The Polyester Prince (23 page)

Balasubrarnanian’s letter was just more ammunition for Gurumurthy, who responded on 19 August under the headline ‘The answers that answer nothing’. Setting out his original charges in one column, he listed the Reliance replies against them alongside, and in a third column his conunents on the replies. ,Against many of the accusations, he noted, Reliance had made no response at all. In others it had been selective in what it addressed.

Where his articles were attacked, Gurumurthy stood by his major points.

Three weeks later he was back on the attack. In a three-part article over 9-11 September, he alleged that with the connivance of officials in technical departments the new
PTA
plant at Patalganga included plants for producing the feedstocks directly required without seeking separate licences for them. Instead of using the petroleum derivative paraxylene as feedstock, Reliance would start with the next product up the petroleum chain, napththa. ‘There is no way of producing M from napththa without first producing paraxylene,’ Gurumurthy noted. ‘It is like saying that a bicycle is made from iron ore.’

As well as a paraxylene line, Reliance was installing its own plant to extract benzene, another napththa derivative used to make the detergent ingredient LAB, which the company was also producing at Patalganga. To secure the napththa it needed, Reliance was lobbying to have output dedicated from the government-owned Bharat Petrochemicals Ltd refinery in Bombay and sent to Patalganga through the refinery’s pipeline. Bharat Petrochemicals’ own plans to make paraxylene should be dropped because of ‘environmental’ concerns, Reliance had suggested in a letter to the Department of Petrochemicals.

In addition, the
PTA
plant included a 25 000 kilowatt power plant, which Reliance was later to explain as a ‘gift’ included within the overall plant cost by the British suppliers of the
PTA
plant, the engineers John Brown Ltd, even though the generator was of German manufacture.

By that time, Gurumurthy’s report on the ‘smuggled’ yarn capacity at Patalganga had led to an official inquiry On 20 August a team of six officials and engineers from relevant ministries arrived at the Reliance factory to see exactly what machinery was installed.

They looked around, and asked some questions to which answers were demanded by the next afternoon. According to a report on the mission by its leader M. S. Grover to the Ministry of Industry on 10 September, ‘Messrs Reliance either did not give the information timely or the information given was inadequate’.

Reliance executives were disputing that any precise tonnage could be assigned to a given plant. With constant meterage (length of fibre produced) almost any tonnage could be produced by varying the denierage (thickness) of the filament, it maintained. In its applications for licences, Reliance had made certain .denierage specifications. At no stage had the government told it of any policy decision that the controlling factor was the tonnage.

The officials met Reliance representatives a second time at the Customs House in Bombay on 22 August. The answers were still not satisfactory, and several other follow-up meetings were held in New Delhi, leading to a presentation by Reliance on 1

September. The officials were still unsatisfied: Reliance refused to give precise specifications of equipment because it was ‘proprietary knowledge’.

The committee asked Reliance at least to explain how the capacity of the
PTA
unit’s air compressor-a component that gave a clue to the overall plant capacity-was nearby 50 per cent greater than needed for the licensed plant, and how the polyester filament yarn plant came to have 12 spinning lines instead of the eight cleared for import. On the first point, the officials appeared to have been left uncertain. On the second, Reliance said the four extra spinning units were made from disassembled parts shipped with the four second-hand spinning lines brought in as part of the ‘balancing equipment’ in 1984.

In their conclusions, the officials knocked down the denierage arguments about capacity, and homed in on the one fact that was obvious to the eye. Instead of the eight spinning lines that Reliance was cleared to import, its factory was operating 12 lines. Nowhere in any of the documentation produced by Reliance could any reference be found to this additional capacity. As for the complete filament yarn plant, the inspectors rated its capacity at between 55 000 and 63 000 tonnes a yea,-more than double the licensed output of 25 125 tonnes.

The report, crammed with numbers and dry engineering detail, was passed to the Customs Service, which then looked back through the records of equipment imports by Reliance. It was to lead four months later to Bombay Customs, so often “pathetic to Dhimbbai in the past, handing Reliance a show-cause notice alleging the company had smuggled in spinning machines and undeclared industrial capacity worth Rs 1.145 billion. The Customs put the duty evaded at Rs 1.196 billion, and invited Reliance to ask why this should not be levied. In addition, the company faced the possibility of fines up to five times that amount and confiscation of the smuggled goods, while individual executives could be prosecuted for smuggling.

If huge steel structures that occupied 20000 square feet of factory space could be smuggled into India, what could not?, Gurumurthy was to ask. Why not guns? Tanks and missiles even? ‘Compare the case with which it was accomplished with the torment of someone landing in India with a few saris in his bag for his pestering wife, unable to make up his mind on whether to move towards the green channel or the red channel,’ he wrote.

With this homely touch, Gummurthy rounded off what must rank among the most powerftd examples of investigative journalism anywhere. For the time being, at least, Gurumurthy had certainly closed the green channels for Dhimbhai Ambani.

To see Bhure Lal on his evening walk around New Delhi’s TLodhi Gardens was to know at once a man not easily diverted from his objective. Military-style moustache always neat, eyes narrowed on some distant point ahead, arms swinging, Bhure Lal attacked his exercise routine with the intensity of a soldier on a desperate forced march to lift a siege.

Friends among the senior bureaucrats who favoured the Lodhi circuit struggled to keep up with his blistering pace.

The military bearing was no affectation. Bhure Lal had joined the Indian Army on a short-term officer’s commission soon after the Chinese attack along the eastern borders in 1962, and saw action against Pakistan in the 1965 war. He retired from military service with the rank of captain in 1970 when he won a place through examination in the elite Indian Administrative Service. After several district posts in Uttar Pradesh, he became a secretary to V P Singh when he was the state’s chief minister. At the end of March 1985, just after Singh as Rajiv’s finance minister had declared his war on the black economy, Bhure Lal was made Director of Enforcement in the Ministry of Finance, responsible for finding transgressions of India’s highly detailed and restrictive exchange control laws. By early 1986 he too had joined the attack on Dhirubhai.

The Director of Enforcement enjoyed wide discretionary powers about whom he investigated, and was allowed to operate with minimal circulation of reports outside his own office to avoid compromising arrests and search raids. In addition, Bhure Lal had the confidence of his immediate superior, the Revenue Secretary in the Ministry of Finance, Vinod Pande, who in turn was a confidant of V P Singh himself. It was a ‘closed circle that frustrated Dhirubhai’s network of sympathetic officials within the Finance Ministry, among whom many fellow bureaucrats and politicians placed the able and ambitious head of the ministry, the Finance Secretary, S. Venkitaramanan. 1

Bhure Lal made his first foray overseas to pick up Dhirubhai’s hidden financial trails in May 1986. He went to London to look into the ownership of the Isle of Man companies, but found a baffling wall of secrecy in the tax havens. He travelled to Leicester in an attempt to persuade the Shahs to talk, but arrived a few days after the family head, Krishna Kant Shah, had died. His attempt to prosecute the Kirloskar group over its alleged front company in Germany had also failed because the suspect company’s financial statements could not be sequestered.

The Enforcement Directorate also raided the Bank of Credit and Commerce International in Bombay, and brought charges against its local general manager and five other staff under the special law against smuggling of currency, which went by the acronym
COFEPOSA
. Bhure Lal met the head of the BCCI’s Asian operations, Swalch Naqvi, and offered to go soft on the bank’s staff provided it.supplied A details of Dhirubhai’s suspected transactions to fund the purchase of Reliance shares by the offshore companies.

Naqvi agreed, but reneged once back in London and asserted that as a Luxembourg-domiciled bank the
BCCI
was not bound by Indian law. The
BCCI
was shut down by the Bank of England and other western central banks in 1991 an-tid allegations that it was a major money-laundering operation for drug traffickers.

To clinch a prosecution under the Foreign Exchange Regulation Act, the enforcers needed to produce evidence of the overseas ‘leg’ of a havala transfer. Bhure Lal became convinced that his intelligence agency would have to tap non-official sources to obtain the breaks it needed to build a case. But the private investigation agencies he found in London were too expensive for his office to hire out of its discretionary funds.

Requesting a special budget would have blown the cover completely on his inquiries.

India’s own embassies in foreign capitals were worse than useless. In a later note on his 1986 inquiries, Bhure Lal complained that any information given to Indian missions was usually passed on to the suspect. When the Enforcement Directorate had sought information from the Indian Embassy in Washington about suspected secret commissions paid by the American grain trading giant Louis Dreyfus Corp to the New Delhi industrialist Lalit Thapar’s Balarpur Industries, the embassy had telexed a vigorous complaint back to the Ministry of External Affairs.

The enforcer discussed his dilemma in September with his superior, Revenue Secretary Vinod Pande, who in turn raised the problems during his frequent meetings with V P Singh. The finance minister gave his clearance to the proposal to use foreign investigating agents, on condition that any payments be made after receipt of evidence.

The choice of the agents and other operational matters were left to the Director of Enforcement.

It was left to Gururnurthy to point Bhure Lal towards the help he needed. The two had met first in July, in the coffee shop of New Delhi’s Janpath Hotel. Thereafter through the second half of 1986 they had had informal meetings when Gurumurthy was in the capital, in the Taj Mahal hotel’s coffee shop, in Nehru Park and then at the Indian Express guesthouse.

Gurumurthy had also been in London in May, on a separate visit. With Goenka’s resources behind him, he had not been deterred by the expense of British sleuths. But the inquiries by King’s had come to an impenetrable wall of secrecy in Panama and Dubai.

His attention was turning to the United States where initial inquiries had not unearthed much evidence.

Parallel with his published articles, Gurumurthy had circulated a stream of detailed position papers to concerned officials and politicians about the various allegations against Reliance. In some cases, these papers made recommendations for corrective actionsome of which were taken up, as with the banning of conversion of nonconvertible debentures – or for further investigation.

Nusli Wadia had also kept up his contact with Rajiv Gandhi about Reliance. The two got on well: they were of similar age, each had a Parsi parent, and both were considerably more cosmopolitan than their everyday cohorts. Early in 1986, the prime minister agreed that Reliance should be targeted. As a picture emerged more fully of Dhirubhai’s operations, Rajiv also agreed that the case of the smuggled factories, and the disguised payments that must have been made for them through illegal havala channels, were the most vulnerable points on which Dhirubhai could be nailed.

Rajiv wanted to hear first-hand from Gurumurthy the full story Accordingly, arrangements were made through Wadia for a series of meetings over a week around the end of August, just before the prime minister was to travel to Harare, the Zimbabwe capital, for a gathering of Commonwealth heads of government. In the event, Rajiv did not attend the meetings and had the veteran Congress politician and Gandhi family loyalist Mohammed Yunus speak to Gurumurthy instead.2

In late Septemben Nusli Wadia was also making inquiries while on a visit to New York.

The American-based Praful Shah, who had been listed as a shareholder in some of the Isle of Man companies, remained a mystery. Seeking a way of pressuring Shah to talk, Wadia consulted a New York accountancy firm called Kronish, Lieb, Weiner & Heliman to see if Shah had been breaking any American laws. A partner advised that an American resident such as Shah would have had to declare any income derived from the investment in his name, whether or not it was distributed to him, and that the sale of his shares would be a ‘taxable event’.

In October, Gurumurthy made a second trip to London, where he was given the name of an up-and-coming private investigation agency based on the outskirts of Washington, the Fairfax Group. The agency had been founded in 1983 by a former government anti-fraud investigator named Michael Hershman, then 41, who had worked with the US Senate inquiry into the Watergate scandal and had been deputy auditor-general with the US Government’s Agency for International Development, visiting India several times on
AID
business. The Madras accountant went on to Washington, and spoke to Fairfax on behalf of Goenka.

By then, Gurumurthy had published his articles on the ‘smuggled’ filament yarn capacity, and it had become clear that the counter-parties to any secret payments by Reliance would have been either the suppliers of the equipment, principally Du Pont, or the American eneincerinty firm that arran d the purchase and ge shipment of second-hand plant, Chemtex Fibers Inc. Hershman pointed out that he would need an authority from the Indian Government to get the companies to divulge material they would otherwise classify as commercial in confidence.