Here is how Holcim, Ambuja and ACC have repeatedly short-changed investors. Those making a noise today abetted the previous cases of malfeasance
Ambuja Cement Limited (ACL) announced a layered deal to amalgamate Holcim (India) Pvt Ltd, with itself under which ACL will acquire a 24% stake in Holcim India by paying it Rs3,500 crore. This will give Holcim an additional 10.85% stake in ACL, while giving away a 19.42% beneficial interest in ACC Ltd. Then, when Holcim and ACL are amalgamated, Ambuja Holdings will end up with a 50.01% stake in ACC.
Anil Singhvi, former chief of ACL, calls this a fraud on minority shareholders, because it amounts to taking out Rs3,500 crore of cash from ACL by paying a premium, while diluting its shareholding by 30%. The Securities & Exchange Board of India (SEBI) has chipped in saying it proposes to examine the deal closely from the minority shareholders’ perspective.
If SEBI does step in, it will be for the first time in two decades of complex manoeuvres involving Gujarat Ambuja, ACC Ltd (once a Tata company), Holcim and their group companies, which invariably gypped minority shareholders. The only difference would be that Anil Singhvi, who used to be a part of those deals, now wears the hat of a good-governance pundit.
In 2000, Gujarat Ambuja Cement acquired a 14.5% stake in the Tata-controlled ACC, with a Rs925-crore, two-stage ‘strategic alliance’ designed to give minority shareholders a raw deal. The shares were acquired at a 150% premium to market price without the mandatory open offer to retail investors, using a loophole in the takeover code. It caused such a furore that takeover regulations were rewritten, but the companies got away with the deal.
Then, in 2005, another complex structuring saw Swiss cement major, Holcim acquire a 67% stake in Ambuja Cement India Ltd (ACIL) and the single largest shareholding in ACC. It was again touted as a ‘strategic alliance’ rather than a sale. Ironically, the transaction was also at Rs370 a share. Anil Singhvi presided over that deal. This was immediately followed by the sale of Everest India Ltd to the Adani group. At that time, I had speculated that the founders Narottam S Sekhsaria and Suresh Kumar Neotia were looking for a way out of management and an amicable separation of businesses. That happened in 2011 with the transfer of a small stake. For minority shareholders, there are three lessons. First, that they get a raw deal from Indian promoters as well as foreign acquirers. Second, multinationals can play a long game with overseas transactions that will never be known to the public, since Indian regulators are easily persuaded not to dig deep. Third, minority shareholders usually end up accepting that they are never co-owners and have to be satisfied with getting less, so long as they still make money; otherwise, they sell and go.
For five years United Progressive Alliance (UPA-2) has followed a policy of aggressively hounding legitimate businesses through what senior counsel, Arvind P Datar, calls an "unpredictable, unfair and arbitrary tax system." This too is contributing to slow economic growth
At a time when India needs it the most, foreign direct investment (FDI) has almost dried up and portfolio investors, who have contributed the biggest chunk of our foreign exchange reserves, are staying put only because a pullout would mean booking crippling losses. But, this is a self-created situation.
For instance, for nearly five years, the United Progressive Alliance (UPA-2) has followed a policy of aggressively hounding legitimate businesses through what senior counsel, Arvind P Datar, calls an “unpredictable, unfair and arbitrary tax system. And, since public discussion about the government’s actions is easily controlled and dictated by official leaks, it ensures that business houses are demonised as cheaters and tax-evaders. This is a time-honoured strategy of the Congress since independence, when it took a socialistic and an anti-business stance, bringing with it licences, shortages and mounting corruption.
Today, each of the biggest corporate houses, including icons of good governance of the information technology (IT) sector, is fighting hundreds of slow, expensive and, often, unfair disputes raised by income-tax, excise, octroi, sales tax and customs in various jurisdictions across the country. Neither the government, nor courts/tribunals or lawyers is interested in bunching these cases to offer clarity and end harassment. It is far worse when it comes to environment and pollution related issues. Officials, backed by powerful politicians, brazenly tell the industry that a bribe is non-negotiable—whether you want to install adequate anti-pollution equipment or save money is your choice. This is a double whammy for those who want to play by the rules. Strangely, although we have powerful and well-funded NGOs in this sector, the corruption issue never makes media headlines. As Mr Datar writes, in The Economic Times, “would he (finance minister), as a CEO, invest in a country where the tax liabilities are as uncertain as they are excessive? Would he invest in a country where virtually every favourable decision of an independent judiciary is promptly overturned with retrospective effect? Would he invest in a country where the tax administration repeatedly attacks large multinationals and the organised industry but turns a Nelson’s eye to large-scale tax evasion by those who are either politically influential or who can ‘settle’ their cases?”
While large industry survives this harassment, small business are realising that there is no sense of achievement left in entrepreneurship. Doing business is India is dirty, taxing and self-defeating—and that is the worst that can happen to a country’s economy.
Law enforcement authorities are moving to seize homes, cash and other property of people tangentially related to crimes under "civil forfeiture" laws that require minimal proof
When Rochelle Bing bought her modest row home on a tattered block in North Philadelphia 10 years ago, she saw it as an investment in the future for her extended family — especially for her 18 grandchildren.
Bing, 42, works full-time as a home health assistant for the elderly and disabled. In summer when school is out, her house is awash with grandkids whom Bing tends to while their parents work. And the home has been a haven in troubled times when her children needed help or a father went to jail. One of Bing’s grandchildren lives there now.
“That’s the only reason I bought my home — I needed stability for my children,” Bing said. “And if anything was to happen to me, they would have a home to live in.”
But four years ago, something happened that imperiled Bing’s plans. In October 2009, police raided the house and charged her son, Andrew, then 24, with selling 8 packets of crack cocaine to an undercover informant. (Upon entering the house, police reported finding unused packets, though not drugs, in a rear bedroom.) Rochelle Bing was not present and was not accused of a crime. Yet she soon received a frightening letter from the Philadelphia district attorney’s office. Because Andrew had sold the drugs from inside his mother’s house, a task force of law enforcement officials moved to seize Bing’s house. They filed a court claim, quickly approved, that gave Bing just 30 days to dissuade a judge from granting “a decree of forfeiture” that would give the DA’s office title to the property. Bing was devastated.
“For me to lose my home,” she recalled recently, “for them to take that from me, knowing I had grandchildren - that would have hurt me more than anything.” And so Bing resolved to do what whatever was necessary to keep the house.
She had no idea how long and how difficult that fight would be.
On its face, Bing’s predicament might seem implausible if not unjust. How could someone who’s neither accused nor convicted of a crime be forced to give up her property because of another’s misdeeds? But stories like Bing’s are increasingly more common as Philadelphia and other jurisdictions have embraced the expansive power of forfeiture as a crime-fighting tool.
The idea behind forfeiture is simple enough: drug kingpins, embezzlers, racketeers and other offenders should not be able to keep the financial fruits of illegal acts. Prosecutors often ask a judge to seize the money, vehicles or real estate of a person convicted of a crime.
But authorities can also use civil law to seize assets before the criminal case is adjudicated or, as with Rochelle Bing, even when no charges are brought against the owner.
Doing so offers prosecutors considerable advantages. Unlike the “proof beyond a reasonable doubt” required in criminal law, prosecutors seeking civil forfeitures face a much lower standard. Usually, they need only prove that a “preponderance of evidence” connects the property — not its owner — to a crime. Technically, the property — not the owner — is named as the defendant.
Bing’s name, in fact, appears nowhere in the case involving her own home, listed in court filings as “Commonwealth of Pennsylvania v. The Real Property and Improvements Known as 2544 N. Colorado St.”
Over the last two decades, forfeitures have evolved into a booming business for police agencies across the country, from the federal Drug Enforcement Administration to small-town sheriff’s offices. Although there is no single tally of all this activity – the information is buried in the budgets, court records and annual reports of thousands of individual agencies — the available data makes clear that billions of dollars in cash, cars, real estate and other assets are being confiscated nationwide every year via civil forfeitures.
One measure is the growth of a program in which federal law enforcement officials seize property on behalf of local authorities in exchange for a share of the proceeds. In 2000, officials racked up $500 million in forfeitures. By 2012, that amount rose to $4.2 billion, an eightfold increase.
Bing is among a significant number of property owners not charged with any crime who lost their home or have battled for years against forfeiture actions. Other similar cases reviewed by ProPublica include an elderly widow, two sisters who shared a house, a waitress and hospital worker caring for two children, and a mother of three whose family wound up homeless. All stemmed from drug charges brought against a family member.
Critics argue that the power to pursue civil forfeiture has been abused by prosecutors and is creating a new class of collateral victims. Often they are minorities like Bing without the financial resources or legal know-how to protect their assets.
And prosecutors typically prevail. Of nearly 2,000 cases filed against Philadelphia houses from 2008 through 2012, records reviewed by ProPublica show that only 30 ended with a judge rejecting the attempt to seize the property.
“On the federal level, you tend to see bigger cases get attention — kingpins and that sort of thing — which is what Congress intended with forfeiture,” says Louis Rulli, a law professor at the University of Pennsylvania and director of its civil legal clinic, which does some pro bono work for homeowners facing forfeiture.
“But coming after the parents and the grandparents, who have nothing to do with it?” he says. “The logic does not hold up to me. The folks we’re talking about have usually owned their homes a long time. They’re paid up on their homes; they’re good residents of Philadelphia.”
Rulli worries, too, about the effect on poor and minority residents. “If one sits in court and watches,” he says, “you will see a disproportionate impact on African Americans and Latinos.”
The Philadelphia DA’s office defends forfeiture as a tool for the public good. In the case of forfeited houses, that means protecting neighborhoods from “nuisance properties” which serve as a base for illegal activities.
In a statement, the DA’s office said that its goal in forfeiture actions was “to establish responsible property ownership,” not to seize houses. “In those cases in which the legal owner was not the party arrested for drug dealing and he or she can establish that they had no knowledge of the illegal behavior,” the statement said, “the Commonwealth works with them to settle those cases and the property is not forfeited.”
But that’s not how the law looked to Bing and others who’ve spent years battling the city in court.
Records show that Philadelphia uses forfeiture on a scale and in a way unlike any other county in Pennsylvania. Since 2008, the next three largest counties in Pennsylvania – Allegheny, Montgomery and Berks – have taken fewer than a dozen houses combined, even though they operate under the same state drug laws enabling forfeiture.
By contrast, the Philadelphia DA’s office files forfeiture motions on 300 to 500 private residences annually. It seizes and sells as many as 100 or more properties each year, bringing in more than $1 million annually in real estate sales alone. In 2010, the year the DA went after Bing's house, it acquired 90 houses via forfeiture and auctioned 119 properties for $1.2 million.
The money went directly to the DA’s office and to the Philadelphia police department, including the narcotics units involved in raids that resulted in the forfeitures.
Forfeiture reports obtained from Pennsylvania’s Attorney General give only a general breakdown of how these funds are spent. The records show that the bulk of Philadelphia’s forfeiture money goes to “salaries” (the report does not say whose), and “municipal task force support.” The reports include a line-item for money spent on “Community Based Drug & Crime Fighting Programs” and “Witness Relocation and/or Protection Expenses.” In recent years, both of those items read “$0.00.”
Money from housing sales in 2010 represented about a fifth of all the DA’s $5.9 million in forfeiture income that year. The rest was generated by seizure of cash, cars and other property. Last fall, a story by this reporter in The Philadelphia City Paper disclosed that the DA’s office moves to seize virtually every dollar in cash found by police in stops — even amounts of $100 or less. Under the law, prosecutors need not secure a conviction in the underlying criminal case to keep the cash.
The money raised through forfeiture is handled outside the city’s budgeting and appropriations processes. The law requires only that it be used to enforce Pennsylvania’s drug laws. Critics and experts who study the issue say that gives prosecutors a powerful motive to step up the pace of forfeitures.
“The idea that law enforcement can raise money on its own, through this self-help practice of forfeiture — it’s subversive to the idea of democratic accountability and rule of law,” said Eric Blumenson, a research professor of law at Suffolk University.
Blumenson has criticized the reliance on forfeiture, saying it prompts law enforcement officials to over-emphasize drug prosecutions at the expense of other crime-fighting.
“Prosecutors and police are only too happy to use forfeiture, because it fills their coffers. And why would they stop? They’ve become dependent — you can look at it as an addiction by itself,” Blumenson said.
Prosecutors and police view the issue differently. In an interview last year, officials from the Philadelphia DA’s office last defended the practice as a means of improving civic life.
“Everything is approached from a public safety perspective,” said Beth Grossman, who heads the forfeiture unit. “You have people suffering on their blocks, where their homes are, because of drug-dealing properties. And it’s not fair.”
A Lack of Lawyers
Every weekday, Courtroom 478 in Philadelphia’s City Hall fills with people — most are poor, black and Latino — trying to get back seized property. An administrative judge presides, interacting entirely with assistant district attorneys, who effectively run the show. Some property owners are represented by a lawyer; most are not. Many have been there before, often a dozen or more times, only to have their cases rescheduled over and over. Some have spent years in legal limbo until the case is decided, even longer on appeal.
According to multiple accounts, Tracy Clements was sitting on the sofa on the first floor of her North Philadelphia row house on April 21, 2010, when her brother, William Clements burst in followed by police in hot pursuit. William Clements was arrested and convicted seven months later on drug-related charges.
Neither Tracy, 49, who worked on an assembly line and cared for a son in the house, nor her sister, Sheila, 56, who worked for the IRS and was out of town visiting a daughter at Penn State, were charged with a crime. The two had inherited the house from their mother when she died in 2008. They had played there as children. When their brother William was released from prison, according to their attorney, Jonathan Freedman, they refused to let him live there again.
In the meantime, they were served a notice of forfeiture from the DA’s office. “We had to appear 17 times in court,” their attorney, Jonathan Freedman, said in an email. “Had I charged the clients a merely reasonable fee it would have cost them more than the house is worth!”
The sisters ultimately had their day before a judge. The Hon. Rayford Means, Jr., denied the DA’s motion, saying, “They’re innocent owners. They knew nothing about the drugs, had nothing to do with the transaction.”
The DA disagrees, and has appealed, arguing that at least one of the sisters, Tracy, was home during the drug transactions on the porch, and must have known they were occurring. Prosecutors argue that she turned a blind eye to the crimes. The DA cited policy testimony indicating that a mirror with cocaine residue was found in her bedroom, though Tracy Clements testified in court that she knew nothing about the mirror and that it hadn’t been in her room when she left for work that day.
The Clements sisters, at least, had professional legal representation; many facing forfeiture do not.
Unable to afford an attorney, Takeela Burney chose to fight the forfeiture of her house alone after her son was arrested on May 6, 2010, for a single sale of $20 worth of cocaine from the house.
Over the course of the next two years, Burney would appear several times in court in an effort to save her house.
Because many real estate forfeiture cases are resolved through deals with prosecutors, most of the homeowners contesting their forfeiture cases never appear before a judge.
Burney, however, eventually appeared as her own lawyer before Judge Paula Patrick, on May 13, 2012. When a prosecutor called a Philadelphia police officer as a witness, Burney didn’t seem to know what to do. Rather than cross-examine the officer, she attempted to explain her side of the story to Judge Patrick, court records show.
Patrick said “that it was not her turn to tell her story,” according to an appellate court’s summary of the case. When asked if she had any questions for the officer, she answered, “Not at this time,” as if she’d have another chance to challenge the testimony. Judge Patrick granted the DA’s motion for forfeiture.
At the very last moment, Burney contacted the Philadelphia Volunteers for the Indigent Program, a legal aid group which agreed to take on her case. Burney’s attorney, Matthew Lee, filed a brief arguing that his client had never been informed of her right to a jury trial and that a lawyer should have been appointed for her.
An appeals court blocked the forfeiture, ruling that Burney deserved to know of her right to a jury trial. The judges did not address the question of whether Burney was entitled to a court-appointed lawyer.
Writing for the majority, Judge Renee Cohn Jubelirer said: “We understand the importance of denying criminals the proceeds of their crimes and the need to make our communities safer.”
“However, it is also our obligation to assure that these laudable goals are achieved within constitutional boundaries. These boundaries become more apparent where there is no alleged criminal conduct of the homeowner.”
Practice of Forfeiture is Widespread
Philadelphia is hardly alone in its aggressive pursuit of forfeiture.
In Washington, D.C., the City Council recently held hearings on a bill that would impose new limits on cases arising from cars linked to crimes. For years, the Metropolitan Police Department has seized cars by the hundreds and required owners to post “bonds” if they wanted to contest that action.
Last May the D.C. Public Defenders Service filed a class-action lawsuit against the city, asserting that the practice violates the U.S. Constitution's Fifth Amendment’s guarantees of due process. They argued that car owners who can’t afford to put up money are deprived of their property without any judicial review.
The D.C. City Council is considering change in the law, including putting the money from forfeitures into the city’s general fund rather than law enforcement budgets. (The Attorney General for the District of Columbia opposes this bill, as does the city administration).
Darpana Sheth, an attorney for the libertarian-leaning nonprofit Institute for Justice who testified at a recent hearing alongside the D.C. Public Defender Service, endorses that idea. “Having the people charged with enforcing the law seizing property and benefiting from that property is unconstitutional – specifically, the concept of ‘neutrality’ in due process,” she said. “They can’t be neutral if they have a financial stake.”
Last year, police officials in Tenaha, Texas, agreed to various monitoring and reporting conditions after being sued by the American Civil Liberties Union for stopping drivers, mostly minorities, and seizing their cash and other property. Tenaha police often did not charge the motorists with any crime but threatened them with arrest if they didn’t agree to forfeit their possessions, according to the lawsuit. In settling the case, Tenaha officials denied that the traffic stops were unconstitutional.
The Teneha case drew national attention – briefly, at least – to the larger issue of forfeiture. But the revelations underscored how little is known about forfeiture practices nationwide.
“The problem is when police departments are able to seize assets in hundreds of thousands of dollars – they’re going to,” said Vanita Gupta, an attorney with the ACLU. “I worry with the Tenaha case that people will think, ‘Oh that’s just Tenaha.’”
“Every police department in Texas is pocketing money from forfeiture,” she said.
(Gupta has a point. Data compiled by the Institute for Justice, which has been a vocal critic of forfeiture, shows that 759 law enforcement agencies in Texas alone reported proceeds from forfeiture in 2008, the most recent year that data was available.)
The Search for a Fairer System
Spurred by similar reports of the abuse in the late 1990s, former Rep. Henry Hyde, R-Ill., held a series of hearings on forfeiture, prompting the passage of the Civil Asset Forfeiture Reform Act of 2000.
The law addressed several key shortcomings in federal forfeitures, providing “innocent owners” with a defense against being punished for the crimes of a relative or friend. It also provided for the appointment of an attorney when a homeowner faced the loss of his or her primary residence and was too poor to afford legal help.
Those reforms did not extend to the local level, where forfeiture is often governed by state laws.
In 2010, the Institute for Justice released a report entitled “Policing for Profit,” which represented one of the first attempts to catalogue each state’s laws regarding forfeiture. It found that most offered minimal protections to property owners.
North Dakota, for example, is among the few states that impose limited restrictions on the practice, prohibiting forfeiture of a home co-owned by someone not accused of a crime.
Critics have been pushing local legislators to enact additional rules.
Forfeitures in cities like Philadelphia and Washington, D.C., are conducted through civil laws. One way to eliminate the inequities of that system would be to conduct property seizures only through parallel laws in the criminal code.
Such laws come into play only after an accused criminal has had his or her day in court. The ACLU’s Gupta said this would rule out one of the more unfair results of the civil cases, which is that people are arrested, lose their property and are then ultimately acquitted on the criminal charges.
“There are a few jurisdictions where they use criminal, not civil forfeiture – meaning they’ll still seize assets, but once someone is convicted,” Gupta pointed out. “It begs the question, why do we use civil forfeiture at all?”
The courts of Allegheny County, Pa., have answered that question, requiring local judges to pursue property seizures in most cases through the state’s criminal statute and then only after the person involved in the case is convicted. That practice began under the late Judge Robert Dauer, president judge in the county’s trial courts, and continues to this day. In 2009-2010, the county did not seize a single house.
“Our policy was we had to have a conviction and it had to make some reasonable sense why we were going after forfeiture,” recalls Pennsylvania Superior Court Robert Coville, who headed up the Allegheny County District Attorney’s office for 21 years.
Coville says that as DA he supported using criminal, not civil, forfeiture as a matter of principle.
“It’s based on fairness,” he says. “I would be very restrained as a prosecutor or a solicitor for the city, going in on the theory of an allegation or the presumption of something we don’t have – namely, a criminal conviction against the owner for some kind of illegal conduct.”
Coville declined to comment on the specifics of this story, as legal issues around forfeiture very well may come before him in his role as an appellate judge. But speaking from his experience as a former county prosecutor, he said he is troubled by the idea of supplementing police and prosecutor budgets with money from forfeitures.
“I can understand why someone would want to do that in this day and age,” he said. But “is there an incentive for police and prosecutors to go after property only for the value? That gets into a whole other bag of issues.”
Other legal experts see the right to representation – especially in cases involving something as important as a home -- as the single best way to curb injustices.
“The main defenses to civil forfeiture are called ‘affirmative defenses’ – you must raise them or you waive them,” says University of Pennsylvania professor Rulli. “I think lack of counsel is a big deal. Do these people know their rights? Are they learning it from the DA? What is the DA saying to people? Is DA saying you have a right to assert innocent owner?”
Matthew Lee, the lawyer for Takeela Burney, said the recent ruling that his client was entitled to be informed of her right to a jury trial was a step in the right direction. “I was hoping that they would say you have a right to a lawyer,” Lee said, “but what they did ultimately hold is that these cases are really more like criminal cases than civil cases and that a lot of the constitutional protections in criminal cases should apply.”
Rochelle Bing’s case illustrates the value of legal counsel. Like Burney, Bing couldn't afford a lawyer herself. She eventually was referred to the University of Pennsylvania Legal Clinic where law students took on her case without charge.
Bing’s fight to save her home dragged on for two years and required her or her attorney to appear in court no fewer than 23 times. Finally, prosecutors settled the case, allowing Bing to retain ownership if she agreed not to let her son visit when she wasn’t home. (Her son, who negotiated a guilty plea to one count of possession with intent to distribute, had already finished serving his sentence he received.)
Bing said she would have agreed to that condition at the outset.