The Polyester Prince (22 page)

Each of the second and third plants consisted of a polycondensation unit and four spinning lines. Bought new, each would cost about Rs 2 billion, and second-hand, about half that. ‘Doesn’t the enforcement branch want to know where Reliance got the foreign exchange to pay for these?’, asked Gurumurthy, ,… or will they hide behind the principle of jurisprudence that was propounded by former finance minister Mr Pranab Mukherjee on 16 November 1983 in the case of Reliance when he asserted that “if under-invoicing took place, enforcement has already failed, and we could do nothing about it later”.’

In a follow-up article, the Express connected the ‘smuggled’ yarn capacity with a change in policy announced on 3 July 1986 by the minister of industry, Narain Dutt Tiwarl, whom the newspaper had described as an ‘unabashed Reliance admirer’. Tiwari said polyester producers were now free to switch production between staple fibre (spun from cut lengths of yarn) and filament yarn. Reliance would now be able to churn out more of the high-priced filament yarn without attracting notice. The policy applied to manufacturers with a polycondensation capacity of 30 000 tonnes and a filament yarn capacity of 1 5 000 tonnes-another apparently ‘tailor-made’ criterion which only Reliance then fitted.

Tiwari, who remained throughout a political career extending into the late 1990s a staunch nostalgist for Indira Gandhi, had also tried without success to wrest control of the office of Controller of Capital Issues in July, arguing that it fitted better with the Department of Company Affairs, which was under his portfolio, than with Finance. This might have rescued the conversion of the E and F Series debentures for Dhirubhai. In addition, the Industry Ministry cleared an application by Reliance to expand its PTA plant’s capacity from 75 000 tonnes to 1 00 000 tonnes, while sitting on an application from Bombay Dyeing to expand its DMT capacity.

But otherwise, Dhirubhai’s friends in the government and Congress Party were ducking for cover. Pranab Mukherjec had been miserably sidelined by Rajiv Gandhi. At the party’s December 1985 centenary conference, Rajiv had snubbed him by calling a lunch break during Mukherjee’s speech defending Indira’s economic policies. Then, in April 1986, Rajiv had summarily expelled Mukherjee from the party after newspapers began reporting a revolt by Indira loyalists against his leadership.

As well as the Indian Express, Dhirubhai also faced attack from another influential publisher, R. V Pandit, whose monthly magazine Imprint carried an extensive account of the Reliance controversies in July 1986. Pandit had worked in Hong Kong for the publisher Adriaan Zecha (later a hotelier) before returning to set up his own magazine and music firm in Bombay, initially with investment from the Wadia family. He made no secret of that, nor that he was a close family friend (and a godfather of Nusli Wadia’s children). Pandit brought out no new facts, but shaped the existing accusations into a powerful polemic against Dhirubbai.

Otherwise the business press retained its admiration for Dhirubhai, while listing the charges brought by the Express. After the loan mcia articles, the magazine Business India wrote that ‘Serious as these allegations are, the candid reaction in most corporate circles was a “hats off ” to Ambani’s gutsy genius in circumventing the complicated and often suffocating web of corporate laws and regulations that plague Indian business’. The magazine quoted unnamed merchant bankers and executives praising Dhirubhai’s ‘financial wizardry and guts’ and ‘intricate jugglery of high finance’. The simplicity of his schemes bordered on genius: the man was ‘unabashedly’ a ‘go-getter’.

The Business India writers, Mukkaram Bhagat and Dilip Cherian, concluded that it was ‘the commercial banks, much more than Reliance itself, which have been caught on a sticky wicket. For a long time to come, the rights and wrongs of the so-called “loan meia”

will be hotly debated. What is really new in the Reliance affair is the scale and the masterly skill with which Ambani had the banks failing over each other, only to reveal the hollowness of an over-regulated system.’

One friend in the press who defended Reliance was the editor of The Times of India, Girilal Jain. Almost alone, the Times had attacked the decision to ban conversion of nonconvertibles, in an editorial headlined ‘Not Credible’ on 18 June. If the decision had been taken to prevent speculation, it asked, why had the authorities not acted when the price of the debentures started rising six months earlier? My had Reliance been led to believe conversion was in prospect, as late as the 4 June officials’ meeting which had given in-principle approval?

But jain was embarrassed when rival newspapers reported that he himself had subscribed to 3000 of the Rs 100 F Series of Reliance in July 1985, and that he had been given a loan by the Bank of Credit and Commerce International for the purchase. The loan was confirmed in a letter to the Reserve Bank of India from the BCCI’s Bombay branch on 23

June 1986. Reliance I denied the company had arranged the finance for Jain; its deposits with
BCCI
later in 1985 had been in the normal course of business.4

Dhirubhai decided to take his defence directly to the public, in a series of 15 full-page advertisements taken out at the end of July in newspapers across India, including the Indian Express.

A Concern for Truth’ one was headed: ‘When our Chairman told 30 000 investors at our recently held annual general meeting in Bornbay that not a single F series debenture was either directly or indirectly held by his family, it drew the curtain on yet another controversy …’ Why would it have been necessary to prop up the issue, when it was oversubscribed by Rs 1.3 billion, which had to be returned? Only Rs 160 million had come from corporate investors in any case. And far from increasing control, the promoters had been reducing their holdings. ‘By sheer hard work and innovativeness [sic], Reliance had reached the top. Without any rupee borrowings from banks or financial institutions, directly or indirectly, for capital expenditure of the new projects.’

Under the heading An Allegiance to Ethics’ the company explained that ‘the ethics of business’ were ground rules that should never be violated if a company was to grow, and these were ‘enshrined’ in the Reliance boardroom.

But that does not stop us from being innovative and forward thinking. That does not prevent us from taking the normal business risk. As well as the abnormal one sometimes.

To ensure that our investors get the best return on their money. This year we have paid out Rs 25.75 crores [257.5 million] in dividends. The highest in Indian corporate history This does not come from sitting back and complaining about the inadequacies of the market or the system. It comes from a dynamic perception of the role of corporate enterprise: as a catalyst that helps move the nation ahead. But never at the cost of ethics.

And this is a fact that everyone who interacts with Reliance will testify to. We value growth but with dignity. We pursue profits but with integrity …

Under A Matter of Style’ the advertisements extolled the company’s ‘search for excellence’ while under A Feel for Tomorrow’ they claimed Reliance was among the few companies planning for growth in the years ahead. An Obsession for Technology’ said the company’s plants had been acclairned by the World Bank and others as the most modern: ‘No wonder we chose
FTA
.’ And so on, to the finale, An Occasion for Thanks’, emphasising that 1.8 million investors had shares in Reliance.

The Indian Erpress began attacking the Reliance assertions even before they ended, in particular the claim in A Concern for Truth’ that not a single F Series debenture had been held by the Ainbanis in any way. Under the headline ‘The advertisement that tells a lie’

the Express pointed to the bank loans made, for the purpose of buying F series scrip, to companies like Shangrila, Virnal and Mac Investments in which various Ambanis and Meswanis were listed as shareholders. The Reliance advertisement could only be true ‘if the money was borrowed for one purpose but was used for quite another’ where then did the money go?

The answer was to come two months later, when the central bank’s Rangarajan committee gave its final report on the loan mela. It found that the 43 companies linked with Reliance had borrowed Rs 599.8 million from banks in India during 1985. These loans had not been used for buying F Series debentures after all. However, ‘a significant portion of the bank loans had been utilised to sustain the purchases of shares made earlier by substituting credit raised elsewhere by bank credit’. On 30 June 1985, before the loans, the companies had a combined liability on account of share purchases of Rs 380 million.

Six months later the liabilities had been reduced to Rs 5 million. The loans had been secure and profitable for the banks, but were not justified in the light of their end use, which the banks had not bothered to check.

Reliance immediately claimed it had been ‘cleared of all charges’ made by the press over the loan mela. The amount involved was not the claimed Rs 1.0 18 billion, and the loans had not been used to prop up the F Series issue or make speculative gains from it. The banks had complied with the guidelines on taking shares as securities, including transfer of ownership.

The Indian Express said Rangarajan had not looked at the loans given outside India by the banks. The Bank of India, the Bank of Oman and Canara Bank had given Rs 440 million to persons outside India as nominated by Reliance, and only for the acquisition of the F Series. Add this to the loans given in India and the original figure for the ‘loan rnela’ was exceeded. In addition, the loans appeared to be in breach of lending rules, since banks in India could lend only against securities already in existence. The report had actually brought out a more serious misdemeanour than the one originally reported: the loans had been used for sustaining the sharemarket. And the borrowing companies had misrepresented to the banks the purpose of the loans.

Dhirubhai had already tried to counter the Indian Erpress campaign by direct rebuttal. On 8 August 1986, his chief New Delhi lobbyist, the Reliance vice-president V Balasubramanian, sent a reply of more than 60 pages to the Express, assembling many of the points already made by the company and elaborating on several of the disputed subjects. ‘For six months now your daily and sister publications have been carrying a relentless, campaign of corporate character-assassination against Reliance Industries Ltd,’ he began.

Each one of the stories in the series, and the campaign as a whole, has been false in fact and malicious in intent … At every stage in this corporate witch-hunting campaign, the [Express] has brazenly violated every journalistic norm and its own professed creed of fair play and truthful reporting by lending its columns to our adversaries and rivals whose political and business interests we have refused to serve and of which your non-joumalist pen-pusher is a self-admitted volunteer member …’

The campaign has sought to destabilise Reliance by undermining its investors’ confidence, creating distrust in public mind [sic], and sowing seeds of suspicion in the minds of decision-makers about Reliance. The witch-hunting campaign has been aimed at creating a psychological environment of hostility against Reliance, and an ambience among decision-makers and parliamentarians that can subserve [sic] the interests of the business rivals of Reliance and other vested interests. The next immediate target of your campaign will obviously be to ‘sabotage’ our most prestigious
PTA
project, which is introducing the most advanced and latest third generation technology in its area of operations and which on completion will save the national exchequer an outgo of Rs 800 million a year by way of total import substitution …

Some of the rebuttals were valid enough. The non-resident share acquisitions were unlikely to turn into a foreign exchange drain, as few such investments were liquidated and, if they were, capital gains tax of 50 per cent or 65 per cent would apply, and then the investors would suffer from a less favourable exchange rate due to the rupee’s constant depreciation over the years.

Certain other points were disingenuous: Balasubramanian said that conversion of debentures would lower the foreign exchange outgoings, as much less would be paid in dividends than in interest. He did not discuss sale of the shares after conversion. As for the ownership of the offshore companies, non-resident Indian control had been verified to the central bank’s satisfaction. As for the August 1982 lifting of the Rs 100 000 investment limit, ‘It is well known that the intimation of removal of monetary ceiling was sent to the [Reserve Bank] by the Finance Ministry nearly six weeks prior…’

If Reliance had benefited from various industrial policies, it was because its performance had been better or it had done its ‘homework’ well beforehand. Other companies not mentioned by the Express had also received licences for products in competition with Reliance. Licences were given under several ministers, not one particular person (an obvious reference to Mukherjee).

The figures on the company’s monopoly power were much lower than those in the Express series. Instead of 18 to 62.5 per cent of national licensed capacity, Reliance’s licensed capacity ranged from 7.5 to 34.84 per cent. The letter did not go into Reliance’s capacities as a proportion of national installed capacity, which might have been closer to the Express figures.

On the allegation of smuggling in a new polyester filament yarn plant along with its declared polyester fibre plant, Balasubramanian called this ‘absurd and [a] figment of imagination of the writer’, which ‘trespassed A the limits of decency’.

Equipment was imported against a list attached to the relevant capital goods licences, and the contents verified by Customs. ‘… what the writer is alleging is incompetence of the government authorities who scrutinised the import and cleared [it],’ he said. It was a

‘well-known fact’ that the output of synthetic fibre plants could be much higher than licensed capacity, depending on efficiency and the denierage (thickness) of the yarn. No company would smuggle in a plant because it would lose the benefit of depreciation, investment allowances and other deductions against income. ‘Reliance Industries Ltd belongs to 18 lakh [ 1.8 million] investors and no management would be foolish enough to inject funds of the magnitude of Rs 100 crores [1 billion] for bringing in a plant, the benefit of which has to be shared with the investors, the government, and the consumers of the end product.’