This article tells us about how ED (Enforcement Directorate) cancels Mohnish Pabrai’s transaction to buy a 2.7% stake in KRBL.
Mohnish Pabrai is a well-known investor tries to buy a significant share in KRBL. Mohnish Pabrai is going to buy the shares from one of the existing shareholders of KRBL – Omar Ali Balsharaf.
Enforcement Directorate (ED) blocks this trade by sending a letter to BSE that this trade should not happen at any cost. ED thinks that the shares in the trade (i.e. 2.7% shares own by Balsharaf) are previously purchased buy Balsharaf with the illegal money (crime money) from the VVIP chopper scam.
Countering that Balsharaf filed a case in Delhi High Court. The case was about that ED is putting the wrong and false acquisition that Balsharaf purchased KRBL shares from illegal money. And he objects that the ED blocking the transaction is not justified until proper investigation.
The High court of Delhi on 9th Jan 2019 passed the order that the communication between BSE and ED is simply done without any authority of law and further to that court rejected ED’s request to freeze the trade. The High court clearly stated that the ED’s behaviour to block the trade is completely outside of the law
The High Court passed the order in favour of Balsharaf that the shares were purchased way back than the allegations of the schedules crime or any alleged kickbacks paid by Augusta Westland. The court states that the KRBL shares were purchased by Balsharaf in 2003 when Balsharaf was the distributor of KRBL products in Saudi Arabia, before VVIP chopper scam.
In plain words, the high court clearly states that the ED officer is simply lying.
After that KRBL shares gone down 20% when the news came out about the arrest of the former director Gautam Khaitan in Augusta Westland VVIP chopper scam. The charges on Gautam Khaitan were that he was the beneficiary of Rs. 850 Crores of political bribery in many defense deals.
ED alleged that the money is routed through a step-down subsidiary of KRBL situated in Dubai – RAKGT. Gautam was an independent director of KRBL between 2007 -2013. KRBL states that they don’t have any associations with the alleged corruption in VVIP chopper scam.
Gautam resigned from KRBL board as soon as his names appeared in VVIP chopper scam.
ED allegations regarding the routing of money is explained through a flow chart down here.
The High Court has passed the order that RAKGT is no longer directly connected to KRBL in India. RAKGT was established by the KRBL Dubai group in 2007, and it is stated that the promoters and directors have transferred the shareholding in the name of the nephew of the promoters of KRBL Ltd.
As per the investigation, KRBL claims to have no connection with RAKGT as it was run by its nephew. And in recent, there is no clear evidence about Anurag Potdar’s association with KRBL.
KRBL is alleged regarding the involvement in providing a route to the crime money, which to a very small amount from the total amount of entire VVIP chopper scam. There is no formal charge sheet against KRBL or it’s any other directors, Investigation regarding the alleged crime is going on since 2013 but still, no evidence is found.
When ED couldn’t find any evidence regarding the KRBL’s involvement in VVIP chopper scam then they swift the focus from there to a new case again regarding defense deals (Embraer Case).
ED alleged KRBL to have involvement in the Embraer defense scam case. ED further said that KRBL has purchased the land & property worth 15 Cr. in Dhuri, Punjab with the crime money. But let’s not predict things jury still out there and doing their work.
The article has given an example of the famous FMCG Company (ITC) with law enforcement.
ITC was alleged for excise duty evasion of around Rs. 850 Cr. between 1990 and 1995. It is alleged that money is being routed from Singapore based subsidiaries of the international division of ITC. Two former chairmen of ITC – Chugh, and Sapru were arrested and sent to jail. After that in all-around 15 ITC executives were arrested, even Mr. Deveshwar the serving ITC chairman was also interrogated several times by ED. ED investigated for 4 years but couldn’t find anything so they decided to press the formal charges in 2002. In the meantime, FERA was replaced by FEMA and the last date to file the press charges extant to May 2002. Since then ITC stock price has gone up 33 times.
ITC’s situation against KRBL’s is much bigger and KRBL’s problems just look like small hurdles of the race.
The Income tax department had raised a tax demand of Rs. 1270 Cr. for KRBL. The amount of Rs. 2221 Cr. is disallowed as expenses by the IT department, from this 1996 Cr. is the expense of purchasing the paddy from the farmers between 2010 –2017. Further in the article, KRBL justifies the expenses with some explanation and opposes the IT department’s judgment by saying that they have the proper receipts of purchase done in Uttar Pradesh.
In the span of 12 months, KRBL stays firm on their appeal, the tax demand of Rs. 1270 CR. was then reduced to Rs. 101 Cr.
In my opinion, there might be some small involvement of KRBL for routing of the crime money in VVIP chopper scam though nothing strong evidence has found by ED no judgments can be passed. There were many incidents happened with KRBL that sounds suspicious.
Article by Candor investing: Corporate Governance Issues at KRBL