Those of us who watched with fascination how Subrata Roy seemed to get away with full-page advertisements and interviews attacking the capital market regulator are relieved that the word ‘contempt’ is even being discussed in the apex court.
It is said, “the wheels of justice grind slowly, but they grind exceedingly fine.” This is especially true in India and a change in judges or forum can make all the difference. Those of us who watched with fascination how Subrata Roy seemed to get away with full-page advertisements and interviews attacking the capital market regulator are relieved that the word ‘contempt’ is even being discussed in the apex court. A day before the July-end hearings, Sahara again publicly attacked SEBI and the SEBI chairman, accusing them of trying to ‘destroy Sahara’ with patently false claims and being ‘singled out for punishment’.
Such public attacks prior to court hearings were unheard of in India.
Sahara dared to publish its version of events leading up to the court battle, even though there is a path-breaking and extremely detailed Supreme Court judgement (31 August 2012) ordering it to refund over Rs24,000 crore raised through Sahara India Real Estate Corporation Ltd and Sahara Housing Investment Corporation Ltd. A quick reading of Sahara’s release only reveals how many senior bureaucrats, officers of the court and those in regulatory positions were willing to blindly endorse Sahara’s stand that it could raise thousands of crores of rupees, without scrutiny. It claimed to have received favourable legal opinions from “five legal luminaries, including two former Chief Justices of India and one ex-Chairman of Securities Appellate Tribunal (SAT)”; in addition to the law ministry “with the signature of the Minister Veerappa Moily”. The company deliberately obfuscates the fact that the issue is not about whether money is raised from an unlisted entity, but the quantum and number of people from whom it is raised that puts it in the domain of the capital market regulator.
Such is Sahara’s influence over the Indian judicial system that, on 18th July, the two-judge bench of the Supreme court declared: "No court or tribunal will interfere with our August 31, 2012, order. We are annoyed by the SAT order. What business does SAT have to interfere with the Supreme Court judgement.” In another signal of displeasure, it also transferred Sahara cases pending before the Allahabad High Court to itself. The contempt issue itself has been adjourned for another hearing.
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.