Gadkari and the business of politics
The BJP president’s financial dealings reek of cronyism and conflict of interest, and could jeopardise his political career
The current shadow of controversy that hangs over
Bharatiya Janata Party president Nitin Gadkari has its roots in the
distinctive nature of Maharashtra politics, dominated by owners of sugar
mills, cooperative banks, dairies, and educational institutions,
sometimes by all four at once. It’s a trend which might cause alarm
elsewhere but which Maharashtra’s politicians like to present with a
benign spin, that there is nothing wrong with padding your political
base and bank balances as long as it is also in the public good. Who
knows, perhaps in its early years this formula might have made for a
certain kind of progressive politics, absent in the cow-belt States. But
50 years down the line, those same cooperative banks and sugar mills
have been milked dry and run to the ground. The State’s
businessmen-politicians have expanded into areas of hard commerce like
hotels, malls, and luxury apartments. As a natural corollary, builders
and contractors have been made MLAs, MLCs and MPs. Today, Maharashtra
regularly makes headlines as the perfect Petri dish for everything that
ails contemporary Indian politics: cronyism, conflict of interest and
sometimes, outright corruption.
Mr. Gadkari’s own business career reflects the perils of that model.
As
a late entrant to Maharashtra’s politician-businessman club, Mr.
Gadkari began with a sugar mill in Vidarbha in 2001, ostensibly to
encourage the region’s distress-hit cotton farmers to turn to a less
risky crop. Except he chose to locate his plant on the outskirts of
Nagpur, somewhat removed from the cotton-growing, suicide-prone
districts of Vidarbha. At any rate, his description of himself as
politician-cum-social entrepreneur would apply, if at all, to Purti’s
early days. Very swiftly, Purti expanded into areas that made it hard to
justify outright social benefit, like ethanol and alcohol, which it
supplies, among others, to Vijay Mallya’s UB Group. When Purti decided
to expand into power, Vidarbha’s sunrise sector, it brought Mr. Gadkari
in conflict with his own party, which opposed the diversion of water
from Vidarbha’s irrigation dams to a rash of new power projects. On
Purti Group’s website, one of his group companies, Avinash Fuels, says
it has applied for coal mining in Maharashtra, Orissa, Madhya Pradesh
and Chhattisgarh. (The website has since disabled all such pages). But
it retains Purti’s basic description as ‘Vidarbha’s leading business
group’, ‘a Rs. 3000 million company’ — which only shows how far Mr.
Gadkari has come from his self-description as a patron of Vidarbha’s
poor.
While all of this may have opened up Mr.
Gadkari to questions of conflict of interest, our investigation has
raised more serious questions about the source of the capital that
financed Purti’s rapid growth.
In its regulatory
filings, Purti Sugar and Power Pvt Ltd.’s start-up finance came from a
paid-up capital of Rs. 68 crore, raised through the sales of six crore
shares. About 70 per cent of these shares are owned by 18 companies.
Their identity is impossible to ascertain since, as NDTV reporters
discovered, none of them have given accurate addresses. For example,
Earnwell Traders and Swiftsol India, which own shares for about Rs. 5
crore in Purti, gave their address as Govind Karman Chawl in Malad East.
The residents of the chawl had never heard of these companies.
Similarly, another set of investors in Purti, Chariot Investrade,
Regency Equifin and Leverage Fintrade, also gave a false address in
Malad East. One company, Sterlight Fincom, has changed its address three
times in five years. And so on.
Evasive
When
we asked Mr. Gadkari in studio last week about the identity of his
mystery investors, he was evasive. He first said Purti was owned by
10,000 farmers, and he cannot remember each of their names or addresses.
We pointed out that these so-called farmers own only 10 per cent of
Purti, and that the rest are owned by 18 companies. He then said he
“approached many people from the society: industrialists, traders,
businessmen and investors ... and also NRI people”.
But
several of these companies have Mr. Gadkari’s personal staff as their
directors. Ashwami Sales and Marketing, which invested Rs. 3.2 crore in
Purti, has as its director Manohar Panse, Mr. Gadkari’s driver.
Sterlight Fincom, which invested about Rs. 4 crore in Purti, has as its
director Vishnu Sharma, Mr. Gadkari’s astrologer. Why would the
cash-strapped president of a political party borrow money from his own
(presumably even more cash-strapped) employees?
Moreover,
Mr. Gadkari has advanced loans to at least one of these companies that
he is borrowing from. The balance sheet of Regency Equifin, which bought
about 40 lakh shares in Purti, shows an unsecured loan from Nitin
Gadkari of Rs. 26 lakh in 2009, which is reduced to Rs. 16 lakh in 2010.
So not only is Mr. Gadkari borrowing from companies run by his personal
staff, he is also lending money to those companies.
In
his defence of the BJP president, senior party leader Lal Krishna
Advani has said the “allegations [against Gadkari] are about standards
of business and not about misuse of power or corruption”. But in the
words of a chartered accountant, companies that exhibit such features —
ghost directors and addresses, cross-holdings, cronies as directors —
fit the pattern of shell companies used to convert black money into
white. According to this CA, somewhere, six layers back, these companies
would be making cash deposits into a bank account, most likely in a
bank with weak regulatory framework. And while these market practices,
however dubious, are not unusual for businessmen looking for quick
cash-to-cheque conversions, Mr. Gadkari is no ordinary businessman.
Congress leader Digvijay Singh was quick to allege that Mr. Gadkari is
routing kickbacks via these shell companies.
Mr.
Gadkari has vehemently denied this. But one of the early investors in
Purti (and the only one whose identity is known) is Ideal Road Builders,
a subsidiary of Maharashtra’s biggest toll road company, IRB Infra
Developers Ltd. During Mr. Gadkari’s stint as PWD Minister between 1995
and 1999, Ideal Road Builders received six contracts worth Rs. 63 crore.
Just a year after Mr. Gadkari demitted office and started his sugar
factory, Ideal picked up shares worth Rs. 1.85 crore in Purti, later
increasing their shareholding value to Rs. 2.8 crore. D.P. Mhaiskar, a
director in IRB, also picked up Purti shares worth Rs. 4 crore on an
undisclosed date. In 2010, Global Safety Vision, a company with Mr.
Mhaiskar as director, loaned Purti Rs. 164 crore, which Purti used to
wipe out its entire debt. Global’s balance sheet shows a paid-up capital
of only Rs. 1 lakh. Mr. Mhaiskar told The Times of India this week that he had raised the money by selling a chunk of his personal stake in IRB.
Question of equity
Mr.
Gadkari seemed aghast at the suggestion that ex-PWD Minsters should not
accept investments or loans from road contractors. He said the
tendering process to Ideal Road Builders was above board, a claim
contested by the NCP. Mr. Gadkari also said “taking equity is not a
fraud. Equity is not a corruption, equity is a shareholding.” True. But
for a politician and an ex-Minister, it is important to explain the
source of equity. Equity from a road contractor to whom he has awarded
tenders carries a strong whiff of conflict of interest. Equity from
sources whose identity he has not been able to explain carries more
serious implications. Mr. Gadkari has offered himself and his companies
up for an enquiry. The government has responded with far greater
alacrity than it demonstrated in the case of Robert Vadra, ordering
enquiries by tax authorities and the Registrar of Companies into Purti
and its investors.
Regardless of the UPA’s blatant
double standards, the very fact that he is being probed will do no good
to Mr. Gadkari’s political career, poised as it is at a critical
juncture. This is quite apart from the damage any potentially damaging
findings would cause. Would he in hindsight agree, as some in his own
party do, that business and politics do not make for a healthy mix?
(Sreenivasan
Jain is Managing Editor, NDTV. He anchors the ground reportage show,
Truth vs Hype on NDTV 24x7. E-mail: vasu@ndtv.com)
