Blind-men-and-elephant like probe
By S Gurumurthy | Published: 14th December 2012 12:00 AM |
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 like 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.