The Polyester Prince (17 page)

Rajiv’s new broom was also sweeping closer to Dhirubhai. As his
DMT
plant moved closer to production, Nusli Wadia had been lobbying hard for greater protection against imports of
DMT
and
PTA
. In particular, he argued that trade policy should support the big investment in domestic
DMT
capacity by Bombay Dyeing and the two state producers. Mowing a switch to
PTA
meant a loss of foreign exchange on imports that could be substituted domestically.

A ‘secret’-level note circulated by the head of the Petroleum Ministry, G. V Ramakrishna, on 16 May 1985 to Rajiv’s economic adviser, Montek Singh Ahluwalia, and the Finance Secretary, S. Venkitaramanan, discussed Bombay Dyeing’s plea for greater protection for
DMT
At that time, both
PTA
and
DMT
attracted a customs duty of 100 per cent plus an ‘auxiliary’ duty of 40 per cent.
PTA
could be imported on the ‘open general list’ (without licence) while
DMT
was on the ‘limited permissible list’-meaning that imports needed prior government permission after verification to see that domestic competitors were not damaged. Bombay Dyeing asked for
PTA
to be shifted also to the limited permissible category, and for basic customs duty on both to be lifted to 150 per cent.

Ramakrishna said his ministry had examined the request and was recommending that the first measure be adopted-that
PTA
be removed from the freely importable list. But in view of this and other comparative cost considerations, the ministry did not see any need to increase import duty on
PTA
and
DMT
.

Thus, as Dhirubhai was holding his open-air shareholders’ meeting in Bombay on 20 May 1985, the government was moving towards a decision that would have a drastic effect on Reliance’s production, and possibly force it to use
DMT
from Nusli Wadia’s
DMT
plant.

On 29 May, the government announced that PTA was placed on the controlled import list with immediate effect.

Dhirubhai was not worried. For a 90-day grace period from 29 May, the government said it would allow those
PTA
imports for which irrevocable letters of credit had been opened against firm contracts by 29 May. It emerged that, by the time of the notification on that date, Reliance had opened such letters of credit for 114 000 tonnes of PTA-more than enough to supply its existing and planned polyester capacity through to the opening of its own
PTA
plant expected at the end of 1986.

Moreover, the letters of credit had been opened in a burst of frenetic activity with several banks over 27 to 29 May, up to a few hours before the import policy change was announced. One revolving credit from Canara Bank for 2000 tonnes of
PTA
a month up to 30 June 1985 had been enhanced on 29 May itself to pay for 12 000 tonnes, and the shipment date extended to 30 June 1986. Letters of credit were taken out also with the foreign banks Societe General, Banque Indo Suez and Standard Chartered Bank on contracts signed some months earlier, for a further 42 000 tonnes.

On 27 May, Reliance had got an entirely new contract for 50 000 tonnes of
PTA
registered with the Petroleum Ministry in New Delhi, and covered the same day by letters of credit from Standard Chartered Bank, Societe General and the State Bank of India at their Bombay offices. The Exchange Control Manual for banks in India required importers to submit original copies of registered contracts before letters of credit could be opened. Getting this all done during office hours in one day between New Delhi and Bombay seemed a miracle of logistics.

The government was unhappy to learn that its policy change to protect the domestic
DMT
industry had been so stunningly thwarted. It was even angrier as it learnt the details of the three-day Reliance rush to open letters of credit, suggesting the possibility that the pending policy change had been leaked to the company. Authorities told Reliance that the 90-day grace period would be enforced: A the 114 000 tonnes of
PTA
would have to be landed by 30 Septernber.

Some 14 000 tonnes having arrived, Reliance took the govrnment to court about the remaining 100 000 tonnes, arguing that the cut-off date was arbitrary and in violation of the implicit three-year guarantee of stability in import policies prior to 29 May. It also argued that it had ‘switched over’ to M, and that to go back to
DMT
as a feedstock would require ‘crores of rupees’ (one crore = 1 0 million rupees) plus new equipment and take several months’.

A single judge in the Bombay High Court awarded Reliance a ‘stay’ on the government’s decision, and authorised the company to import 5000 tonnes which were already available for shipment. For the remaining 95 000 tonnes, the company should approach the government for a supplementary licence—on which the government should decide by 31 October, failing which Reliance could revert to the court for further interim relief.

The government appealed against this order to a more senior bench of two judges in the High Court. While waiting a hearing, the import duty on
DMT
and
PTA
was raised a further 50 percentage points to a total 190 per cent. This did not deter Dhirubhai, as international market prices of the two feedstocks were falling rapidly. In court on 28 October, the government argued against the clearance of the 5000 tonnes permitted by the lower court, and for removal of the 31 October deadline for the remaining 95 000 tonnes.

The bench dismissed the appeal, but agreed to stay clearance of the 5000 tonnes-the shipment was due in Bombay the next day—for seven days to allow the government to appeal to the Supreme Court.

This the government did. On 4 November, the Supreme Court decided to allow Reliance to clear the 5000 tonnes of
PTA
but not to use it pending settlement. The government was given three weeks to make its case and Reliance a week after that to respond, with the High Court to make a final decision within December.

In the background of the litigation, Reliance kept feeding the press with accounts of the allegedly unacceptable quality of Bombay Dyeing’s
DMT
, made at its ‘second-hand plant’. A small polyester producer called Swadeshi Polytex had told the Industry Ministry’s Director-General of Technical Development about defects in a 68-tonne
DMT
shipment from Bombay Dyeing: sacks supposed to contain
DMT
pellets were 20 to 80 per cent powder, black particles were found in the pellets, bits of thread, metal and wood were found in the bags, and so on. The picture painted was of Bombay Dyeing pumping out filth from a wheezing, obsolete plant, and angling for massive protection so it could jack up prices to struggling yarn makers.

The lobbying and propaganda war became frenetic in early November. Reliance issued press notes which played up the cost and difficulty of switching polyester plants back from
PTA
to
DMT
it was like modifying a diesel engine to run on petrol. The modification would involve ‘huge expenditure’ and take nine to 12 months. Another note put the investment at Rs 58.6 million (then about US$4.6 million) and the time at 12 to 15 months. If Reliance could not get its
PTA
, work would stop, with huge numbers of workers laid off. On 2 November, another polyester producer J. K. Synthetics actually announced it was suspending production at its plant in I.’ ota because it was unable to get an import licence for
PTA
.

The private war got dirtier. According to the Bombay tabloid Blitz, two ‘campaign briefs’ were circulated by the Reliance office in New Delhi among MPs, officials and others.

Orkay was accused of pledging the same stock with banks several times to get loans, issuing bogus bills, claiming tax rebates on non-existent production, and under-invoicing imports of polyester chips to evade duty.

With his earlier excise evasion case still being beard, Orkay Silk Mills’s Mehra was arrested on 1 November 1985 on another charge. He had allegedly evaded Rs 15 million in duty on polyester chip imports in 1982 and 1983, by under-invoicing the imports from C. Itoh in Japan, according to ‘voluminous documentary evidence’ collected by the Directorate of Revenue Intelligence ‘from Japan’ a few days earlier. Mehra had bought the material 7.5 per cent below the regular price: evidence of ‘under - invoicing’ according to the policers, just a ‘trade discount’ according to Mehra.

Mehra’s counsel, Ram Jethmalani, said a ‘rival tycoon’ had instigated the raids to sabotage a share issue financing Orkay’s expansion. Later it was noted that Dhirubhai had been in Japan not long before, visiting among others C. Itoh & Co, which had been accustomed to’irivinz Reliance a 20 per cent discount on polyester yarn sales. Whatever the case, Mehra spent 15 days in jail before obtaining bail-missing the Diwali festivities-and for years was contesting claims for evaded excise and duty and personal fines.

The other target of the Reliance ‘briefs’ was Bombay Dyeing. It had been getting import policy on
PTA
and
DMT
changed to help it out of the ‘total mess’ created by its decision to buy a
DMT
plant originally built in 1953. The 1977 price of Rs 300 million had ballooned to nearly Rs 1 billion by the time it was reassembled. ‘What else can be expected from a junk [sic]?’, the Reliance note said.6 Wadia also came under personal attack: a story put out by the newsagency United News of India quoted 1official sources’ alleging Wadia and his wife were involved in a ‘fraudulent’ deal to sell land belonging to a Parsi trust of which they were trustees.7

But Dhirubhai was now fighting on two new fronts, as well as the legal battle for his
PTA
imports. On 26 October, newspapers had begun reporting that the Central Bureau of Investigation-New Delhi’s highest criminal investigation body which deals principally with corruption cases-had begun inquiries into the possible leak of the decision to put
PTA
on the restricted import list in May. A few days later, Finance Minister V P Singh denied that he had ordered any inquiry, but newspapers reported moves at official level in concerned ministries including Finance for an investigation.

For its part, Reliance said it was not aware of being under investigation, and put out lengthy written explanations as to why its import contracts in May had coincidentally preceded the policy change. The 50 000 tonne
PTA
contract approved by the Petroleum Ministry on 27 May had been submitted to it on 14 May. The quantities it sought to import were not in excess of its own use over the 1 8 months until its own
PTA
plant opened, nor could Reliance conceivably hope to evade the September duty hike. Reliance was a victim of ‘mischievous propaganda’-the allegations were based on ‘tailored facts and twisted information circulated by vested interests too obvious to name’.

On 29 October, however, Reliance took another blow which showed conclusively that the Finance Ministry was no longer a friend. On that day, the Assistant Collector of Central Excise at Kalyan, covering Patalganga, presented the company with a ‘show-cause 1 notice claiming Reliance had evaded a total of Rs 272.34 million (then aboout US$21.8 million) in excise on polyester production since October 1982 by under-reporting production and misdeciaring waste. Backed by nine pages of annexures giving the details of the polyester manufacturing process, the notice invited Reliance to argue why it should not be forced to pay the Rs 272.34 million, have its factory confiscated, and pay an additional penalty for evasion.

It was the biggest excise evasion charge in Indian corporate history and, even discounting the ambit nature of the Assistant Collector’s proposed penalty, a big threat to the profit line in the Reliance results.

The company affected not to be worried. A press release on 15 November described the show-cause notice as ‘routine’ and noted that similar notices had been issued to other manufacturers in the Thane area, including Sandoz, Orkay, Voltas, and Indian Explosives. It was all part of a drive to raise revenue. The claim against Reliance was based on ‘theoretical calculations and assumed technical information,’ the company said.

‘The notice was issued in the normal course of business and the company would soon be filing a reply and expected no liability to arise out of the show-cause.’

But Dhirubhai was sweating. On 26 November it was revealed that a compromise on the PTA imports was being worked out. The government would allow actual users of PTA to import their own requirements for six months ahead, but would not allow existing users of DMT to switch over and import PTA. Meanwhile, the Bureau of Industrial Costs and Prices would commence a study of DMT costs, to help regulate prices so that domestic DMT had a cost advantage over imported PTA. The condition for Reliance getting import licences, it was suggested, was to drop its High Court action. It could hardly argue.

By this stage, too much corporate blood had been spilt for the dispute to be papered over and forgotten like so many controversies before. Kapal Mehra had been jailed and humiliated. Nusil Wadia, despite the tariff and quota protection given to domestic
DMT
producers, had been forced to close his new plant for months because of the feedstock glut that Dhirubhai had engineered by the
PTA
imports he had managed to get through, and by the constant denigration of his product.

Dhirubhai had meanwhile lost his key lieutenant in charge of public relations and government contacts. On 30 August, his nephew and Reliance director Rasikbhai Meswani had died suddenly. It took some years for other publicists and lobbyists to take his place. As 1985 drew to a close, Dhirubhai was being openly written against as a monster threatening Indian democracy. Blitz observed: If the allegations against Dhirubhai Ambani and Reliance are proved, whether in the matter of evasion or in the alleged fraud of letters of credit opened with two foreign and three Indian banks for the import of
PTA
, then the conclusion becomes inescapable that, since 1969, a single industrialist had been literally dictating the government’s textile and import policies and manoeuvring import rules to ‘kill’ his rivals and maintain his lead in the market … The challenge to State Power lies in the accumulated wealth and economic clout in the hands of an individual who is neither an elected representative nor accountable to the people, who could rnaniptdate Cabinet ministers as wed as party chiefs. Economic power goes hand in hand with its political counterpart, resulting in manipulating politicians and ministers right to the top of the top. AN this and more has put a new regime seeking to cleanse the Augean stables of the corporate sector in an extremely vulnerable position for its daring to challenge one of the biggest industrial empires with a Rs 27 crore show-cause notice. One can only wish Finance Minister V P Singh good luck with the danda [stick] now that the carrot has been spumed.8