The core of the story first. The one and the most critical difference between the media probe so far into Purti group (with which BJP president Nitin Gadkari is associated) and one done by me is this: The excited media had stopped at the veil and the maze of shell companies which now hold the ownership shares in Purti group and yelled that it was all fake entities. But I went back in time and zeroed in on when the ownership investment of Rs 47.34 crore in shares now held by the shell companies was first made into Purti. And from that, I traced who the true owners of the original investment in Purti are.
Then I met (yes met) the true owners of the original investment. They admitted to me that the shell companies are theirs. It was a case of the original, genuine investors of Purti transferring their holdings to their own shell companies. I also found that they had owned the shell companies in their agreement with banks in (since) 2003-’04 itself.
I realised that they are not theatrically owning the shell companies today, to bail Gadkari out of his troubles.
I also found that the owners of the shell companies now, who were the original and genuine investors in Purti, are no marginal players. It is a substantial group in Nagpur with assets base of Rs 2,000 crore. So the media conclusions that the shell companies were “ownerless, fake entities” and mine that they had genuine owners necessarily differed.
Hence, the media held Nitin Gadkari guilty of laundering black and ill-gotten wealth through the shell companies and I did not. And now the details.
The sudden exposure of shell companies, holding criss-cross the ownership shares of Purti group with faceless individual as shareholders, fake offices, non-entities as directors, and directors unaware they are directors became ready and explosive proof of corporate fraud by the BJP president and also juicy news for the instant media. The marginal employees and associates of Gadkari being shareholders and directors in the shell companies only helped to raise the media’s pitch.
Feeling that media reports based on competitive sensationalism are missing something. On October 30, 2012, I spoke to the chartered accountant handling Nitin Gadkari’s case whom I knew and asked him whether Gadkari was ready for a probe by me. As Gadkari okayed the suggestion, he forthwith came to Chennai the next day and met me in my office. That was how my probe began.
Genuine Investment
On my first look at the documents, what struck me which a more diligent media would have noted was that most of the equity investments in Purti group (almost 80 per cent of the total today) had come into it between 2002 and 2006. At that time, the equity capital of Purti was Rs 55 crore. Over 85 per cent of it, Rs 47.34 crore, was from well known business group in Nagpur-- the Mehta Group. The Mehta Group had invested in Purti group through 12 unquestionably genuine companies.
I also found that, in 2006, there was Income Tax probes on Mehta and Purti. The department reopened the Mehta group assessments for six back years and accepted all investments in Purti, including Mehta’s Rs 47.34 crore, as genuine. The first question that came to my mind was how is the good investment of Rs 55 crore in Purti in 2006 could become fake investment, black money deal and money laundering in 2012? On further probe, I found that the Mehta group had transferred their holdings of Rs 47.34 crore by 2010. Who did the group transfer these shares to? To the 14 shell companies. With shell companies reigning as the owners of Purti, the exciting media instantly declared it as fake and saw money laundering in it. If only the media had gone back in time, it would have found the original investment in Purti genuine. If the Mehta group transferred their legitimate holdings in Purti to shell companies, the genuine and original investment into Purti does not become fake. So the original investment of Rs 55 crore, particularly Mehta’s Rs 47.34 crore, in Purti up to 2006 was unquestionable and genuine.
Mehta’s Shells
The next big finding was that the 14 shell companies were Mehta’s own. The Mehta Group had owned all of them in 2003-04 itself. The shell companies were not created when Mehta group shares were transferred to them. They existed earlier.
Ahead of the story of the 14 shell companies, here is a small peep into how corporate world functions. The shell companies and multi-layer pyramidal holding are not uncommon to the world of business. Most of these companies normally exist only in name, with non-entities as directors. Accounting firms register and keep shell companies in their shelf for sale. They are sold and bought like ready-made shirts. This is a global practice. Their offices and sometimes directors also remain unchanged even after new owner buys them. But these are actually secretarial issues. The real issue is who owns the ultimate shares in these shell companies. If there is an ultimate owner, that the existence of the shells does not make the holding bad. In fact, to see the original owners of corporates, the law ignores the shells. The media reports that the 14 shell companies holding the ownership of Purti group, associated with the BJP president, created a huge outcry. But, a more diligent media would have found out that these 14 companies were in fact owned by the Mehtas from 2003-04 itself. Here is that critical part of the story that answers most media allegations.
By its letter dated on April 3, 2002, the Indian Renewable Energy Development Agency (IREDA) had sanctioned a loan to Purti group stipulating that Manish Mehta, a promoter-director of Purti, should guarantee along with five of his group companies (Parshwa forgings, Empire Forgings, Shreyans Machinery Handlers, Rushabha Forgings, and Fargo Finvest) the loan. Subsequently, Manish Mehta offered to substitute himself with the guarantee of 11 companies. Which are the eleven companies? Don’t be shocked! They were 11 of the 14 shell companies now shown as ownerless shells by the media.
The IREDA accepted his offer and treated the 11 companies as substitutes for Mehta in the loan agreement on March 23, 2003. The other three companies too gave guarantees on Mehta’s behalf in 2004 to Bank of Maharashtra [BoM] and SBI Indore [SBII]. Thus, all the 14 companies had admitted to be substitutes for Manish Mehta in 2003-04. So the transfer of the original investment of Mehtas to the shell companies was just transfer from one pocket of Mehtas to another.
Yet, the media is still at sea. Just few days back, an ‘India Today’ [November 9, 2012] report titled ‘I-T noose tightens around Nitin Gadkari’ finds most of the addresses of investors in Purti group to be bogus. It listed 17 companies -- Earwell Traders, Leverage Fintrade, Jainaam Mercantile, Jasika Mercantile, Ashwami, Rigma Fintrade, Seven-Eleven Sales & Marketing, Spatial Dealers, Sterlight Fincom, All Wise Finvest, Mahawideh, Chariot Investrade, Nivita Trades, Update Mercantile, Neelay Mercantile, Swiftsol India, Regency Equifin, Last Mile Infraprojects -- as bogus. But 14 of the 17 (names shown in italics) had substituted for Manish Mehta in 2003-4 to give guarantees to IREDA, BoM, SBII. What does this mean? The 14 companies that have been owned up by Mehta’s in 2003-04 itself in the guarantee agreements with IREDA/BoM/SBII are still regarded by the media as bogus, ownerless companies.
Three facts are irrefutable. One, the Mehtas’ investment of Rs 47.34 crore was accepted as genuine by the I-T Department in 2006. Two, only that genuine investment was transferred by Mehtas and kept in the 14 shell companies by 2010. Three, that the 14 companies had been owned up by Mehtas in 2003-o4 and are therefore not fake or ownerless.
When I met Manish Mehta on November 5 in Delhi, he confirmed each of these facts to me. Will the media scream ‘Noose tightens around Gadkari’ if it knew these facts? It will think twice. On my close questioning about the Mehta family and group, their relation with Nitin Gadkari, why and how it invested in Purti, and how some Gadkari nominees figure in his shell companies, and why the fake addresses and directors, Manish told me the whole story. Wait for tomorrow.
S. Gurumurthy is a well-known commentator on political and economic issues.
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