• • •
Mukesh returned to Mumbai late on the night of Sunday 21 November after a weekend of fevered speculation. In a written statement issued the next day (and later put out as a paid advertisement in major newspapers), he said he had been shocked at the way his remark had been ‘torn out of context’. Citing only the first part of the question put to him – not the key part asking about the likelihood of a split – he claimed it was ‘clear that I was responding to the query about the future businesses’ and that the ‘ownership’ referred to future initiatives. ‘Placed in the context of the question put to me, it is obvious that my reply has nothing to do with the family ownership of Reliance,’ Mukesh stated.
He also hit out at ‘totally unjustified and tendentious comments’ in some reports about his father. ‘In keeping with the worldwide trend of transformation of family-owned businesses, Dhirubhai took, within his lifetime, all necessary steps to separate ownership from management and made Reliance a world-class professionally managed company. With his extraordinary foresight, he has also settled all ownership issues pertaining to Reliance within his lifetime.’
Mukesh concluded by hoping that ‘all speculation on this issue will come to an end with this clarification’. But it didn’t, and why would it? The television channel immediately started playing the full unedited interview, which contradicted Mukesh’s claims about context. And ‘market sources’ were quoted asking that, if Dhirubhai had settled the succession issue in his lifetime, why was this not known either to family members apart from Mukesh or the stock exchanges and securities regulators?
Mukesh followed up his public statement with a message the next day to all the 85 000 Reliance employees, stating: ‘There is no ambiguity in his [Dhirubhai’s] legacy that the chairman and managing director is the final authority on all matters concerning Reliance.’ That might have been the moment when the conflict was yanked back out of the public view. But, almost immediately, it burst out again.
• • •
Dalal Street, the stockmarket quarter, was perplexed that one of Reliance’s longest serving directors, the lawyer M.L. Bhakta, chose that day to resign from the board, after serving on it since 1977. He had announced his decision after meeting Mukesh and several other directors earlier in the day. Was this the start of a board-level shake-out?
Bhakta agreed to reconsider his resignation within a day, at the announced request of Mukesh. Although a precise explanation of his initial decision was never given, it appeared to be a sign of anguish at the division between the brothers. Anil’s camp, meanwhile, let it be known that the younger brother wanted to learn when exactly Dhirubhai had discussed the ownership issue with Mukesh and how Mukesh had gained control of the 300 investment companies holding the 34 per cent joint stake. On 25 November Anil seemed to be trying his father’s old tactic of bichu chordiya – letting loose a scorpion – when six directors of his fiefdom Reliance Energy sent him their resignations. All were nominees of the parent company and significantly included the executive Amitabh Jhunjhunwala, an insider with intimate knowledge of Reliance finances and shareholdings.
Anil had been spending a lot of time with his mother, to whom he was loudly and repeatedly surrendering the decision on what should be done. Mukesh might have had all the biggest cards in his hand, but could he resist the mother’s moral authority?
Mother and younger son had gone together to the Nathdwara temple near Udaipur to pray to Srinathji, the avatar of Krishna worshipped by their caste. Kokilaben was trying to get the family together. The two daughters had come to stay with her at Sea Wind. But the two sons were not in the same room. Anil later flew to Tirupati with his wife Tina, to pray at the famous temple to the deity Venkateswara for his help in ‘preserving and enhancing the legacy of my late father, Dhirubhai Ambani’. Anil was reported to feel in a minority of one on the board, which was ‘packed with family retainers and bureaucrats who had to be rewarded for past favours’ and therefore unlikely to stand up to the chairman. He was also said to have changed his telephones from Infocomm to another carrier, for fear he was being tapped.12 The following weekend, he went to Govardhan, to a temple near the spot where Krishna had appeared as a cowherd, and sped around its 21- kilometre parikrama or pilgrimage circuit (wearing runners, rather than assuming the normal bare feet). Kokilaben also widened her spiritual counselling, flying up to Bhavnagar in Gujarat to spend two hours at the ashram of a well-known guru who offered to hold a katha (a rendition of a holy text) at the Reliance complex in Jamnagar.
Around this time, the media started to receive a flow of revealing documents, from inside Reliance, aimed at putting one side or the other in a bad light. The first big leak was what seemed to be Anil’s letter of complaint about the manoeuvre at the 27 July board meeting, whereby Mukesh had his supremacy confirmed in an annex to the item on the health, safety and environment committee. Within days, the media and various lawyers were chewing over the rights and wrongs of this incident.
But matters deteriorated sharply and quickly. As Outlook’s Alam Srinivas noted, the Ambanis had refined their skills in the arts of covert political warfare in their battles with Nusli Wadia and his Bombay Dyeing group and later in the messy attempt to take over Larsen & Toubro. Faxes on paper without letterheads were coming from public business centres and shops, containing the most riveting and damaging inside material. Journalists like Srinivas were getting leaks timed to meet their deadlines. One originator of emails purported to be ‘Mohandas Karamdas Gandhi’ – an inaccurate version of the long-dead Mahatma’s name. The reporters were being summoned to coffee shops by Reliance executives, who handed over material put together by private detectives. ‘Now the two brothers (Mukesh and Anil) were using the same against each other. Exactly in the same way their late father, Dhirubhai, had taught them to do against their rivals.’13
Inspired reports, intended to pressure Mukesh to reveal when and how his father had transferred control of what was now put at 362 shell companies owning the 34 per cent stake, drew the interest of the taxation and economic intelligence agencies attached to the Ministry of Finance. Adding to the murkiness, reports said lawyers searching regional offices of the Registrar of Companies from Ahmedabad to Chennai had found that, in most cases, the documents on ownership were missing.
Facing persistent press inquiries, Mukesh eventually replied in mid-December to the Press Trust of India on the ownership issue. ‘The architecture of this ownership has been configured by Dhirubhai Ambani in a framework of companies,’ he said via a spokesman. ‘Given this configuration, it obviates the necessity of a will.’ But sounding a little defensive for the first time, Mukesh said he would accept whatever his mother thought ‘fair’ in resolving the ownership issue.
Reports also began leaking some details of the Infocomm funding and ownership, suggesting that Mukesh had used the cash flow of the parent company to subsidise a personal holding in the telecom subsidiary. A document showed that Reliance Infocomm had issued 500 million shares at par value of one rupee to Mukesh in June 2000, giving him 12 per cent of the company. But this equity stake did not show up in Infocomm statements to its lenders until June 2004. By then, thanks to Rs 120 billion in funding from the parent company, Infocomm had developed into an operation valued at Rs 600 billion; Mukesh had thus gained a stake worth Rs 72 billion for just Rs 500 million. Through this and other holdings partly via an intermediary called Reliance Communications Infrastructure Ltd, Mukesh owned an estimated 56.5 per cent of Infocomm whereas Reliance Industries, which had put up 90 per cent of funding, had only 37 per cent and no nominee on the Infocomm board (the directors were Mukesh, as chairman, his wife Nita and his friends Anand Jain, Manoj Modi and Bharat Goenka).
According to one of the media recipients, Srinivas, this document had been faxed around by Amitabh Jhunjhunwala, who quit as the Reliance Industries treasurer on 20 December and thus placed himself firmly in the Anil camp. It read in part:
There has been a mystery surrounding the
ownership and management structure of Reliance Infocomm. This has been a source of great concern to the investors of RIL since the latter has pumped in more than Rs 12 167 crore [Rs 121.67 billion] for acquiring a 45 per cent stake in Reliance Infocomm. Every effort made in the last three years to get information about this aspect of Reliance Infocomm has been completely stonewalled by the Reliance group, headed by Mr Mukesh Ambani. Reliance Infocomm has now claimed that it is promoted not by the Ambani family as a whole but by Mr Mukesh Ambani personally.14
Mukesh had attempted to explain the par offer as typical ‘sweat equity’ given to risk-taking entrepreneurial founders, but this hardly applied to someone wielding the cash flows of a giant listed corporation. The stake seemed to have been sold to him cheaply around April 2004, when Infocomm was already up and running and over the worst. Where was his personal risk? On 23 December Mukesh backed off and announced that he would have the share issue annulled. The decision meant that the Infocomm ownership reverted to 45 per cent held by Reliance, another 45 per cent by companies associated with Mukesh and 10 per cent by employees.
To most observers, it looked like a hard blow delivered by Anil, which had come via another media note faxed by Jhunjhunwala. The alleged agreement for the ‘sweat equity’ in June 2000 had been ‘an act of forgery and fraud’, it said. It was never revealed to the Reliance Industries board, to shareholders meetings or in documents sent to investors and lenders. ‘This so-called “sweat equity” agreement is completely fraudulent and forged – a feeble attempt by Mukesh Ambani to cover up the illegal and blasphemous mechanism in which he has clandestinely usurped the rights and hard-earned savings of RIL’s 30-lakh [3 million] small shareholders to enhance his personal wealth empire.’15
There were more awkward questions. Before Dhirubhai died, the 45 per cent share of Infocomm was supposed to be a family stake; now, as Jhunjhunwala’s first note pointed out, it belonged to Mukesh.
And if Mukesh had a personal stake in Infocomm, should he – as an interested party – have chaired most of the Reliance Industries board meetings that bailed Infocomm out of its shaky start in 2003, when customer defaults pushed its overdue accounts to Rs 35 billion? The parent company put Rs 81 billion into Infocomm from October 2002 via risky debentures and preference shares, with a face value of one rupee but a premium of Rs 49, while Mukesh was getting his for just the one rupee. At this time the fate of Reliance Infocomm remained in the hands of regulators. If they had not allowed fixed-line operators to offer CDMA cellular services, the enterprise would have failed. ‘All those early stage risks were being funded through RIL, but it appears that RIL is getting a smaller part of the upside,’ noted Businessworld magazine. Later, Anil’s supporters claimed he had blocked proposals by Mukesh for the parent company to pay further premiums to convert these preference shares into full equity.16
In addition, Reliance Industries had put Rs 10 billion into the Flag Telecom acquisition and Rs 16 billion towards Infocomm’s unified licence fee in January 2004. It had shelled out for some of the advertising and marketing expenses of the Infocomm launch, bought cell phone handsets for Infocomm, carried its overdue bills and given Rs 55 billion in financial guarantees.
At no time had the board been told the full and true ownership of Infocomm, nor had any of the directors asked about it. In the accounts for the year ended March 2004, they had signed a statement saying: ‘None of the transactions with any of the related parties were in conflict with the interests of the company.’
Then there were details of how funds invested or lent to Reliance Infocomm by the parent company or commercial banks had apparently been diverted into opportunistic sharemarket play in March 2004, allegedly for the personal benefit of Mukesh rather than the group. The vehicles were two small private companies, one linked by ownership to the shell-company web domiciled at 84A Mittal Court and having low-level Infocomm staff as dummy directors, and the other domiciled at the same address as a business run by Anand Jain’s relatives. These two companies had managed to find Rs 16 billion for an initial public offering by the state-owned Oil and Natural Gas Corporation and a further Rs 15 billion for the initial public offering of the software house Tata Consultancy Services, grabbing the largest parcels of these floats. A lot of the shares acquired were sold for a quick profit, the rest some months later. Mukesh’s side explained that these firms were subsidiaries of Reliance Communications and Infrastructure, the intermediary between the parent company and Infocomm that owned the nationwide optical-fibre network. Why it was ‘stagging’ the share issue of other groups, including a rival oil producer, was not really explained.
Anil also talked darkly of the ‘chamchas [syncophants], chelas [devotees] and cronies’ his father had warned him about. His camp suggested that Mukesh was unduly rewarding his closest executives and that they in turn were encouraging his estrangement from Anil in order to further their own influence. Chief among them were Anand Jain, whom Mukesh had known from primary school, and Manoj Modi, a former classmate at university. Many relatives of Jain held lucrative distribution and supply contracts with Reliance, while Modi’s brothers ran the stockbrokerage used by the Reliance group.
• • •
With the Reliance share price sagging, Mukesh called a board meeting for 27 December to debate a proposal for a share buy-back offer, at a price slightly above the current market. Directors had not been available when Anil had called earlier for a meeting to discuss the question of undertakings to Reliance Energy and the newly revealed Infocomm funding, which had never been discussed by the board.
Although there was no blood on the floor and emotions were kept under control, the board meeting was a showdown. Anil arrived at the Maker Chamber IV building in Nariman Point for the 10am meeting. Although dressed in a dark grey suit, white shirt and yellow tie, he had the gait and grim face of a gunslinger in the American West walking into a bandit-held town. He told the waiting media that the buy-back was ‘inappropriate, unnecessary’ and that ‘there was more than met the eye’.
Inside the boardroom, Mukesh introduced investment bankers from Morgan Stanley and Merrill Lynch and called on them to give presentations on the Rs 570-a-share buy-back, which was to cost just under Rs 30 billion, then recommended the board approve it.
Anil objected. The decline in Reliance’s share price had little to do with its financial performance – it was all about the issues of corporate governance and ownership, which had not been addressed. If these were clarified, the price would rebound of its own accord. The manner of the buy-back was also suspect: it was proposed that the Rs 570 be a maximum, not fixed, and that the identity of sellers not be revealed under a screen-based transaction system. The suspicion would be that the company itself was bailing out and rewarding the interests close to Mukesh, perhaps the ownership matrix firms, which had tried to prop up the share price by heavy buying in the weeks of dispute.
The other directors kept silent. Mukesh said his points had been noted, then asked for a press release, already drafted, to be sent to the Mumbai Stock Exchange. Anil demanded to see it. It said the buy-back resolution had been approved ‘unanimously’. At his insistence, Mukesh ordered a change to note Anil’s dissent, then rebuked Anil for his remarks before the meeting, saying he had raised issues where none existed and that his objections on corporate government were not made in a good spirit.
The board moved on to issues relating to the company’s investment in Infocomm. It noted the conflict between the proposals made by the brothers. Mukesh had early pushed for conversion of the preferential shares at a premium. Anil suggested they be converted at the one-rupee par value, which would immediately raise the parent company’s stake in Infocomm to 75 per cent. The board agreed to Mukesh’s motion to refer the issue to a committee of the six independent directors, who would commission a fair valuation. With Anil leaving the room for the next item, the board passed a resolution requiring him to refer major decisions at Reliance Energy to the parent company board and assumed j
oint supervision over the Uttar Pradesh projects and the gas supplies. With Mukesh in the chair, the directors agreed that there was nothing more to be said about the way in which Reliance had supported Infocomm or the sweat equity Mukesh had annulled. The meeting broke up at 1.30pm, and Anil departed, quietly fuming. Inside the company, he was completely outgunned.17
A week later, Anil moved further away from Mukesh, resigning as vice-chairman and managing director of IPCL. He could not sit on the same board as Anand Jain, whom he described as the ‘Shakuni’ responsible for the family split. Shakuni was an evil character in the Mahabharata, who had manipulated the Kauravas into the war with the Pandavas that destroyed them in the final battle at Kurukshetra, probably the bloodiest battle in all literature. Before that he had lured Yudhisthira, the Pandava king, into a rigged game of dice in which Yudisthira gambled away his kingdom of Indraprastra, his four brothers and their joint wife, Draupadi.
The two brothers were heading towards their own corporate Kurukshetra.
20
Mother India
The Reliance drama by now had almost every element of an Indian soap opera. It had wealthy tycoons, brothers fighting each other, sleazy political neta (patrons), clever financiers, angry wives, religious seers, a disputed inheritance, private eyes, allegations of forgery and phone-tapping, officials pretending to be active, frustrated investigators and a chorus of reporters besieging the main characters. Most important of all, it had the mother, respected and loved by all for her innate and unsophisticated wisdom, able to cut through to the main emotional issue.
Kokila had raised the four children with the help of a tutor while Dhirubhai spent most of his time on company business. She remained a god-fearing member of the Modh Bania, carrying with her from childhood a picture of Srinathji and going to worship at Nathdwara at least four times a year. Her husband was her other devotion: as they grew older and his health became fragile, she began collecting material and memorabilia about his life, which she was later to publish after his death.1
Mahabharata in Polyester Page 32
