S Gurumurthy By

To continue tracking the JD Group-Vasan-Chidambarams black money trail calls for moving back a little to move the story forward. The New Indian Express expose (P Chidambaram, Vasan Eye Care and Rs 223 crore Black Money TNIE, Sept 17, 2015) had cited two pieces of evidence of black money payments of Rs 223 cr by the little-known tax-fraudster JD Group to the well-known Vasan Eye Care for onward remittance to the Chidambarams. The cited evidences were: one, notes on black payments seized in the tax search on the JD Group; and two, the affidavit of M Srinivasa Rao, commissioner of Income Tax, before the Central Administrative Tribunal (CAT) saying the money has passed to the Chidambarams. In a knee-jerk response (TNIE Sept 21), P Chidambaram labeled the expose as “ridiculous” and “laughable”, more like a politician and less like a lawyer, without contesting the evidence tendered. Abusing the expose as ridiculous without refuting the facts is really laughable. In the next 24 hours, The New Indian Express (Sept 22) did slap its rejoinder to Chidambaram saying that he did not dispute, much less rebut, any of the facts. And now comes a devastating piece of evidence. Read on.

CBDT Confirmation

The new evidence is the counter affidavit filed by CBDT (Central Board of Direct Taxation) officials on August 18, 2015, to oppose Rao’s application to CAT. Express did not have access to it when it first exposed the scam. It now has the CBDT affidavit in its possession. Far from saying that Rao’s application is untrue, the CBDT affidavit threatens action against Rao for disclosing the facts! In Para 6 of its affidavit, the CBDT says that the information disclosed in Rao’s affidavit is prohibited under sec 138 of the Income Tax law “as it relates to the assessees and is held by the Income Tax Authorities in fiduciary capacity and is confidential in nature”.

Now recall the information disclosed in Rao’s affidavit. Rao had revealed that a tax raid on JD Group in January had brought out black money of hundreds of crores of rupees paid by it to Vasan, which in turn had made it over to the Chidambarams. By saying that what Rao has divulged is prohibited for disclosure, the CBDT in fact confirms what Rao had said as true. The CBDT has reinforced it by saying that it intends to take action against Rao “for disclosing” the “confidential information” held by the department. The CBDT confirms three facts: one, the department does possess the confidential information forbidden for disclosure divulged by Rao; two, it holds it as trustee of the assessees and the disclosure by Rao is in breach of trust; and three, for disclosing the prohibited confidential information, the CBDT intends to take action against Rao.

This new evidence nails Chidambaram’s lies on both black money and his family’s links with Vasan. Vasan and the Chidambarams are stealthily linked by the surreptitious pay-off in black.

Karti-Vasan tie-up old story

That the Chidambarams and Vasan had formal links is too old a story for Chidambaram to hoot “we have nothing to do with the concerned company” and scoot now. The news of Vasan-Karti link was in public domain over three years back. Only the pay-off in black to the Chidambarams via JD Group is current news. The relation between Karti and Vasan, open for a while, was for unknown reasons suddenly tucked under a corporate structure manned by his buddies. The Economic Times (May 11, 2012) first broke the story of Karti’s links with Vasan through two corporates — Advantage Strategic Consulting Private Limited (Advantage) and Ausbridge Investments and Holdings Private Limited (Ausbridge). ET reported that Ausbridge promoted and owned by Karti had almost fully, 95 per cent, acquired two-thirds ownership of Advantage, which in turn, had bought 5 per cent of Vasan’s equity. ET brought out how Karti got Vasan shares stealthily through Advantage at half the price that the others had paid for his shares. The throwaway price at which Karti’s Advantage acquired it implied and exposed the Chidambarams’ link with Vasan. ET also demonstrated how Karti’s 5 per cent holdings in Vasan, which had cost him just Rs 1.5 cr, was worth over Rs 250 cr as valued by the private equity industry when ET was writing the story in 2012. It also reported that when ET contacted, Vasan did not respond and Karti declined to comment. Chidambaram was the finance minister when Karti acquired Vasan shares in 2008 and in 2012 when the story appeared. Yet, he did not contest the report. Now he denies that his family had anything to do with Vasan and pretends as if his family has never heard of Vasan name - for him it is now “the company concerned”. Does Chidambaram not know now he is telling a lie?

Windfall gains

Now see how Karti camouflaged and hid his holdings in Vasan through Advantage and Ausbridge manned by his confidants. Karti, like most politicians, needed front companies, benamis and proxies, to do commerce. Among those fronting for Karti are: CBN Reddy (described as his benami by intelligence reports), Sundar Srinivasan and Mohanan Rajesh regarded as close to him. One Bhaskar Raman is described by intelligence reports as “close to Karti and knows all his secret dealings and investments”. Three more —Ravi Viswanathan, Padma Viswanathan, and Suchitra Rajesh, the spouse of Mohanan Rajesh— also figure in this list. They are the ones who double up and substitute for him as directors and shareholders of his front companies — Ausbridge and Advantage.

Here is a more forensic picture of how Karti acquired Vasan holdings for a song. Dwarakanath, the father-in-law of Dr Arun, the perceived promoter of Vasan, acquired 3 lakh shares in Vasan, at Rs 200 per share on 29.10.2008. Within 24 hours, he sold half of it - 1.5 lakh shares - to Advantage, intriguingly at half that price. Advantage did not pay a single rupee even towards the discounted price till March 2010, when it paid Rs 50 lakh. The balance Rs 100 lakhs remains due, perhaps even Chidambaram was the finance minister then. Two years later, on 26.10.2010, Advantage sold 30,000 shares (out of the 1.5 lakh it had acquired at Rs 100 per share) at Rs 7,500 per share to Sequoia Capital India Growth Investments and made a killing of Rs 22.2 cr. At that sale value, the 1.5 lakh shares of Vasan held by Advantage would be worth Rs 112.5 cr. as against the investment of Rs. 1.5 cr.

When it was paying Rs 7,500 per Vasan share to Advantage, Sequoia had already subscribed Rs 100 cr into Vasan’s Preference shares, which would entitle Sequoia, at any time it wanted, to over a million Vasan shares at Rs 912 per share. Why, when it could ask for a million Vasan share at Rs 912 per share, should Sequoia pay over eight times that amount to buy 30,000 Vasan shares from Advantage? Intriguing, isn’t it? What follows is something equally interesting.

Probe must

Within five months of Advantage making the windfall gain, on 25.3.2011, Ausbridge - almost fully owned by Karti since 2006 - acquired two-thirds of the ownership of Advantage, which had got the windfall gain. At what price? The existing shareholders of Advantage had paid Rs 77.5 per share before Advantage got the windfall gain. By the windfall gain, Advantage’s share's break-up value had shot up to Rs 1,220 per share five months before Karti’s Ausbridge acquired it. Yet the Karti-owned Ausbridge got the shares of Advantage at - believe it - Rs 15 per share. Which was less than one-fifth of the price the other shareholders had paid and just a little over one per cent of the true worth of Advantage. See more.

Ausbridge — read Karti — did not even pay Rs 15 per share in full. It paid only Rs 2.5 per share, the balance remaining outstanding. By Ausbridge investing just Rs 5 lakh in Advantage, Karti got to own two-thirds of Advantage whose net worth was over Rs 18 cr.

Income tax law taxes this differential between Rs 18 cr and Rs 5 lakh. Has Ausbridge paid tax on it? If not, did the tax department look into it? Chidambaram was the all-powerful home minister at the Centre then. Immediately after Karti acquired two-thirds stake in Advantage, Rs 8.70 cr out of the windfall gain was siphoned out as investment in a Singapore subsidiary Advantage Strategic Consulting Singapore Pte Limited.

Another interesting turn here. Within six months of Karti getting two-thirds stake in Advantage, on 5.10.2010, he transferred his entire (95 per cent) holdings in Ausbridge (with its two-thirds holdings in Advantage and its Singapore subsidiary) to his confidant Mohanan Rajesh. The price at which Karti sold his stake in Ausbridge to Rajesh is unknown. Had Karti transferred the Ausbridge shares at full value he would obviously have paid tax on the gain. Had he underpriced it, which is likely, he would have to pay tax on the undercharge. Has he? Did the tax department, which must have the information, demand tax on it? Chidambaram was then also the home minister.

The circumstance of the transfer to Mohanan itself showed that the transferee only Karti’s proxy. Even after Karti suddenly disappeared from Ausbridge, the fortunes of Advantage continued to rise. During the year ended March 2013, Advantage again sold 30,000 shares of Vasan to Sequoia. It is not known at what price. It also received a consultancy fee of Rs 29.5 cr. Against, a total income of Rs. 39.8 cr for the year, it incurred expenses of Rs. 80 lacs only. The director’s report of Advantage says that no employee gets salary of more than Rs 2 lakh per month and yet the company gets a consultancy fee of Rs 29.5 cr! Who then worked to get such huge fee? Does it need a seer to say that Advantage is a proxy to receive and keep illicit monies of someone else? Did the department, led by Chidambaram as finance minister then, probe into whether such intriguing dealings are genuine?

Karti’s hidden and proxy holdings in different companies, under-charged buying and selling, secret gains and his inexplicable appearance and disappearance from companies - all call for a through tax probe at the minimum. Underselling assets to Karti, the only son of a Central minister, would definitely need probe under the anti-bribery law. Even Chidambaram can’t dispute this. Will he will ask for a probe instead of making empty denials?

Karti hid holdings behind benamis

Karti hid his holdings in Vasan through Advantage and Ausbridge. Among his benamis were confidantes CBN Reddy, Sundar Srinivasan, Mohanan Rajesh, Bhaskar Raman, Ravi Viswanathan, Padma Viswanathan and Suchitra Rajesh.

(The author is a commentator on political, economic and cultural affairs)