Amar Singh Essar tape: were JPC members bribed to save Reliance?
As the leaked Essar tapes dominate the public discourse, many skeletons are tumbling out of the closet. The tapes are of phone conversations between top political and corporate power brokers of India. One of these is purportedly between Amar Singh and former Samata Party MP Kunwar Akhilesh Singh.
This conversation, allegedly recorded on 28 November 2002, reveals how Amar Singh had influenced a Joint Parliamentary Committee investigation "to favour" Reliance. He was successful in managing the functioning of the JPC to shield the Reliance in the scam related to manipulation of the Indian stock market in the late 90s. The scam was said to have been masterminded by Ketan Parekh, a former stock broker from Mumbai.
The JPC constituted on 26 April 2001 to probe the scam had blamed a nexus of Ketan Parekh, banks and some corporate houses. Its report detailed the discrepancies in the trading patterns of 15 companies and alleged that their promoters were in cahoots with Parekh. The companies under the scanner included Adani Exports, Zee Telefilms, Lupin Pharmaceuticals, Ranbaxy Laboratories.
The JPC, however, gave a clean chit to Reliance Shares and Stock Brokers Limited (RSSBL), the leading financier of the Automated Lending and Borrowing Mechanism (ALBM) segment of the National Stock Exchange and the Borrowing and Lending Securities Scheme (BLESS) of the Bombay Stock Exchange until 31 March 2001. The RSSBL had withdrawn Rs 1,900 crore from the market between 28 February 2001 and 7 March 2001.
According to the JPC report, the large amount of capital withdrawn by major companies caused the market to crash in 2001. The big players took out their money as they had been aware which way the market wind was blowing.
Clean chit to Reliance
The JPC, however, found "no substance" in complaints about the misuse of the Automated Lending and Borrowing Mechanism by some companies. The mechanism was launched by the NSE in February 1999 and later amended in December that year. The turnover of ALBM was no more than Rs 10 crore until March 2000. But by the end of April 2000, however, it had increased staggeringly to Rs 700 crore.
The total turnover of the NSE in the normal segment between April 2000 and March 2001 was Rs 12,50,000 crore. It comprised ALBM's share of about Rs 85,000 crore, or about 6.8% of the total. RSSBL, owned by Reliance, was the biggest player in the ALBM scheme; it had a 39% share in the volume trade between April 2000 and March 2001.
Furthermore, around 65% of the total "borrow transactions" of ALBM from October 2000 to March 2001 were attributed to RSSBL. This was the reason the JPC had focused its probe into ALBM's dealings on RSSBL and its client company Reliance Petroleum Limited.
The Securities and Exchange Board of India, or SEBI, told the JPC that ALBM had not been misused. The JPC, too, held in its final report that ALBM was not responsible for the market crash.
SEBI confirmed that RSSBL was the biggest company in ALBM of the NSE and BLESS of the BSE. According to SEBI's figures, the Reliance-owned company had invested Rs 1,900 crore in these schemes until February 2001. But this entire amount was withdrawn between 28 February 2001 and 7 March 2001.
When the JPC questioned SEBI about the impact of this withdrawal on the market, it submitted a verbal reply admitting that it had certainly affected the share prices. However, the written reply given by SEBI claimed it was not illegal for a company to take out such a huge sum of money from the market.
Ketan Parekh stated in his written reply to the JPC: "The market is influenced if a large amount of money is withdrawn from it. It increases the cost of carry forward. If Rs 2,000 crore was taken out within 10 days in February-March 2001, the bull market operators would have been forced either to sell their holdings or take deliveries."
Reliance Petroleum, on its part, issued this clarification: "We were the biggest stakeholders in the ALBM segment with an investment of Rs 1,600 crore. In March 2001, we reduced our investment to zero. The reduction in interest income, our business requirements and the increasing market perception about the impending payment crisis in the stock exchange as well as the upheavals in the market were the main reasons for our decision."
The stock market had seen a rapid rise in early 2000. However, it slowly started tumbling after June. In March 2001, it crashed all of a sudden. The JPC concluded that capital flight was the main reason for the crash. More specifically, big companies had taken their money out as they had an inkling of the things to come.
The leaked tape purportedly featuring Amar Singh suggests that Reliance got a clean chit because it allegedly bribed the JPC's chairman Shriprakash Mani Tripathi and its members SS Ahluwalia, Praful Patel, Prem Chand Gupta and Kirit Somaiya. At the time, Tripathi's son was employed by Reliance.
Manipulating the market
The Sensex was hovering around the 4,000 mark in January 2001 and peaked at 4,437 on 15 February. Then began a phase of downfall and it came down to 4069 on 27 February. The Nifty index of the NSE witnessed a similar trend.
On 28 February, the Sensex opened at 4070. Later that day, the budget was announced, which drove the Sensex up by 177 points to close at 4247. The next day, on 1 March, it rose by another 24 points.
On 2 March, however, the Sensex witnessed "uncharacteristic upheavals". This is what led stock traders to suspect a scam. That day, the Sensex had opened at 4323 and closed at 4095, a drop of 246 points. While the experts were worried about the erratic behaviour of the Sensex, others saw foul play in the "unnatural" rise and fall in some shares. On 7 March, the issue was discussed in the parliament.
Pointing out that the share market was not following its natural course, several MPs raised suspicion of a "fabricated intervention". Some MPs expressed fears that bank deposits were being misused to manipulate the market, and this could eventually put bank deposits at risk. The "general sentiment" was to safeguard the interests of small investors. It was this sentiment that prompted the Lok Sabha to constitute a JPC to probe the matter on 26 April 2001.
The JPC had 20 members from the Lok Sabha and 10 from the Rajya Sabha. Those from the Lower House were Shriprakash Mani Tripathi, Mani Shankar Aiyar, Margaret Alva, Vijayendra Pal Singh Badnore, Rashid Alvi, Jagannath Malik, Rupchand Pal, C. Kuppusamy, PH Pandian, Praveen Rashtrapal, Jaipal Reddy, Kunwar Akhilesh Singh, Maheshwar Singh, Prabhunath Singh, Kirit Somaiya, K. Yerran Naidu, CP Radhakrishnan, Kharabela Swain, Shrichand Kriplani and Anant Geete.
Those from the Upper House were SS Ahluwalia, Nilotpal Basu, K. Rehman Khan, Praful Patel, C. Ramachandra, CP Thirunavukkarasu, Kapil Sibal, Prem Chand Gupta, Amar Singh and Lalitbhai Mehta.
Network of shady dealings
The JPC found that the crash had coincided with the "pumping in of a large amount of money by banks and corporate houses". And that this money was withdrawn just before the crash led the JPC to conclude that Ketan Parekh, banks and corporates had been hand in gloves in the scam.
On 10 November 1999, the share price of Adani Exports Limited was pegged at Rs 621. A month later, it was Rs 1,271. How did this "miracle" occur? The promoters of Adani Exports and its subsidiaries sold five lakh shares to Ketan Parekh's companies through cross-deals in November 1999. As the records of Parkeh's companies later showed, volume trading had been faked to jack up the shares of Adani Exports.
In the investigation that followed, SEBI found "close links" between the Adani Group and Ketan Parekh Group. For one, no interest was taken on transactions worth crores of rupees between the two groups. According to SEBI, the Adani Group gave around Rs 340 crore to Parekh's firms, but received only Rs 208 crore in return. Additionally, Parekh owned 32 lakh shares of Adani Ports Limited until 29 December 2000.
Zee Telefilms Limited
The share price of Zee Telefilms was Rs 476 on 1 October 1999. It climbed to Rs 1,555 on 24 February 2000. The tinkering with the prices was evident when the share price came down to Rs 121 on 30 March.
The Essel group, the parent company of Zee Telefilms, gave Rs 706.40 crore to Parekh's companies between 2 May 2000 and 25 April 2001, but got back only Rs 251.55 crore. The transaction of funds commenced only after the shares of Zee Telefilms began to fall.
The probe report established that Parekh's companies never used the funds received from Essel. The latter had taken an undertaking that Parekh's firms won't buy shares of Zee Telefilms and Essel Packaging Limited from the funds given to it.
Similarly, promoters of companies such as Aftek Infosys, Cyberspace Infosys, DSQ Software, Global Telesystems, Global Trust Bank, HFCL, Lupin Laboratories, Padmini Technologies, Pentamedia Graphics, Ranbaxy Laboratories, Shankh Technologies International and SSL Limited also had "close links" with Parekh's companies.
Catch cannot verify the authenticity of the leaked tapes
Edited by Mehraj D Lone