Is the Enforcement Directorate under pressure to scupper its own probe into a money-laundering case, asks Paranjoy Guha Thakurta
IS INFLUENCE being used to scuttle a major money-laundering case against the Agarwal family, the mining magnates who control the Vedanta Resources/Sterlite corporate empire? Circumstantial evidence certainly points in this direction.
On October 13, there was confusion in the Delhi High Court, where a division bench comprising Chief Justice Ajit Prakash Shah and Justice S Muralidhar was about to hear a case: It suddenly transpired that the Enforcement Directorate (which is under the administrative control of the Ministry of Finance) had changed its advocate-of-record and standing counsel Sanjay Katyal — and replaced him with Sachin Datta, the newly-appointed standing counsel for the government.
The case relates to pre-payment of a fine imposed by the ED, Foreign Exchange Management (earlier Regulation) Act, on three promoter-directors of Sterlite Industries (India) Limited, the flagship of the Vedanta Resouces group. The Agarwals and Sterlite have been accused of laundering Rs 208 crore through shell companies in tax havens like the Bahamas and Mauritius.
What’s unusual about a midstream change in lawyers by a government agency? Take a look at the facts: Katyal had been an advocate-on-record and vakalatnama holder in the money-laundering case against Sterlite and its three directors, Anil Agarwal (executive head of the group), his brother Navin Agarwal and their father Dwarka Prasad Agarwal, for some time. (A vakalatnamais an official legal document in a prescribed form executed by or on behalf of a party that is a litigant engaging and/or nominating a lawyer in a particular case.)
On March 31, 2009, Justice S. Ravindra Bhat of the Delhi High Court had ruled that the Appellate Tribunal for Foreign Exchange should not have dispensed with the requirement that Sterlite and its three directors deposit a penalty of Rs 35 crore while their appeals against the ED’s show cause notice were being heard.
Without going into the merits of the allegations, Justice Bhat upheld the ED’s view that, despite being given opportunities to be heard, Sterlite’s directors, notably DP Agarwal, “chose to stay away and not answer when called upon and summoned”. Thus, it “was legitimately concluded that they had no explanation to offer” and that “the penalty amount was therefore perfectly justified”.
B Datta, Sachin’s father, went to London to de-freeze accounts of Ottavio Quattrocchi
AGGRIEVED BY the order, the Agarwals and Sterlite moved a division bench of the Delhi High Court. On July 20, the case was heard by Chief Justice Ajit Prakash Shah and Justice Manmohan and adjourned till August 10. Sterlite was represented by high-profile Senior Advocate Debi Prasad Pal (a former MP who had served as Union minister of state for finance in PV Narasimha Rao’s government and had worked under Manmohan Singh when he was the finance minister).
That hearing had to adjourned to August 17, as the division bench did not assemble that day. On August 17, the bench heard the case in which the ED was represented by Additional Solicitor General AS Chandiok and Katyal. Chandiok sought and was granted time to produce original records of the case and provide a compilation of the documents to the appellants’ counsel.
On October 13, the division bench was reconstituted and Justice Manmohan replaced by Justice S Muralidhar — and that’s when it became known that Katyal, a lawyer with a reputation for integrity, honesty and diligence, had been replaced by Datta.
The ED suspects the Rs 208 crore brought in was got illegally and eventually laundered
Here’s where it gets interesting: Datta had worked as a briefing counsel for Home Minister Palaniappan Chidambaram, when the latter was practicing as a lawyer (and when Chidambaram was also serving on Sterlite’s board of directors, before he became finance minister in May 2004). He also happens to be the son of B Datta, a former additional solicitor general who had gone to London on December 22, 2005, with an official request from the government to the UK Crown Prosecution Service to de-freeze the accounts of Italian businessman Ottavio Quattrocchi — and to release the $4.6 million (Rs 21 crore) that was allegedly part of the bribes paid by Bofors.
The allegation of violation of foreign exchange rules can be traced back to January 1993, when patriarch DP Agarwal founded a company called Twinstar Holdings Limited in Mauritius with a nominal equity capital base of $ 100 (less than Rs 5,000 at current exchange rates). Twinstar commenced operations as the subsidiary of a company incorporated in Nassau, Bahamas, in November 1992, called Volcan Investments Limited, which had an even lower capital base — only $2, or not even Rs 100.
CURRENT ASSIGNMENT: The standing counsel for ED
EARLIER ASSIGNMENT: Briefing counsel for Home Minister Palaniappan Chidambaram
REPLACED: Advocate-on-record Sanjay Katyal
THE ACCUSED: Agarwal family and Sterlite of laundering Rs 208 crore in the tax havens of Bahamas and Mauritius
The show cause notice served by the ED on May 26, 2002, relates to the period between 1993 and 1999, when Twinstar acquired the shares of Sterlite and various investment companies controlled by group promoters. The investment companies, in turn, had made substantial investments in Sterlite and Madras Aluminium Company Limited.
On April 29, 1999, the investment companies were liquidated and all the shares of Sterlite came under Twinstar’s possession, making it the 100 percent owner in the investment companies. On December 8, 1999, IT officials conducted search-and-seizure raids on the offices of Sterlite in Mumbai: After perusing seized documents, the IT department decided to engage the services of ED officials because it appeared that there could have been a violation of foreign exchange laws. After analysing the documents, the ED inferred that Twinstar was incorporated with the intention of acquiring an interest in Sterlite.
The ED charged that the Agarwals, before liquidating the shares of the investment companies mentioned, had written off loans worth Rs 23 crore and made an agreement to gift Twinstar Rs 33.82 crore, including shares of Sterlite worth Rs 7.22 crore. Further, during this six-year period, Sterlite and its investment companies allegedly brought in Rs 208 crore to India through Twinstar to subscribe to the shares of Sterlite and make investments in the company. The ED suspected that the money brought into the country was illegally obtained and then laundered.
While the case is pending in court, the question that needs an answer is whether pressure was exerted on the ED to replace Katyal with Datta, once associated with Chidambaram who, once served as a non-executive director of Sterlite? The dots exist: Connecting them is another matter.