Typically, when an investor desires to invest any significant sum of money into a new project, she undertakes an extensive “due diligence” exercise to determine the viability of the project and ascertain the credentials of the project’s promoters.
Financial experts are engaged to calculate the economic feasibility of the project and its projected outcomes. Top notch law firms are engaged to undertake a deep dive into the legal history of the project, its promoters and key management personnel.
No Public Scrutiny of Offset Partner
It is reasonable, therefore, to presume that Dassault Aviation, the French giant that is contracted to supply 36 Rafale fighter jets to India in a controversial deal, would have undertaken an extensive “due diligence” exercise before it chose to partner with Anil Ambani’s Reliance Group, to give effect to the offsets clause under India’s Defence Procurement Procedure (DPP) 2016 regulations.
Under the offsets clause, 50 percent of the billions of dollars spent are to be re-routed to India by way of engaging Indian corporate partners.
In its statement to the media on 21 September, Dassault asserted, “This offsets contract is delivered in compliance with the Defence Procurement Procedure (DPP) 2016 regulations. In this framework, and in accordance with the policy of Make in India, Dassault Aviation has decided to make a partnership with India’s Reliance Group. This is Dassault Aviation’s choice [...]”.
The Department of Defence echoed this stand a day later in its media statement on 22 September, asserting that, “The government has stated earlier, and again reiterates that it had no role in the selection of Reliance Defence as the offset partner”.
Thus, admittedly, there was no public scrutiny of the selection of the private partner in whose hands these vast offsets of money will eventually be placed.
Is it not a farce then, that public funds are routed into private Indian corporations through a foreign intermediary, without any public scrutiny? And without any public overseeing in the selection of the private partner, the due diligence exercise undertaken by the foreign investor assumes even greater significance, to ensure those precious funds are not squandered by the local partner. It is in this connection that the following facts merit highlighting.
Of ‘Due Diligence’ & Hostile Witnesses
In the 21 September media statement, Dassault made one key assertion when it stated that, “This partnership (Dassault-Reliance) has led to the creation of the Dassault Reliance Aerospace Ltd (DRAL) joint-venture in February 2017”.
It is relevant, therefore, to take a closer look at the facts that were available to Dassault in February 2017, when it decided to formalise its decision to partner with Reliance by entering into the DRAL JV.
“Due diligence” is more than just a cursory Google search. If indeed the legal eagles assisting Dassault in such an exercise had looked, what would they have found?
The answer is readily available, particularly in the 2G scam cases. The CBI’s chargesheet and other documents were a matter of public record. And while the allegations in the chargesheet were enough to scare away any investor, it does not appear to have bothered Dassault. But it is the testimonies of the key personnel of Reliance that had the potential to bring any proposed JV to a grinding halt. All these testimonies were already part of public record.
This evidence revealed a disturbing pattern. In fact, 16 of the 17 employees of Reliance, who were called upon to testify, were effectively “hostile” witnesses.
Legally speaking, this meant that the CBI alleged that these employees had given one version of events to the agency during investigations, and were now singing a contrarian tune in court. The prosecution alleged that they had all deposed falsely under oath. But if the due diligence exercise were to highlight a single issue, it would be the fact that Anil Ambani himself, and even his wife, were hostile witnesses, both alleged by the prosecution to have deposed falsely and concealed information from the court.
Anil Ambani’s 2G Testimony, And Reliance Telecom’s Subsequent Acquittal
During his testimony, Ambani admitted that he had in fact been examined by the CBI during the investigations in the 2G scam cases. As is the procedure during investigations, the Investigating Officer (IO) records the statement of each relevant witness and shows it to him. The witness himself is not asked to sign the statement, as that is barred by law. This leaves a lacuna, that, in my opinion, is exploited by some ill- intentioned police officers to record false statements, to falsely implicate certain persons. But Ambani was not accused in this case.
And, after all, this is Anil Ambani. Not just any other witness in a routine case. In court, however, Ambani could not recall whether the CBI had ever actually recorded his statement.
He stated instead that, “I was examined by the CBI. However, I do not know if any statement of mine was recorded or not. I remained present in the CBI office for many hours and I do not recall any statement being recorded and there were a number of people present”.
He even denied ever handing over a typed note containing his replies to specific queries of the CBI, stating, “It is wrong to suggest that I had given any typed note to the IO during my visit to the CBI office”. One of the scions of the illustrious Dhirubhai Ambani Group would have the court believe that the CBI had the gumption to falsely record his statement, and produce a typed note that he had never actually supplied.
Reliance Telecom, along with three of its executives, was acquitted in the 2G case eventually in 2017.
Matters of Memory
This was the testimony of the undisputed boss of Dassault’s chosen corporate partner, on 22 August 2013, nearly four years prior to the DRAL JV. He further testified that he “cannot recall” if one of his group’s lead companies, Reliance Telecom, had made a thousand crore rupees investment in Swan Telecom, another accused company. In fact, during his eighteen-page examination by the prosecution, Mr Ambani was unable to “recall” crucial facts under oath on twenty occasions. These included his loss of memory with regard to investments in associated companies, funds transfers worth thousands of crores, board meetings in which he was shown to have been present, and even transfers of shares held by himself, his wife and his own children.
This information and more, was available to Dassault in February 2017, when it chose Reliance as its offsets partner via DRAL, to plough back 50 percent of the estimated USD 10 billion deal.
Presumably, this was brought to the Dassault management’s notice during the due diligence phase. Whether it was also disclosed to its shareholders, is anybody’s guess. Distressingly, this information was also available to the government. In fact, on the one hand, the government was prosecuting one of Ambani’s companies in the 2G scam while simultaneously according sanction to another in a deal worth billions of dollars. All without even awaiting the verdict.
Even today, the appeal against that verdict is being prosecuted by the same government that says it has no role in Dassault’s exercise of choice. The government has a fiduciary duty towards its citizens, to conduct its own “due diligence” exercise to ensure public funds are not squandered in scam after scam.
One wonders if similar offsets deals with a group company belonging to a Vijay Mallya or a Nirav Modi would be equally championed. They too, after all, are innocent until proven guilty.
Meanwhile, following 2G case acquittals in 2017, Anil Ambani termed the verdict a “redemption” to the humilation his company had faced over the years.
Selecting Private Offset Partner Sans Scrutiny is an Issue
So what do foreign investors really look for in a prospective Indian partner? Are these “choices” made on merit? Do these investors evaluate the liabilities in the balance sheets of potential partners, or pending litigation?
Is the choice based on potential value addition, or privileged access to policy makers? And what does it say about our present political and business climate?
What’s clear is that the absence of public oversight or a regulatory mechanism in the process of selection of a private partner in offsets-related deals can allow some individuals to manipulate the levers of power to siphon away billions in public funds, even as the masses toil away, unable even to escape a month’s default in EMIs.
(Nikhil Borwankar is a practising advocate, former member of the CBI prosecution team in the 2G scam cases, and author of an upcoming tell-all book on the 2G cases. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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