• • •
While the law enforcers were closing in on his foreign transactions, Dhirubhai was under increasing pressure on the home front. The successive accusations in the press and the mounting load of show-cause notices against Reliance had allowed the bear operators in the Bombay sharemarket to get the upper hand for the first time in several years. The bears pushed down the Reliance share price from its peak of nearly Rs 400 towards Rs 200 at several moments during the year.
In spite of the defiant message given in June by Dhirubhai before his assembled shareholders at the Cross Maidan, the company was undergoing its first profit squeeze since it went public in 1977. The ban on conversion of its E and F Series of debentures had swollen its interest bill, and the removal of the anti-dumping duty on polyester yarn and additional duty on PTA imports had sharply cut the profit margins on its products.
Dhirubhai desperately needed more cash in the company. An attempt to float a new finance and leasing affiliate, Reliance Capital and Finance Trust Co., at a substantial premium had been rejected by the Controller of Capital Issues. The answer was the Reliance G Series of fully convertible debentures opening on 29 November 1986. In June, the directors had proposed an issue of 20 million debentures of Rs 200 each to existing share and debenture holders. This would bring in Rs 4 billion and, with a 25 per cent retention of any excess subscriptions, a total of Rs 5 billion – making it India’s biggest ever issue at that time. Each debenture would be convertible into one Reliance share on 30 June 1987, earning 13.5 per cent interest until then. Within a little more than six months from a successful issue, Reliance would once again transform debt into massive new capital.
By the time the extraordinary general meeting needed to approve the issue convened on 28 August, the premium on conversion had been pared down in the light of the less favourable market. The company now proposed an issue of 32 million debentures at Rs 125 each. Reliance would raise the same total but would have to dilute its share base a lot more. The shareholders accepted Dhirubhai’s forecast of increased profits for 1986.3
Dhirubhai could still run a good meeting. But the question was: did the Ambani magic still work in New Delhi and in the market?
The answer to the first part was ‘no’. On 27 October the Controller of Capital Issues eventually cleared the issue, but only on condition that each debenture would convert to two shares. In other words, the premium on the basic Rs 10 share had been brought down from Rs 190 to Rs 62.5. Even then, it was going to be a tricky issue to market. Income tax authorities raided sharebrokers in mid-November, causing a brief shutdown at the Bombay exchange and locking up large volumes of share certificates for inspection. Several other big issues were also planned for December, in a market where the bears were dominant.
Dhirubhai decided to go in quickly and boldly. Directed by Dhirubhai and executed by a dozen leading stockbrokers, Reliance had 15 000 of its retail outlets, wholesalers and suppliers set up as collection centres for subscription forms, some of them formally appointed as subbrokers. Scooter-rickshaws fitted with loud speakers cruised the streets of Bombay and other cities, spruiking the issue. In Ahmedabad, Reliance had subscription forms scattered from a helicopter over the suburbs. The big American stockbrokers Merrill Lynch were engaged to market the debentures to non-resident Indians worldwide.
The share price was still shaky. Knowing that the flow of funds for Reliance’s price support had been cut, stockbrokers close to Reliance had begun to borrow badla (carry-over) funds even at interest rates of 36 per cent in order to postpone deliveries. The company had tried to give the impression that it was back in favour – by virtue of the approval of the G Series and a meeting between Dhirubhai and Rajiv Gandhi in October – but these were formalities. The issue was always going to be cleared, to fund the new projects licensed over 1984–85. The price was the real issue.
The Reliance share price continued to fall, as word spread of the seriousness of the customs and excise evasion inquiries, touching a low point of Rs 179 on 25 December. On 5 December the Customs, Excise and Gold (Control) Appellate Tribunal dismissed an appeal by Reliance against the show-cause of October 1985 alleging evasion of Rs 273 million in excise. The case could go on to adjudication.
But the share price then began to climb upwards, partly as a result of a bold plan executed by a young recruit to the Reliance finance section. Anand Jain, then 29, had been a schoolmate of Mukesh Ambani before qualifying as an accountant. He joined Reliance at the beginning of December 1986, when Dhirubhai was persuaded to let him take over management of the share market operations from his old colleague Chandrawadan (‘Mama’) Choksi. Jain managed to get hold of confidential Bombay Stock Exchange records giving the reported positions of Bombay’s big stockbrokers in Reliance shares. In many cases, these were at wide variance with the positions Reliance knew to be the case from its own registry. Jain threatened to expose the brokers, bringing down heavy penalties on their heads, unless they immediately squared their positions by taking delivery of Reliance shares. The rout ended, and many of the bears suffered ruinous losses. Jain, who later went on to head the Reliance Capital and Finance Trust arm of the group, had won his spurs. He soon became a replacement for Dhirubhai’s late nephew Rasikbhai Meswani as the company’s chief troubleshooter and dealmaker, the inside track to getting transactions and orders from Reliance. By the mid-1990s he was being referred to around Bombay as the ‘third son’ in the Ambani circle.
By early February 1987 the G Series issue could also be claimed a dazzling success. The block of debentures reserved for the public, worth Rs 1.32 billion, won subscription applications of Rs 4.94 billion in total. The Rs 880 million reserved for non-resident Indians had Rs 1.5 billion offered. Together with the Rs 1.6 billion subscribed by shareholders and Rs 200 million by staff, the total money subscribed came to Rs 8.24 billion. Dhirubhai thus had Rs 3.24 billion more than the Rs 5 billion he could keep. Even with a ‘rapid refund’ scheme for unsuccessful applications, he could keep the money to play with for at least two months.
In addition, to ease the pressure on the Reliance share price, the company’s share registry, Reliance Consultancy Services, sat on the rush of share transfer applications lodged just before the 29 November cut-off date for the G Series rights attached to shares. According to stock exchange rules, ownership transfers were to be made within a month of delivery, but by late February 1987 investors and brokers were screaming that some 3 million shares were still in limbo. By keeping these out of the market, the company created a scarcity of floating shares that helped keep the price rising from the late-December nadir.
The financial pressure was off, temporarily. Reliance had the funds to complete its PTA and LAB plants, which were way behind schedule (the polyester staple fibre plant had opened six months late, in July 1986) and to refurbish its image of technological prowess. And Dhirubhai could still claim that the small investors believed in him, in their millions. Reliance now claimed the largest shareholder base of any company in the world: 2.8 million.
But the fight against the bears in the stockmarket during 1986 to stop a freefall of his share price had drained his personal reserves, the parallel fund that had sustained the Ambani magic. Huge amounts had been spent on counter-publicity to the Indian Express and efforts to block his political critics. One senior broker close to Dhirubhai at that time estimated that Dhirubhai had lost about Rs 5 billion by early 1987, not including the fall in value of his shareholding.
Dhirubhai would also have known by then of a drastic profit decline for Reliance, its first since listing. In fact his forecast of a profit rise for 1986, made less than two months before the financial year closed, in retrospect looked puzzling. The annual results for 1986 published in April 1986 showed that net profit had dropped to a mere Rs 141.7 million, lower even than the first half profit the G Series prospectus had reported and an 80 per cent fall from the 1985 profit.
And then there was the unshakeable enforcer Bhure Lal, eyes fixed ahead, who
had quickly dismissed an attempt at a conciliation by Mukesh Ambani at a meeting granted during the year. By January 1987 Dhirubhai would have been hearing back from his contacts in Du Pont and Chemtex and the dilemma his deals had put them in. The Customs Service was about to issue its show-cause notice on the allegedly smuggled yarn plant in February.
Dhirubhai had some more financial breathing space, but he was still in a closing trap.
11
Letting loose a scorpion
Dhirubhai Ambani needed something more. He needed to unlock the doors in New Delhi that had suddenly become closed to him in 1985. The master key was obviously Rajiv Gandhi – but how to win over a young man who clearly regarded Dhirubhai as the epitome of everything that had been wrong with the Licence Raj and the Congress Party?
Although he had grown up in the household of prime ministers, Rajiv had been born without the ruthlessness that distinguished Indira and her other son Sanjay. Rajiv seemed to lack the mental drive to push himself to higher achievement. He had failed to complete his degree at Cambridge. And until he was drafted into the party by Indira after Sanjay’s death, he had been supremely happy flying in the Indian Airlines domestic fleet. Even after five years in the prime ministership, he left some acquaintances with the feeling of a personality not fully matured, not hardened into adulthood. Capable of great affection and enthusiasm, he tended to let emotion push his judgements – as in the quickly reached ‘settlements’ of deep-rooted ethnic and communal disputes in Punjab and Assam, which soon became meaningless in the absence of the follow-up measures only a skilled politician could deliver, or in sometimes grandiose and adventurist foreign policy initiatives.
Not too deep down, Rajiv was also prone to panic. When his initiatives went awry, as they tended to do among the deeply cynical and entrenched vested interests of his complex country, he would sometimes overcorrect his well-meant impulses by shabby manoeuvres or hurtful shows of a petulant temper. Rajiv had expelled the more egregious members of his mother’s inner circle, but only to install his own favourites. Later known as the ‘coterie’, they formed a barrier between the Prime Minister and his party, between Rajiv and reality.
Within a few months of his Bombay speech in December 1985 about the Congress powerbrokers and corrupting business links, Rajiv was starting to have second thoughts. The speech had been mocked within the party as the thoughts of a greenhorn. The tax and foreign exchange raids launched by V.P. Singh from April 1985 had brought constant complaints from big business. Few had resulted in completed prosecutions, but the arrests, searches and seizures – all immediately publicised – were humiliating punishment enough for moneybags used to getting nosy officials called off with a quick call to New Delhi.1
By April 1986 the press was reporting an imminent revolt by Indira Gandhi loyalists. Pranab Mukherjee gave an interview defending his record and was promptly expelled on 27 April. Around mid-year, Arun Nehru – Rajiv’s first cousin and Internal Security minister – who was also regarded as close to Dhirubhai, became estranged from the Prime Minister. He was dropped from his ministry in October. In June the commentator M.V. Kamath was writing that Rajiv’s honeymoon was over, because of the Bombay speech and raids on industrialists.2 The editor of the Times of India, Girilal Jain, was quoted as saying that big businessmen could no longer meet the Prime Minister. On 6 August Rajiv was bailed up about the raids at a meeting with the Calcutta Chambers of Commerce and admitted within hearing of journalists that they might have gone too far.
In late August or early September, Rajiv opted out of the meetings arranged with Gurumurthy. In October he met Dhirubhai for their first direct and private meeting since becoming Prime Minister. But it is still not clear at what stage Rajiv might have begun to perceive Dhirubhai as an ally After all, the nascent revolt in the Congress Party had featured politicians identified with the Ambanis.
There remains the wonderful story, widely told in Bombay and New Delhi, that in their first meeting Dhirubhai bluntly told Rajiv that he was holding a huge amount of funds on behalf of Rajiv’s late mother and wanted to know what to do with the money. Apocryphal or not, it became part of India’s political folklore because it fitted with Dhirubhai’s reputation for both brazenness and keen judgement of character (and was much later used in Guru, the posthumous film version of Dhirubhai’s life that was promoted by his son Anil).
Undoubtedly Dhirubhai used the meeting to outline his big plans for industrial expansion and how these would fit into Rajiv’s vision of a high-tech India. The rapprochement seems to have been assisted meanwhile by Dhirubhai’s implanting the perception that his enemies were traitors to Rajiv as well. In particular Dhirubhai would have picked on the suspicion felt by V.P. Singh towards Amitabh Bachchan, megastar of the Bombay cinema, who had been drafted into Rajiv’s winning Congress slate at the end of 1984. The Bachchan family had been close to the Nehrus back in their common home town of Allahabad. Amitabh and Rajiv had grown up together. Elected from Allahabad, Bachchan was seen by Singh as a potential threat to his own power base in the surrounding state of Uttar Pradesh. In late 1986 Singh’s staff were said to be alleging privately, without ever producing the slightest evidence to support it, that Bachchan and his businessman brother, Ajitabh who had taken up residence in Switzerland, had huge wealth hidden in Swiss bank accounts.3 According to a later report, it had been through Amitabh Bachchan that the October 1986 meeting between Dhirubhai and Rajiv had been arranged.4
On 2 December 1986, during a debate in parliament, a minister disclosed that the Central Bureau of Investigation – which comes under the Prime Minister’s control, through a junior minister – had started an inquiry into whether Gurumurthy was being given unauthorised access to secret government papers. A leak from the Industry Ministry’s Directorate-General of Technical Development (DGTD), the apparent basis for Gurumurthy’s articles in August about the ‘smuggled’ Reliance plants, was indicated as the specific focus. The DGTD was encouraged to make a formal complaint, which it did on 11 December – adding, either bravely or for the record, that the ‘favours purported to have been shown to Messrs Reliance Industries Ltd by the officials of this office may also be investigated into’. On 21 December the CBI raided Gurumurthy’s office in Madras and took away a number of documents.
The Enforcement Director Bhure Lal, who set off on his visit to the United States later in December, is understood to have suspected that he was being shadowed from India by an agent of Reliance. Within days of Bhure Lal’s visit, a person who identified himself as an inquiry agent retained by Bhure Lal appeared in Bern, Switzerland, and began making inquiries about Ajitabh Bachchan. The Indian Embassy and possibly Bachchan himself became aware of this. The embassy queried New Delhi, and Bachchan might have contacted his brother.
Rajiv Gandhi was taking a New Year holiday with his family in the Andaman and Nicobar Islands. Amitabh Bachchan joined the Gandhis for part of the holiday, something that was publicised accidentally when the Indian airliner carrying Bachchan was diverted to Rangoon because of technical problems.
The Gandhis returned to New Delhi in mid-January 1987. New Delhi was in one of its periodic military flaps about Pakistan. Earlier in the winter, India itself had conducted army manoeuvres on its western border, but these had now concluded. Yet Pakistan had just moved tank formations to forward areas. Rajiv called his cabinet together to assess the threat. On the evening of 23 January he abruptly asked V.P. Singh to leave the Finance portfolio and take charge of Defence. Rajiv had been holding the portfolio himself, but the situation now required a senior cabinet minister overseeing Defence full-time. Singh could hardly refuse, and the transfer was made and announced the next day.
Bhure Lal had reported on his American visit to his immediate superiors in the Finance Ministry and was to file a written ‘Tour Report’ later in February, which included the results of his follow-up correspondence with Du Pont and Chemtex. Soon after Singh was transferred, the Prime Minister’s office asked to see all the Enforcem
ent Directorate’s records regarding the Fairfax inquiry, and Bhure Lal briefed the Cabinet Secretary, B.G. Deshmukh, about it on 28 January.
Around that time, his departmental head, the Finance Secretary S. Venkitaramanan, also pressed the Enforcement Director two or three times to reveal the subjects of his inquries, explaining that if the ministry was going to be put in ‘hot water’ he should be forewarned. Bhure Lal demurred. The word was already out in the press that Bhure Lal had engaged an American private eye and that his targets included several big Indian companies and ‘a superstar politician’.5 Later, rumours in New Delhi suggested that a private eye had found evidence of Rs 6.5 billion in a Swiss bank account in the name of a company called Macny Adol Brothers (perhaps a Lewis Carroll-like distortion of ‘Matinee Idol Brothers’), allegedly owned by the Bachchans and unnamed ‘Italians’ with Indian links. No evidence of any such company or bank deposit was ever produced but, combined with the appearance of the self-proclaimed investigator in Switzerland, the rumours added to the heat under the Prime Minister’s friends.
The government’s legal machinery was meanwhile working against Reliance on the customs and excise evasion questions. Dhirubhai was not yet out of the soup. But V.P. Singh was uneasy. On 9 March he asked for Bhure Lal’s file on Fairfax to be sent across to him at Defence in South Block and annotated in a margin that he had approved the engagement of a foreign detective.
Around 10 or 11 March copies of two sensational letters were shown to Rajiv, most likely through one of the senior bureaucrats in his office, Gopi Arora. The letters were to have dire consequences for Rajiv Gandhi. How they reached the Prime Minister’s office has never been revealed. Both were apparently written on the letterhead of the Fairfax Group. The first, dated 20 November 1986, said:
Mahabharata in Polyester Page 16
