The Polyester Prince (28 page)

Two things were clear: the
CBI
was using evidence collected in the course of its Fairfax investigation; and no case was too petty for the senior echelons of India’s premier anti-corruption agency when a political enemy of the government (as Wadia had rapidly become) was involved. On a complaint by Wadia’s counsel Ram Jethmalani, Justice Thakkar said the commission had not asked the
CBI
to harass Wadia. They were acting on their own.

Jethmalani himself faced a contempt of court complaint in a New Delhi magistrate’s court, brought in May by the
CBI
which insisted it had not shown the two ‘Fairfax letters’ to Gurumurthy during his interrogation. The existence even of the letters was now in question. The commission refused a request by Wadia for them to be produced. ‘We do not know whether they exist or not,’ Thakkar said, arguing that they were no longer relevant.

On 1 September, the day after the Indian parliament rose from its monsoon sitting, some 400 officials under the Finance Ministry’s Director of Revenue Intelligence, B. V Kumar, raided the eleven printing centres of the Indian Express around India. They seized documents, inspected printing machinery and took away several employees for questioning. Later, the agency charged the Express with evading Rs 3.3 million in customs duty by misdeclaring the speed of a printing press it had imported, of owing Rs 27.5 million in back taxes and of violating foreign exchange laws by making payments abroad in cash. Many of the tax offences alleged against the Express were already under dispute. It was noted that the leader of the raids, B. V Kumar, had been in the customs office in Ahmedabad previously. No one in the Indian press saw the raids as anything but a blunt warning by Rajiv to the Express, by then leading the criticism over the Bofors scandal.

From the Fairfax office outside Washington, Hershman had given interviews to Indian journalists, contradicting several claims made by the government. He insisted he had been engaged by Bhure Lal, had been promised payment on a contingency basis, and had not taken any money from either Gurumurthy or Wadia. The government formally ended his engagement on 27 May, after V P Singh had mischievously asked whether India’s national security was still being compromised.

To a questionnaire from the Thakkar-Natarajan Commission, Hershman asked to be satisfied first what the purpose of the commission was, given that all the facts about his engagement were known to the government; what action had been taken about the forgery on Fairfax stationery, and what action had been taken on information provided by Fairfax in the course of its inquiries. The two judges replied that these questions were beyond their scope. ‘The commission hopes that you will be good enough to realise that instead of co-operating with the commission and furnishing the information, you are virtually reversing the roles,’ they complained. Hershman refused to co-operate, and became a critic thereafter of a ‘cover-up’ implicit in the commission’s role.

The former Enforcement chief, Bhure Lai, had been called in for extended and gruelling interrogation by the
CBI
on two occasions in late March, and then was called to give evidence by the commission. The Re-venue Secretary, Vinod Pande, was also called. He had met Wadia several times, always in his office, first around the end of 1985 to discuss duty revision on
PTA
and
DMT
, then to discuss an excise raid on Wadia’s company Formica India in November 1986. But he had also met Dhirubhai and Mukesh Ambani four or five times over 1986.

Pande himself had also been moved in mid-May. In the bureaucratic equivalent of being put out to grass, he was put in charge of the Department of Rural Development. His replacement as Revenue Secretary was Nitish Sen Gupta, the former Controller of Capital Issues in the early 1980s during Dhirubhai’s golden run in the sharemarkets.

Evidence given by all the suspected conspirators was mutually corroborating, though Bhure Lal was left quite isolated in his decision to hire Fairfax. Clearance to hire a foreign detective on contingency had only been given in general terms by his superiors.

The
CBI
wanted to prove that Wadia and possibly Goenka had been fimding Fairfax secretly and allowing Bhure Lal to think he had hired it on contingency. But it could not rely now on the discredited ‘Fairfax’ letters.

The
CBI
needed some other clinching evidence. The
CBI
and the counsel assisting the commission, the Addtional Solicitor-General G. Ramaswamy, concentrated on the hotel arrangements for Hershman in New Delhi. But these seemed to point only to the possibility of a second forgery A computer printout from the Oberoi Hotel showed Hershman had been booked in by Bombay Dyeing. But this computer entry had been created the day after Hershman’s arrival: the hotel’s management admitted that the detail could have been given by someone telephoning in. From Washington, Hershman said he had not met Wadia at any time, and had paid his own hotel bill with his credit card and had the sheet to prove it. Ramaswamy went into a detailed study of Wadia’s bill, including his laundry account and food charges, in an effort to show he was paying for more than one person. Wadia, it turned out, had his wife with him and his father was visiting from Switzerland. The hunt for treason had turned into a farce.

At the end of August, just before the raids on the Indian Express, Ramaswamy was angrily urging the judges ‘not to take it lying down’ when a magazine questioned whether, rather than getting at the truth of the Fairfax affair, the end result of the Commission of Inquiry would be a ‘frame-up’ of Nusli Wadia.

In the outcome, when the Thakkar-Natarajan report was handed to the government on 30 November and published on 9 December 1987, it did what Rajiv had obviously wanted it to do. It censured V P Singh for exposing India to security risks by allowing Bhure Lal to engage a US detective agency which employed some former
CIA
officers. The report concluded that Wadia had played an active role in the engagement of Hershman by Bhure Lai, and had sponsored Hershman’s stay at the Oberoi Hotel where he himself was also staying. Bhure Lal and the Government of India had been used as ‘Instruments’ to serve the purposes of Wadia, who had an ‘animus’ against Reliance through business rivalry But there was no evidence that Bhure Lal knew about Wadia’s interest and role. It was inconceivable that Fairfax would ever have agreed to work on the system of rewards for information.

V P Singh declared the report ‘a monument of injustice’. Rajiv Gandhi said it completely exonerated his government and had identified those who had joined hands with foreign agents in a conspiracy to weaken the country.

The origins of the forged Fairfax letters were never investigated, nor was the identity of the ‘detective’ who had appeared in Switzerland and started inquiries about the Bachebans. Together they showed the workings of a bold and unconventional mind, the existence of an impressive intelligence network, and an uncanny grasp of human weakness.

The furore the letters set off caused a fatal split in Rajiv Gandhi’s government, which just over two years earlier had won a record majority in parliament and seemed able to achieve a transformation of India’s economy. By the end of 1987, Rajiv Gandhi was a discredited leader heading for electoral defeat.

Possibly, his government’s decay would have happened anyway after the revelations in Sweden about Bofors. The trail of commissions was eventually shown to lead through Swiss bank accounts to at least one family friend, an Italian company representative in New Delhi. But perhaps Rajiv might have faced up to this scandal if he had kept his head about the alleged Bachchan aspect and continued to ally himself with those trying to nail down Reliance, thus possibly keeping their support.

The Bofors scandal made unbridgeable a rift that had already occurred. On top of corruption later came all the other issues of Indian politics: religion, caste, region, language, control of water resources, wealth disparities and so on. It has been overlooked that the split that eventually brought Rajiv Gandhi down can be traced back to the commercial rivalry between Reliance Industries and Bombay Dyeing over control of the Indian market for the polyester feedstocks purified tere-phthalic acid and dimethyl terephthalate. The remark of the former minister that ‘the course of Indian politics is decided by the price of DMT’ (see Chapter 7) seems all too true, at least for this tumultuous period.

The end result of the Thakkar-Natarajan Commission was, predictably, worthless. Even if Wadia had made secret payments to Fairfax, possibly breaking the foreign exchange law (though as a foreign citizen he was entitled personally to keep funds over - seas), only by a long stretch of the imagination could India’s security have been considered at risk.

The exercise was called a ‘cover-up’ and a giant ‘red herring’. Beyond the end benefit, there was nothing to connect Dhiruhhal to the Fairfax letters. But those of his old friends who knew him from the early days might have thought perhaps of a different phrase: Bichu chordya-Letting loose a scorpion.

Dhirubhai Arnbani was back in favour. His enemies and critics Dhad been exiled from their positions of economic control. If the prime minister did not regard Dhirubhai as a friend and ally, at least he perceived Dhirubhai’s enemies as his own enemies. And as the Bofors scandal became more and more embarrassing, with Ram Jethmalani and Gurumurthy trumpeting each new revelation, Rajiv Gandhi was suddenly feeling very threatened.

But Dhirubbal was in a tight position financially. At the end of April 1987, two weeks after V P Singh’s resignation, he announced Reliance’s poor results for the calendar year 1986. The profit was barely enough to cover a dividend of 25 per cent on the Rs 10 par value of the share, cut in half from the 50 per cent declared in 1985, and even that was denounced as a product of accounting jugglery. Several commentators recalled Dhirubhai’s forecast of improved profits in November just before the G Series debenture issue and asked how, in the eleventh month of the company’s financial year, he could possibly have been unaware of the likely result. The polyester staple fibre plant had been completed six months behind schedule, and the
PTA
plant was a year overdue.

Diminished cash flow was the reason for the delays but the company’s reputation for mastery of technology was deflated. The customs and excise evasion cases and the CBI’s criminal investigations were still alive.

After the 1986 results, the collapse in the Reliance share price brought down the whole market, until the government nudged the Unit Trust of India and other institutions into a market support operation. The sharemarket boom set off by Rajiv’s 1985 initiative in economic liberalisation had ended. This was particularly grim news for Dhirubhai. As well as restoring high profits to Reliance, he also faced the task of rebuilding the estimated Rs 5 billion of his private funds lost in defending his empire in 1986.

Rajiv’s government did all it could do to help, with Narain Dutt Tiwari a sympathetic listener as minister of commerce and for some months also finance minister. On 7 May 1987, just after the Reliance results, it announced a string of changes in the import regime for polyester and its inputs, ostensibly to help the whole domestic industry cope with what was portrayed as a weakening market. Polyester staple fibre, of which Reliance was about to become the biggest Indian manufacturer, was taken off the ‘open general list’ for imports-meaning any textile weaver could import it-and ‘canalised’ through the State Trading Corp, a government agency that usually kept the import tap closed. The ‘specific duty’ of Rs 3000 a tonne put on imports of
PTA
and
DMT
in 1986 after lobbying by Wadia’s Bombay Dyeing was removed. As
DMT
imports were also canalised and effectively stopped ‘this benefited
PTA
users-chiefly Reliance which was still a few months off getting its own
PTA
plant into production. Extra allocations of foreign exchange were cleared for the
PTA
plant and the catalysts it used. Patalganga’s
PSF
capacity, larger than the licensed 45 000 tonnes, was legitimised by a ‘re-endorsement’.

The duty on N-paraffins, the petroleum feedstock used to make the detergent ingredient
LAB
, was cut by 75 per cent. Reliance was the only
LAB
manufacturer in India that needed to import this input, as the others were all integrated into local refineries which made it. A new scheme of export incentives on polyester yarn and fibre exports handed out some cash rebates, excise concessions and ‘replenishment’,tights for imports.

The Finance Ministry also gave prompt clearances for steps to improve the company’s cash balance. Within ten days of an application by Reliance, the Controller of Capital Issues cleared a rights issue of new shares to existing shareholders that raised Rs 1.98 billion. The government-run insurance companies, banks and investment funds became more interested in working capital loans, subscription to debentures, and sale—leaseback arrangements on equipment.

The Controller of Capital Issues also cleared a proposal to ‘ (bring forward) the conversion of the G Series debenprepone tures by six months, to 31 July 1987, taking Rs 5 billion off the company’s debt. This was barely five months after the debentures had been allocated among the subscribers. Many had not even received their certificates. Now they were being hurried into conversion.

Reliance issued a notice on 6 July calling an extraordinary general meeting of shareholders on 8 August to approve the early conversion. On 1 August, it sent a circular letter to the debenture holders stating that if they opted for early conversion they need not send any communication. If they had not sent an attached form by 25 August, they would be deemed to have opted for conversion. According to litigants, who managed to delay but not stop the conversion later in the year, the 1 August circular reached many debenture holders only on 20 August-too late to be sure of sending their objection to conversion.