ON THE MORNING of February 28th, India’s Central Bureau of Investigation (CBI) arrested Karti Chidambaram in Chennai soon after his return from a foreign visit. The son of former Finance Minister P Chidambaram, he is alleged to have received money in return for shady favours. The allegations relate to the INX Media (now 9X Media) case, which centres on illegal Foreign Direct Investment (FDI) inflows into the company in 2007-08. The Foreign Investment Promotion Board (FIPB) had approved an investment of Rs 4.62 crore in INX Media but had rejected its proposal for downstream investment in its arm INX News. This conditional approval was allegedly flouted and another Rs 305 crore was brought in via sales of INX shares to Mauritius-based companies (which paid 86.2 times their face value). Money was also put into INX News. At that time, INX was controlled by the now-disgraced media mogul Peter Mukerjea, who along with his wife Indrani is embroiled in the murder case of the latter’s daughter Sheena Bora.
After INX’s funding patterns emerged, it hired a firm owned by Karti Chidambaram as a consultant. Later, in 2008, after a fresh application was filed at the FIPB, the media firm got approval for its downstream investment. The CBI has alleged that Chidambaram received Rs 10 lakh as payment through Advantage Strategic Consulting, a company he indirectly controlled, to influence certain FIPB officials into okaying it.
The investigation was initiated in 2010 by the Enforcement Directorate (ED) under the Foreign Exchange Management Act (FEMA), but was abruptly stopped in 2013 during the tenure of the erstwhile UPA Government. Then, in 2015, while the Sheena Bora case was being probed, additional evidence emerged suggesting that the Mukerjeas had laundered money. The Mumbai Police, which was investigating the murder case, asked the ED to take over the probe of that aspect, and it registered a case under the Prevention of Money Laundering Act. Since then, different government agencies, including the Financial Intelligence Unit (which issued the original alert that drew the attention of investigators), Central Board of Direct Taxes and Serious Fraud Investigation Office, apart from the CBI and ED, have looked at different aspects of the INX matter.
So, at one level, the clutch of illegalities being probed centre on the quantum of FDI in INX. Then there’s the issue of downstream investment that was not permitted originally. Finally, there’s the money laundering angle. A 2014 CBDT report found a complex web of companies that invested in INX. Three of them, Mount Vernon Private Equity Ltd, New Silk Route PE Mauritius and Dunearn Investment (Mauritius) did not have any income of their own and had borrowed money. In the case of New Vernon, investigators could not find basic details of the firm, not even the names of top executives. The existence of dubious shell and conduit companies in an investment chain is often the first sign of possible irregularities, if not outright fraud, globally. In India it takes probes to unearth such facts, while elsewhere such investments are usually red-flagged right at the stage of initial regulatory clearances. A permissive regulatory environment allows deals of dubious legality to take place.
The real cause for controversy is the people involved. The Congress party was quick to call his arrest a “diversionary tactic” on part of the Narendra Modi Government. Karti Chidambaram has denied any wrongdoing. Ever since the investigation began, he has approached various judicial fora alleging that his rights have been violated by investigative agencies. On an earlier occasion, he had said that, “I am being targeted politically and personally to besmirch the name of my father. They have not seized any documents and cannot prove any charges against me. I have not done anything wrong.”
On his part, the former Finance Minister has claimed that he is the real target and the current Government wants to get at him via his son. He has said the regime wants to silence his voice and stop him from expressing criticism of it.
This may or may not be true. There are also other probes in which Karti finds himself embroiled. There is the Aircel-Maxis case, for example, where the owner of Aircel was allegedly forced to sell his company in 2006. The allegation here is that Karti ‘facilitated’ this deal through Advantage Strategic Consulting. Then there is the case of foreign exchange violations involving Chennai-based Vasan Healthcare Pvt Ltd; the ED has issued a ‘show cause’ notice to Karti in this case as well.
Analysts are usually quick to point out that such financial crimes take place because of laws that make doing business next to impossible. While that may be so, it does not absolve wrongdoing on the part of persons who facilitate dubious deals by using their ability to navigate a murky system. Thorough probes and exemplary punishments are just the start of an effort to clean up the regulatory stables.