Archive for the ‘ACRA’ Category

KG D6 Gas Price and FDI: Is PIL In SC Muddled Or Self Serving?

6 April 2014
An “alleged” case of money laundering brought through a Public Interest Litigation (PIL) against Mukesh Ambani controlled Reliance Industries Ltd (RIL). is before the Supreme Court. The case prays for the cancellation of contract government of India (GOI) signed with RIL for exploration and production in KG D6 block. It had triggered my earlier post मुखोटा Magic: BJP-Congress, FDI-FII last week. Newspapers had reported on several occasions that:

The bench, …. during the last hearing, had said it wanted to know from the government about the alleged money laundering issue raised during the hearing. Advocate Prashant Bhushan, appearing for an NGO, Common Cause, had read out the letter by the Indian High Commission in Singapore to the Centre relating to an investigation of investment of Rs 6,500 crores from a “one-room defunct” company in Singapore.  He had claimed the High Commission had stated that Rs 6,530 crores have come into India from Bio Metrix Marketing Ltd, a one-room company in Singapore that does not do any business. It was contended by him that it was a company with no assets, no equity and did not file income tax returns in Singapore claiming to be a small firm”.
I had shared the link to my post with several groups and individuals. In response, I received scan of several documents pertaining to the case before the Supreme Court including about what “Bhushan had claimed about what the High Commission had stated”. All these documents are no more secret or confidential as they have been submitted to SC in the ongoing case. Some of those documents are of great interest and value to those who want to understand firsthand what kind of alleged cozy deals make for crony capitalism that is proving to be the bane of India (and the world) and the role of regulatory oversight or the deliberate lack of it.
The First document at pages 1 to 5 gives the letter dated 31 August 2011 from G T Venkateshwar Rao, First Secretary (Economic), High Commission of India-Singapore, to government of India in response to a query from Department of Industrial Policy and Promotion (DIPP) that has oversight of Foreign Direct Investment (FDI), Policy and Implementation, among other things. The next 7 pages are the “typed true copy” of the same letter.
, is in a single room that is closed most of the time.
*Strasbourg Holding’s paid up share capital of S$ 125,002/- is held by Atul Shanti Kumar Dayal [R/o 21 Valentia, Naoroji Gamadia Road, Mumbai-400026], -share 100% and Reliance Shatin Narain Tandon, [R/o 4A Shri Vijayaa Bhavan, Mumbai- 400026], share 0%.
* The then business address of Strasbourg [20 Cecil Street, #14-01 Equity Plaza, Singapore], did not have any presence of Strasbourg, but, in fact, is occupied by another company, Rikvin. [Rikvin, in fact, is in the business of registering companies in Singapore and calls itself “Singapore Company Registration Specialists”. The address given at its website is the same as that of Strasbourg Holding’s the then address. It is quite “normal” in tax heavens and in global financial centers for companies to have as their “official registered address” the address of the registering specialist].
*Both these companies did not file Annual Accounting statements with Accounting and Corporate Regulatory Authority [ACRA] of Singapore sighting provisions that exempt annual filing under some circumstances. [This exemption is available only to Exempt Private Company [EPC], either small or big or dormant. A private company qualifies as EPC if it has at most 20 shareholders. And no Corporation holds (directly or indirectly) any beneficial interest in the EPC’s shares. Now, Biometrix Marketing’s shareholder, Strasbourg Holding, is another EPC. As per annual fillings in U.K., Reliance Genmedix Private Limited Company’s share capital was GBP 15,571,780.40, compromised of 155, 717, 804 ordinary shares. There were 3 shareholders with more than 5% stake in the share capital: HSBC Client Holdings Nominee (UK) Limited -14,023,391shares-, Persming Nominees Limited -11,757,923 shares-, and SLC Registrars Limited -116,825,457 shares-. Together these 3 companies hold 91.58% of capital of Reliance Genmedix. It is quite obvious from the names of these three companies that they hold these shares in fiduciary capacity on behalf of their clinet/s. Does this make Reliance Genmedix NOT a CORPORATION in the eyes of ACRA-Singapore for Biometrix Marketing to avail annual filing exemption?]
**See point ‘e’, page 5: ”It is highly probable that the amounts [invested] may have been shown as creditors/loans raised from Singapore or from other countries mostly tax heavens to form a circuitous route. Ultimately source [of investment] needs to be ascertained”.
**See point ‘f’, page 5:”The ultimate owner of both the Singapore companies and therefore responsible for investment to India is Mr. Atul Shanti Kumar Dayal, who is based in Mumbai, India”.
This takes us to another deliberate curtain that is raised to obfuscate the trail of money and hide its source. The next document contains 18 pages out of which p1 to p4 give the business profile of Biometrix marketing Pvt. Ltd. as of 5thAugust 2008 obtained from ACRA and so are remaining 14 pages that give Company Charges Transactions (Statement Containing Particulars of Charge) for 3 separate charges created in favour of the Singapore branches of ICICI Bank (1 Charge) and Axis Bank (2 Charges) over the Options Agreement (as defined in the Instrument of Charge)  between Ekansha Enterrpise Pvt. Ltd (EEPL).and Biometrix Marketing Pvt. Ltd. respecting the grant of certain PUTand CALL options in respect of certain CCPS (Compulsory Convertible Preference Shares– as defined in the Facility Agreement). Each of the underlined terms above is imbued with special significance.
First some data is tabulated below for ease of reference.
Charges created and registered by Charger Biometrix Marketing Pvt. Ltd.
Charge No.   Date of       Date            Amount     Chargee(s)
                     Instrument  Registered   Secured.
                     Of Charge.
C200708304 07/09/2007 03/10/2007 All Monies  ICICI Bank
C200711416 10/12/2007 27/12/2007 All Monies  Axis Bank

C200804412 09/05/2008 13/05/2008 All Monies  Axis Bank
Some notable points are: (1) In the case of first two charges, under the heading *Description of the instrument creating/evidencing charge*, it is mentioned, *Assignment of Contract Rights (The “Instrument of Charge”)*. However, in the last case it is given as *Deed of Debenture*. (2) Here two Indian banks are mentioned, whereas the newspaper report referred in my first post on the topic had Reliance Industries Limited (RIL) mentioning only ICICI-Singapore branch in its press statement. There was no mention of Axis Bank. Why? In fact, soon we will see another piece of evidence where another Mukesh Ambani company hides Axis Bank’s loan in its reply to statutory directive issued by Department of Enforcement. (3) The dates of appointment of directors of the company are just months prior to loan arrangements”: 15/05/2007 (Ragini Dhanwantray), 17/08/2007(Ranade Vinay Arvind, CEO-Reliance Genmedix PLC), and 24/08/2007(Thakur Meharchand Sharma, President-Reliance Holding USA, which is a subsidiary of RIL). The closeness of these dates compels an impression that the whole façade of Biometrix Marketing was raised with the sole and express purpose of “managing the routing” of Foreign Direct Investment into Mukesh Ambani controlled four companies. This suspicion is further strengthened by the fact that both Biometrix Marketing and its 91% shareholder, Strasbourg Holding are voluntarily wound up as reported in my earlier post.  (4) In any loan agreement it is the lender, who is usually vulnerable, especially when over US$ 1.6 billion are to be lent to a company with no history, track record or operations. However, the entire initiative to put these Charge Agreements on ACRA-record has been of the borrower and not lenders. As if, the borrower wanted to create an “independent evidence of registration” of having availed massive loans against “The Instruments of Charge”.  (5) ICICI and Axis bank would not lend money without interest or some other monetary consideration. That money was to be invested in CCPS. Did the CCPS come with assured dividend clause? If not, how was the interest component of loan to be covered? What would be the risk associated with market price of equity shares post conversion of CCPS? How was it to be covered? And how was the Exchange rate risk associated with the whole circle of transactions to be covered?  (6) The last but most crucial feature is the sequence of events. The logic of finance, law and common sense dictates that

èFDI in four Ambani companies has to be preceded by disbursal of loans by banks (see RIL press statement and the reply to Dept. of Enforcement’s directives –below- that claim loan was availed for FDI purpose).
èDisbursal of loans by banks has to be preceded by solid balance sheet and cash-flow statement; or at least solid asset as collateral. Biometrix with S$ 110,000/- share capital that claimed small exempt private company [EPC] status obviously lacked former. Remember, it got over US$ 1.6 billion in loans.
èThe offering of collateral has to be preceded by creation of asset or instrument of collateral, in this case it is called Instrument of Charge.
Now the significant terms we encountered above need to be linked to elements of above chain. (1) The Disbursal of loan by ICICI and Axis bankis contingent upon the Facility Agreementbetween the lender (Chargee) and borrower (Charger). (2) The Facility Agreement is contingent upon Options Agreement (PUT and CALL options regarding CCPS)– the underlying collateral for the loan advances. (3) The Options Agreement is contingent upon the FDI in CCPS and their actual allotment. (4) And FDI in CCPS is contingent upon Disbursal of Loan. This sequence is unavoidable and inviolable if indeed the FDI in CCPS of four Mukesh Ambani companies happened out of the loan availed by Biometrix Marketing from ICICI (and Axis) Bank/s.
Before it can be decided if this sequence was followed or not, yet another crucial evidence needs to be put on record. This is a letter dated 14thAugust 2012 “purportedly” written by L V Merchant-Director, Reliance Life Sciences Private Limited (RLSPL), to M G attri-Assistant Director, Directorate of Enforcement. The letter refers to directives issued under section 37 of FEMA, 1999: Directive dated 15thFebruary 2010 (reply dated 23rd March 2010), Directive dated 21st June 2010 (reply dated 2ndJuly 2010), and Directive dated 19th November 2010 (reply dated 25th November 2010). The letter of 14thAugust 2012 seems to have been written unsolicited by way of “further clarifications” more than 20 months later. Why this need arose for unsolicited additional clarifications is unclear from available material. The last page (p5) of the document, Financial Engineering by Mukesh Ambani, is quite patently not part of the letter (p1-p4), but has been prepared and added by someone or more individuals, who had access to all these documents. The diagrammatic flowchart of linkages between various entities owned/controlled by Mukesh Ambani and money-flows through them shows that the author of this page has more intimate knowledge of the case than what the document sent to me reveals.
There are 10 individual transactions that together complete the whole FDI by Biometrix Marketing in four companies. The first allotment of CCPS is made on 20th September 2007 and the seventh on 19th October 2007. The Instrument of Charge with ICICI bank was created on 7th September 2007, and loan disbursement would have taken place after that. Perforce, these 7 investments could only be made out of loan availed from ICICI bank, because the first Instrument of Charge with Axis Bank was created only on 10th December 2007, and the second, much later, on 09-05-2008 (remember this Charge said Deed of Debenture! And why was this charge created 5 months after the entire FDI was over?). The ironclad logic that sequence of events (see table above) must respect is as follows:
èThe CCPS can be allotted only after FDI is made.
èFDI can be made only after Loan is availed.
èLoan can be availed only after Instrument of Charge is created (Collateral provided).
èInstrument of Charge can be created only after Options Agreement (underlying asset to collateral) is created.
èOptions Agreement can be created only after CCPS are allotted.
The desirable serial sequence of events has turned into a No-Go impossibility of Circular sequence, which doesn’t have a single starting point. What doesn’t have a start won’t have an end either. Therefore, this façade is void ab initio.
There is a deep and fatal flaw in the explanation that FDI by Biometrix Marketing, Singapore, was made out of loans availed by it from ICICI Bank, Singapore (and Axis Bank, Singapore). Then, What is the source of money of Biometrix’s FDI? Either ICICI Bank threw caution to wind and also all norms of prudential banking, and in complete disregard of laws and regulatory framework disbursed loan of over US$ 1.6 billion to a non-descript, defunct company with share capital of S$ 110,000/- created in the very same year, 2007; or it never disbursed any loan to Biometrix. ICICI Bank is an Indian Bank. It is subjected to oversight of Reserve Bank of India. RBI has the full power of laws and regulatory framework behind it to force ICICI to squeal out all the secrets, if there are any.
RLSPL has “conceded” that Biometrix Marketing is “indirectly” its subsidiary through a circuitous route via Netherlands and U.K. Actually, even this is a misleading statement. We have already seen that Reliance Genmedix PLC owns only 9% small minority stake in Biometrix Marketing, whereas 91% lion’s share is held by Strasbourg Holding, whose sole 100% shareholder is a Mumbai resident, Atul Shanti Kumar Dayal. That effectively means, an Indian resident individual has managed to invest over US$ 1.6 billion in India through FDI route. That makes him a mighty rich Indian. Again the gamut of machinery under the Ministry of Finance (Directorate of Enforcement, CBDT, CBE&C, SFIO) and Ministry of Corporate Affairs have all the means and able men to get to the heart of the matter through thorough scrutiny of all the actors in this “financial act”. Machinery only needs to ask the right questions, government the will to set the machinery in motion.
The lawyers for the petitioners of the PIL before the Supreme Court have precisely argued for this.
The bench comprising justices B S Chuahan, J Chelameswar and Kurian Joseph, during the last hearing, had said it wanted to know from the government about the alleged money laundering issue raised during the hearing.
Curiously same bench during a later hearing asked,
A bench headed by Justice BS Chauhan asked the government to file an affidavit explaining how Canada’s Niko Resources, which holds 10% in Mukesh Ambani-led Reliance Industries’ KG D6 block, is able to sell gas in Bangladesh at $2.34 mmBtu, half the current price in India.
The two issues, money laundering and gas price, have no direct link or do not impinge on each other in any fashion. The issue of alleged money laundering doesn’t involve RIL directly. Though, Mukesh Ambani holds majority stake in RIL, RIL and Amabni are separate entities. What should be the “correct price” of gas produced in KG D6 Block for which RIL holds exploration and production contract has nothing to do with “FDI” made by Biometrix Marketing. The same question about Niko was asked earlier by Arvind Kejriwal, Convener of Aam Adami party. In fact, the FIR filed by Kejriwal led Delhi government had claimed, “that RIL’s partner NIKO has a 25 year contract with Bangladesh Government to supply gas at the rate of 2.34 dollar per mmbtu”. This claim has entered the PIL before the SC that seeks from SC direction to government to cancel the contract GOI has signed with RIL for exploration and production in KG D6 block. There have been and would be given plethora of reasons why Bangladesh comparison is not fair. One such hole proffered in AAP’s claim is, “the difference in capital expenditure involved between an unexplored, deep-water gasfield in India and a fully discovered onshore gas field in Bangladesh… Niko started operating the block in Bangladesh, the gas was already discovered there. Moreover, a crucial fact is that the particular block (Bangladesh) is on land, unlike the deep water KG-D… A complex deep-water exploration like KG-D6… the environment is harsh especially when operating at a water depth of more than 2 kilometres… the cost of hiring a deep-water rig is very high with per day costs ranging between $200,000 and $500,000”. The point of discussing this here is not to digress into the merits of claim and/or counter claims, but just to show the technical complexities involved in deciding the issue. Even though SC has asked the same question, it may very well appoint an “expert committee” to report on the merits of the case. What would be its verdict is anyone’s guess?
Kejriwal, and his AAP colleague and petitioner’s lawyer, Prashant Bhushan, in their (over)enthusiasm, have injected an extraneous issue of alleged money laundering into KG D6 block gas pricing just because both are linked with Mukesh Ambani. Since targeting “Mukesh Ambani” is central to the election strategy of Kejriwal/AAP to get at both Modi and Congress –nothing wrong with that and is even legitimate and justified; a suspicion arises whether they have deliberately and opportunistically “incited” Supreme Court’s “pronouncements” for electoral-gains by injecting the “High Commission’s letter” that has nothing to do with RIL into a PIL that targets RIL’s KG D6 block contract.
This may very well be the end of simple and direct investigation of alleged money laundering and of nailing of perpetrators, if any, by it getting swallowed to the bottom of the vortex of complex gas pricing- a classic case of baby getting thrown out with the bathwater. I would be happy if I am proved wrong, but I wonder.
Arun Agrawal, a lawyer, RTI activist and anti-corruption crusader of repute, has through his several cases against scams proved that there are obscene figures of corruption through leakages/losses to Indian nation. If one Googles his name with “RIL and Mukesh Ambani”, or with “SEBI and U C Sinha”, or with “Cairns Energy and ONGC”, or with “Vodafone, Hutch, Income Tax”, or with “Iron Ore Mining, Profits, Royalty”, or with “SC/HC judges and Bangalore layout”; one would get ocean of information on how pervasive the corruption is in this country. In fact, it is so pervasive that many people fail to recognize one when they experience it but money does not change hands; for example when people receive “favours” of significant monetary value by not making full disclosure of facts. I have provided links to his articles on CanaryTrap.In in concerned cases. In his opinion, some of these scams would beat by miles what the losses through “illegal enrichment of RIL” in KG D6 block UPA-Congress, Deora, and Moily have engineered by giving one double increment in gas price years earlier, and another double of “double increment” ordered from 1st April 2014 but has been put on hold by Election Commission on AAP’s application. Of course, the new government formed after the elections can always raise price retrospectively, if it so wishes. May be Agrawal is overwhelmingly right! Or May be he is partially right! Or May be AAP’s contentions are right! That only future will tell. It is uncertain when, because one cannot say when SC would conclude hearing and pronounce judgment. But one can tell with certainty that the day elections results are announced., it would be known if SC’s “incited pronouncements” have helped AAP in its first battle royal of general elections.
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