Sai Baba's Kulwant hall guy arrested

THE GREAT INDIAN BANK ROBBERY - 11

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Political clout plus dad in FI Board yield rich dividends. So what if son doesn’t pay back?

Navika Kumar

New Delhi, December 11: A fleet of Mercedes cars litter the driveway of the sprawling bungalow in the heart of Lutyens’ Delhi that belongs to Kulwant Rai, sons Vinay and Anil and their families. Godman Sathya Sai Baba stays with them when he visits Delhi. Their friends are the who’s who of Delhi’s power circles.

Here’s a reality check.

The Rais have CBI FIRs for cheating — making fake bills and siphoning funds — registered against them, face investigations for income-tax evasion and will not repay their humungous loans — or even the interest on them.

IN SEARCH OF THE RAIS

The Indian Express contacted the Rai house on 12, Aurangzeb Lane, New Delhi, on November 27 to speak to Group Chairman Vinay Rai. Staff at home said he was out of town and hence unavailable for comment. When asked if a questionnaire could be faxed to him, they said the fax machine was not working. Did Vinay Rai then have an e-mail address? The reply: ‘‘He does not have an e-mail ID.’’ Surprising for the chairman of Information Technologies, an IT company.

A questionnaire was then hand delivered at 12, Aurangzeb Lane. Attempts to reach Anil Rai and Vinay Rai followed. On December 10, Anil Rai’s office at Jeevan Tara building on Parliament Street, said Vinay Rai was the right person to speak to.

A visit to the Usha Bhawan at A-41 Mathura Road, Delhi, revealed Vinay Rai was not in office. His secretary confirmed all requests from The Indian Express had been passed on to Rai. And that the decision to respond - or not - was his.

It was only in 2000 that Vinay Rai was among the 11 Indians in the Forbes list of world’s 300 richest people with a personal net worth of Rs 5,338 crore. Yet, this was the year that two Rai companies - Malvika Steels and Usha Ispat - defaulted on loans of about Rs 2,400 crore.

The power of the Rais - who steadfastly refused to respond to faxes and requests for interview from the The Indian Express - is legendary.

The head of the family and Vinay Rai’s father, Kulwant Rai, was until recently on IDBI’s board, which sanctioned loans to the Rais while he was there. Top officials at IDBI deny any undue favour to the Group. ‘‘Kulwant Rai would not attend meetings when his group company loans were being discussed,’’ says a senior official, who doesn’t however deny that the fact played absolutely no role in the sanctions.

Today, there is little sign that the group’s corporate office on Mathura Road near the Delhi-Haryana border is a hub of business. Usha Bhawan houses an education centre called the Rai Foundation, which offers courses on everything from fashion technology to Vedic arts and sciences.

But the family’s political clout hasn’t waned. The Governing Council of the foundation boasts Oscar Fernandes and Subbarami Reddy of the Congress, Amar Singh of the Samajwadi Party, actress and former TDP MP Jaya Prada and the BJP’s Anjali Rai.

Then there’s P.K. Kaul, former Cabinet Secretary and Indian Ambassador to the US; K.S. Sarma, CEO of the Prasar Bharti, and Justice Eswara Prasad, former High Court judge.

The bankers have their work cut out for them. Steel. Telecom. Infotech. It once seemed like everything the Rais touched turned to gold. A list of who’s after them today: the CBI, the Income Tax department, banks, and even suppliers like French telecom-equipment giant Alcatel, still waiting for the money the Rais owe them for Koshika Telecom’s defunct cellular business.

Usha India, Usha Ispat, Malvika Steels, Usha Microprocess Controls, Information Technologies and Koshika Telecom seemed to be harbingers of the great leap outwards in the mid-1990s.

Today Malvika Steels is a defaulter to the tune of Rs 2,095 crore, Usha Ispat for another Rs 392 crore, and the Group is going through its worst possible credibility crisis.

HOW THEY TOOK THE MONEY

So how did India’s best banks and financial institutions get stuck with the Rais?

Three years ago, the Rais had heady dreams of steel, telecom and convergence. They had a reputation for being go-getters and everything they said seemed to showcase their flair for big business. Mix that with their influence in the corridors of power and it isn’t surprising that names like IDBI, IFCI, SBI and UTI lined up to loan them money.

In 2000, another group company — Information Technologies India Ltd (ITIL) — became the engine driving the group’s growth through infotech, with a Rs 2,000-crore market capitalisation. In contrast, total investment in the company didn’t exceed Rs 70 crore. But that was during the great tech boom, when each ITIL share, issued at Rs 10, were being traded for a whopping Rs 2,250.

And then the tech bubble burst in 2001, and Rs 2,000 crore of ITIL went up in smoke. This was the starting point for trouble in other group companies.

EXPERT TAKE

‘‘We are still working on the one-time settlement scheme. It will come up shortly. RBI is also working on the guidelines on asset reconstruction companies after the Securitisation ordinance was promulgated. The guidelines are expected shortly’’

Vepa Kamesam,

Dy Governor, RBI

The NPA Act has come at a right time and would have a good impact on the recovery process. The banks and FIs would get more teeth in recovery drive. To start with, the Act is good and if some legislative problems crop up the Act can be amended accordingly.

K.N. Memani, Chairman,

Ernst & Young

When Koshika Telecom had problems paying licence fees of Rs 450 crore for their cellular services in Bihar, UP and Orissa, the Rais’ Mercedes had free access to the guarded precincts of Sanchar Bhawan, home to India’s telecommunications ministry (the licences were cancelled this year after a long legal battle). Koshika defaulted on its licence fees and by mid-2001 had three of its four licences cancelled. Malvika Steels, with a 0.85 million tonne capacity, began defaulting on its loans as did the 0.6-million tonne Usha Ispat project in Maharashtra.

In August 2000, when Kulwant Rai was on the board of IDBI, Koshika was sanctioned a loan worth Rs 100 crore when it had three of its four licences cancelled by the government for non-payment of licence fees. The fourth licence, which was running by default, because there was no other cellular operators in that part of Uttar Pradesh also owed money to the government. Yet IDBI sanctioned Rs 100 crore against a personal guarantee of Vinay Rai and pledging of shares in ITIL, which today trades at Rs 3.25 per share!

AND HOW THEY GOT AWAY

Given the cosiness that the Rais displayed in the past with their bankers, it’s not surprising that the FIs have still not declared the loans given to Koshika Telecom as NPAs. Koshika bagged cellular licences for four states — Uttar Pradesh (East and West), Bihar and Orissa — when the sector was opened up in 1996.

Today all the four licences stand terminated for non-payment of fees for over two years. The company had invested Rs 800 crore in this venture, of which nearly 30-40 per cent is expected to be from FIs. This amount — anything between Rs 250 crore and Rs 300 crore — is likely to show up as NPAs on bank balance sheets.

By mid-2001, financial institutions led by IFCI took over the flagship integrated steel project — Malvika Steel company — with its plant at Jagdishpur in Uttar Pradesh. Built over 752 acres of land, IFCI as the lead institution took over the project to recover its Rs 1,000 crore loans while IDBI also has substantial loans to the company. The case is presently pending with the Debt Recovery Tribunal (DRT).

Even here the company has had a bit of luck. The receiver appointed by the DRT to seal the assets of the company has in a report stated that it was physically impossible to take over the company which was spread over a 752-acre plot.

The receiver has explained that while there were labour groups demonstrating at the site, in other places where there was no boundary wall, villagers had brought the cows and sheep to graze. The receiver’s suggestion is that the DRT merely takeover the company’s inventory. And all this in October 2002, when the FIs took over the company in mid-2001 and even appointed their own directors on the Board in place of the Rais.

Last year the CBI raided the Group’s offices and residence of the Rais at Aurangzeb Lane, New Delhi. The suspicion was that the company used to take money from banks and financial institutions by showing fake bills for purchase of machinery from its own front companies. The tip-off to the CBI came from the IT department, which suspected that there was large scale evasion by the company.

A CBI spokesman told The Indian Express that according to the agency’s preliminary investigation, in the Rais’ supply chain, neither was material purchased nor payments made to any supplier. The CBI says that investigations are still on and hence no chargesheet has been made as yet.

In its FIRs, the CBI had alleged that the Usha Group had floated 250 fictitious companies and defrauded FIs like General Insurance Company, IDBI, IFCI and UTI. In the meantime, the Rais live free.