New Delhi, June 8: Finance minister Jaswant Singh has ordered an enquiry into reports of alleged fund diversion of over Rs 7,000 crore by Reliance group companies to various front firms by using stratagems such as alleged sale of assets at low prices, grant of bogus incomes, purchase of assets at inflated prices and issue of securities.
Top finance ministry sources said the probe ordered last week will initially be handled by the department of company affairs (DCA). If prima facie evidence of wrong-doing is found, it will be transferred to the Serious Frauds Investigation Office, which is currently being set up.
The voluminous report presented by former commerce minister Subramaniam Swamy to Singh on May 19 alleges that some Rs 7,103.36 crore was diverted from publicly-owned Reliance group firms, such as Reliance Industries Ltd, Reliance Petrochem Ltd, Reliance Capital Ltd and Reliance Infrastructure Industries Ltd during the 1990s.
Singh has directed DCA to carry out “a detailed examination of the issues”.
This is the second probe into the affairs of the Reliance group ordered by the finance minister this year.
In February, Singh had initiated an investigation into allegations levelled by RSS ideologue S. Gurumurthy that “the Ambanis virtually smuggled out in their favour 12 crore equity shares representing 11 per cent shareholding in Reliance Industries (RIL) valued at Rs 3,600 crore by paying less than a fourth of their value through a preferential issue to 34 of their proxy corporates under a general body resolution.”
The current probe centres on charges that some Rs 1,386.28 crore was siphoned off by way of sale of assets by public limited Reliance firms at “throwaway prices to private Ambani companies”, while another Rs 3,672 crore was diverted when listed companies issued securities to alleged private Ambani front firms at low prices.
There are also detailed calculations and fund-flow sheets, which indicate alleged diversion of Rs 1,061.87 crore at low or nil interest rates to these firms, grant of apparently bogus incomes to the tune of Rs 291.64 crore and purchase of assets worth Rs 691.57 crore at “astronomical prices” by what are being described by the report as front firms.
In all, the report has listed some 403 entities it claims are front companies. These include those with names starting with every letter of the alphabet —Adbhut Trading Pvt Ltd, Caasiepeia Commercial Pvt Ltd, Dainty Investments & Leasing to Reliance Venture Capital Pvt Ltd, Reliance Broadband Communications Pvt Ltd, Shangrilla Investments and Venus Merchandise Pt Ltd.
Earlier, the Income Tax department in an assessment order dated March 29, 1996, had found Reliance Industries “to be controlling more than 200 firms (206 to be exact)” which were set up to maintain control in RIL.
Detailing how money was diverted, the report prepared by Swamy alleges that Rs 510 crore was transferred in one instance from RIL through Reliance Capital Ltd to some “36 private Ambani companies” to make “funds available to RCL so as to enable it to give inter-corporate deposits to private Ambani companies for acquiring RIL shares”.
In 1993-94, Reliance Capital issued three series of non-convertible debentures at 12 per cent interest of 18-month-maturity and a redemption premium of Rs 15 totalling in value to Rs 510 crore. RIL was the lone subscriber to the issue. RCL used part of these funds to give Rs 121 crore in inter-corporate deposits to 36 private Ambani firms“in contravention of NBFC norms”.
RCL actually never paid back RIL any real money, alleges the report. The first series of debentures valued at Rs 160 crore and the second series valued at Rs 65 crore were redeemed by RCL by issue of the third series worth Rs 285 crore.
Citing a more complicated case, the report points out that Reliance Industries transferred its lease rental liabilities, to be paid to ICICI, to Reliance Enterprises Ltd through an agreement dated March 30, 1993. REL was a company which had only RIL investments as its major asset, and loans from RIL were its major liability in that year.
The agreement was such that REL would receive more from RIL in the first few years and less in later years. RIL stood guaranter for REL making eventual rental payments to ICICI.
RIL thus paid out more money than what was due from it by way of normal lease rent in the first few years. In later years, REL defaulted and “RIL squared part of the liability to ICICI by taking 6 per cent preference shares from REL”.
The report alleges that REL used some Rs 189 crore, part of the money it received, to deploy with brokers — Ashok Ruia, Vinodkumar Roongta, V .K. Jain, R. S. Damani, S. G. Mantri, R. R. Bohra and others.
Subsequently, Swamy points out share prices of RPEL, a Reliance firm, went up from Rs 40 to Rs 45 in June 1994 while that of RPPL went up from Rs 90 to Rs 100.