in saying that he is now not a Director in Purti.] Ninth, most importantly, on 15.2.2011, within two months of Mehta re-entering the Purti Board, Gadkari associates quit the boards of all 17 companies, proving that the understanding was that they would quit once Mehta re-entered. Now, is it not self-evident that Mehtas’ withdrawal from the 17 companies and the entry and brief stay of Gadkari associates on their boards was only to help sort out Purti’s NPA issues? Now, the story of the three companies.
3 Cos Genuine
The ‘investigation’ had relied on the three “shell” companies [Jainaam,Jasika and Neelay] with Gadkari family members as shareholders to insinuate him with money laundering. Now look at the facts. The three companies, included in the 17, were acquired in January-February 2009 as Mehta investment vehicles. On 18.3.2009, Gadkari’s associates [not family members] became their directors. When the 12 Mehta companies transferred their Purti holdings, they transferred three lakh Purti shares on 14.9.2009 to Jasika and Neelay. On 17.11.2009, Gadkari’s wife, two sons and nephew paid and acquired at par value 10,000 shares in each [totally 14 per cent ownership]. This gave them the pleasure of [just] 0.6 per cent indirect ownership of Purti that lasted for a year only!
On 1.12.2010, Gadkari’s wife and sons transferred their holdings to Gadkari’s associates, at purchase price, though Purti share value had gone up because of OTS. This showed that their holding was temporary and for no gain.
The three companies had valid registered offices and directors when, and till, Gadkari family members were shareholders. Like in the 14 companies, Gadkari associates quit the boards of the three companies on 15.2.2011. It is obvious that the changes in the three, like in the 14, were in the context of the OTS. Anyway, the insinuation that Gadkari family held shares in three “fictitious” companies was clearly false.
Mehta to ‘Shell’ to Mehta
After 15.2.2011 when Gadkari associates quit the boards of 17 companies, the sideshow started in which the media, perhaps rightly, saw red. On 15.2.2011, questionable directors replaced Gadkari associates on their boards. Two days later on 17.2.2011, the registered offices of 13 of them were shifted from genuine addresses to fake addresses. Why? It needs an initiation into the corporate world. It is normal practice for promoter families to hold shares through hierarchy of companies with cross holdings and with personal secretaries, assistants, clerks, and other reliable persons chosen by the corporate secretariat, as nominee directors. Mehtas did the same differently, but shabbily. Sometime in 2010, Mehtas appear to have outsourced the secretarial work of the 17 companies to C S Sarda, a Chartered Accountant and investment consultant, based in Kolkata. His brother, D P Sarda, also a Chartered Accountant practising in Nagpur, had introduced the Mehtas to the former.
Sarda was engaged by Mehtas as investment consultant to manage the secretarial work of the 17 companies. When tax authorities examined him he seems to have testified that he had suggested new directors and new offices. This is the story of the ‘fake’ offices and directors. After this sideshow climaxed as the main show on TV screens, Manish Mehta seems to have got the holding of 17 companies transferred to himself or his family and put his own men on the boards of the 17 companies!
When Gadkari’s second term as BJP president became a possibility, some media began targeting him, but with no luck. But when they saw companies with fake addresses and directors as Purti’s owners, they thought and declared in haste, that they had caught Gadkari red-handed. And without probing further, they convicted and sentenced (him) to resign as BJP president! An apt comparison of the quality of such ‘investigation’ is the famous probe of the six blind men who perceived an elephant in parts as wall, rope, pillar etc. In Gadkari’s case, seeing companies with fake directors and offices holding Puti shares, the investigators alleged money laundering; seeing Gadkari associates as their directors, involved him in the charge; and seeing Gadkari family members holding shares in some as proof of his guilt.
Competitive sensationalism made them blind to what changes took place on 24.7.2009 and why; what changes took place on 27.12.2010 and 15.2.2011 and why; when and why ‘fake’ offices and directors emerged; how when the 17 companies invested Purti equity or when Gadkari family members were directors or his associates were directors, they had genuine offices and boards; and finally how its story was just a glib sideshow that did not make the investment in Purti spurious. Media’s disjointed probe on Gadkari is the like the the six blind men’s on the elephant which led them to bizarre conclusions.
PS: A saying in Tamil goes “What is true is not you see or hear, but what you find on deeper probe”. That is the lesson. Pen is mightier than the sword.
And camera is deadlier than AK-47. It needs great skill, responsibility and, most important, wisdom, to handle both.
S. Gurumurthy is a well-known commentator on political and economic issues.
Email: comment@gurumurthy.net
http://newindianexpress.com/opinion/article1378515.ece
