New Delhi, June 13: The Department of Company Affairs (DCA) is investigating a complaint that Reliance Industries transferred huge funds running into several hundred crores to Somnath Syndicate, a partnership firm in which RIL had a 98 per cent holding, through a subsidiary, Reliance Petroproducts Ltd. DCA is also probing allegations that this money was used to buy into BSES (renamed Reliance Energy earlier this week) and Larsen & Toubro.
Reliance allegedly transferred some Rs 304 crore to Reliance Petroproducts, which had a paid-up capital of just Rs 13,000, as an interest free loan in 1994-95. This means the debt equity ratio of Reliance Petroproducts was at an astounding 2.3 lakh:1!
Reliance Petroproducts, in turn, transferred Rs 289 crore to Somnath Syndicate as an interest-free unsecured loan. Interestingly, Somnath Syndicate was formed that very year on October 21, 1994, with three partners — RIL, which had a 98 per cent shareholding, A. Zhunzhunwala who had a 1 per cent holding and S.Mittal who had another 1 per cent holding.
Somnath Syndicate got this huge loan despite being a company with nil capital. This meant that Somnath Syndicate had a debt equity ratio of 289 crore :0 ! The complaint alleges that this firm was started with nil capital to “avoid any disclosure under schedule VI of the Companies Act 1956 in the balance sheet of RIL”.
The complaint, which has recently been handed over to DCA by the finance minister as part of a bunch made by former commerce minister Subramaniam Swamy, is backed by evidence on the partnership between RIL, Mittal and Zhunzhunwala, and the ledger and balance sheet entries that show the transfer of the funds.
Somnath Syndicate then went on to purchase 68.39 lakh shares in BSES at a cost of Rs 111 crore and 63.01 lakh shares in L&T for Rs 158.30 crore during the same fiscal — 1994-95.
The complaint alleges, “in this way Reliance was able to increase its holding in BSES and L&T (each) by more than 60 lakh shares without this being disclosed to any shareholder or outsider.” It adds that these purchases “amount to more than a 14 per cent stake in BSES as its paid-up capital as on March 31,1994, was Rs 5.70 crore.”
Reliance Industries has since managed to wrest control over BSES. Last year, it became the single largest shareholder with a 38 per cent stake which this January, RIL increased to 58 per cent after an open offer.
On Monday, it topped off its takeover drive by renaming the blue-chip power company Reliance Energy Ltd with the two Ambani brothers as chairman and vice-chairman of the new board of directors.
Larsen & Toubro, however, was a company which RIL never managed to control. It bought heavily into the firm but eventually sold off its stake to Grasim Industries, a Birla group enterprise.
Somnath Syndicate’s share purchases during 1994-95 were in fact far higher than Reliance’s own purchase volumes of these two stocks. RIL in contrast bought just 5.98 lakh shares in L&T for Rs 14.98 crore and 14.86 lakh shares in BSES for Rs 32.28 crore during the same year.
In the next year, the complaint alleges, “the entire arrangement was reversed” with Somnath Syndicate selling the BSES and L&T shares to Reliance Industrial and Investments & Holdings Ltd, a subsidiary of RIL.