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Against fraud? Or against freedom, Mr Roy?


The government has finally acted against Mr and Mrs Prannoy Roy and NDTV Ltd for fraud and deceit, which has been the subject matter of litigation in courts. Before the high financial rise of NDTV began, one must remember that when the UPA assumed office in 2004, NDTV had a huge cash loss of Rs 248 crore. It had no funds even to pay salaries, and its shares were trading at less than par. Its fortunes soared after the UPA came to power, and it received funds through a host of shell companies floated by it after 2004.

Tax evasion, suspected money-laundering

Between 2006 and 2010, NDTV India floated some 20 wholly-owned subsidiaries in different parts of the world – seven in Mauritius, eight in India, two in the Netherlands, one in London, one in UAE, and one in Sweden. All of them were letter-box companies, resting only on the valuation of NDTV Ltd. These subsidiary companies raised $417 million. Of this, $310 million was raised through a wholly-owned subsidiary, NDTV Network PLC UK, and $117 million through the sale of the channel NDTV Imagine to GE Corporation controlled by Universal Studios – all through private negotiation and private placement. Out of the $417 million, $267 million was invested by GE Corporation directly or indirectly. Just a reference to the emails obtained by the Income Tax authorities shows how the Roys and the other directors of NDTV were struggling to camouflage the huge monies received, not knowing how to camouflage the funds before the tax authorities. All this happened in 2008.

E-mail dated 22.05.2008 at 3.06 P.M. by Vivek Mehta from Price Waterhouse Coopers to Pronnoy Roy: “Subject: Re: FW: Pres Announcements etc “Dear Pronnoy, Here is a shot at it, based on your draft appreciate your problems but honestly the problem could become worse if we give a handle to the tax authorities. I am concurrently discussing with other partners now the draft below. Let’s get on a call ASAP, Regards Vivek”.See the warning about giving a “handle to the tax authorities”.

E-mail dated 21.05.2008 at 10.16 P.M. (by Vivek Mehta from Price Waterhouse Coopers to Pronnoy Roy): “Subject: Press Announcements etc. Dear Pronnoy & all above. Now that we are reaching the conclusion I wanted to remind everybody that all press releases… stock exchange releases etc etc both by NDTV & NBCU should be whetted by us. We must ensure that what is stated is that NBCU is subscribing for a sum of & 150 m in NDTV Networks group company Overseas for an effective 26 percent stake. We must not mention that NDTV is receiving the 150 m as dividend or otherwise. If asked a question what will the money be used for??? We need to decide how to answer this question carefully. Thanks Vivek”.

Note the caution “not to mention NDTV is receiving 150m as dividends or otherwise”. Even the question what the money will to be used for will have to be answered carefully.

E-mail dated 22.05.2008 at 02.09 P.M. (by Pronnoy Roy to Vivek Mehta from Price Waterhouse Coopers): “Subject: Re: FW: Pres Announcements etc. For everyone …..this is very important…Could we please have a draft press release Vivek….which we can use & send to nbcu……If possible, it’s important that the press release should make clear that the money comes in to NDTV and does not stay in Networks”.

Note the caution that “the money comes to the networks [subsidiaries] but does not stay there.”

E-mail dated 22.05.2008 at 3.06 P.M. (by Vivek Mehta from Price Waterhouse Coopers to Pronnoy Roy). “Subject: Re: FW: Pres Announcements etc Pronnoy….I need to start with a base draft…can somebody give that to me. Your second requirement is something I would avoid saying…. let’s discuss after I have seen the base draft. BR Vivek”

Note that Prannoy Roy’s second requirement would be avoided in drafting the press release.

E-mail dated 22.05.2008 at 05.30 P.M. (by Radhika Roy to KVL Narayan Rao). “Subject: Re: FW: Pres Announcements-Final? Dear Narayan, But this doesn’t really address prannoy’s concerns arising from our earlier communication and it would be a pity to miss this opportunity to correct any misconceptions. Just to remind you Prannoy’s four points below: 1. Everyone thought the money was to be put into Networks….As a result we got no shareholder value for the Rs. 600 crs in NDTV. 2. It’s very important to state that the money is not in Networks…. But in NDTV…. As this affects the valuation analysts give to the deal…. And it’s a big boost if they know it’s not in Networks and it is in NDTV…. I know we can’t say stake sale (which it is not anyway)… But we do need to clarify that the money is not in Networks”

Notice Radhika Roy saying what Prannoy had said in the earlier mail which PWC did not favour.

The mails disclose a clear intent to camouflage the money. The fraud is self-evident, pre-meditated, exposed in their own mails. The tax authorities have rightly taxed the investments as income from undisclosed sources. This opens the possibility of action for money laundering. NDTV tried its best to overcome the department’s case. But finally the Delhi High Court has upheld the assessments.

Throughout the UPA regime, NDTV refused to disclose the identity of the investors in its shell subsidiary companies. It would not even attach the foreign subsidiary’s balance sheet as required by law. It took the permission of the Company Law Department of the UPA government not to attach the balance sheet. By this process it kept out of its balance sheet the entire investment of $310 million in its London shell subsidiary which shared an office with some 3000 companies with a common address. The UK company was voluntarily wound up by saying that it had no liabilities. Its own bond liability of $100 million plus interest of $20 million was settled by paying $72 million. The NDTV would not disclose to the tax department the identity of the investors or the refinanciers. The net result of the funds funnelled into NDTV through the shell companies outside was tax evasion of $417 million and suspected .

The Indian side

Leaving aside the complicated financial structure, on the Indian side, a Mukesh Ambani company gave a virtually interest-free loan to another company for acquiring 26 per cent of NDTV shares for Rs 403 cr. The zero-interest bond is then transferred to another company belonging to Himachal Furturistic Group for Rs 50 crore — with the Ambani company incurring a loss of Rs 353 crore and claiming it as tax expense. Why should Ambani incur this loss for NDTV? Is it to fund the freedom that NDTV is talking about now or to buy it? While the Ambani company purchased 26% NDTV shares for Rs 403 crore after valuing NDTV at Rs 1440 crore, it sold the same to Nahata of Himachal Futuristic who bought the 26% shares of NDTV for Rs 50 crore at a total valuation of Rs 192 crore. See the differing valuations. NDTV valued itself before the tax authorities at Rs 10000 crore. It was valued at $2 billion by GE Corporation USA for one investment and at $200 million for another. The Navin Jindal group and Agarwal Agro Tech group bought 15% of NDTV shares for Rs 26 crore on a value of Rs 173 cr. NDTV valued itself before SEBI at Rs 367 crore. Are these not indicative of huge valuation blues and tax issues?

It all started in 2006 — with P. Chidambaram colluding

It all started in 2006 — when UPA which was the ladder on which NDTV climbed to great heights. An honest and courageous tax official, S.K Srivastava happened to stumble on some crucial tips linking NDTV and P Chidambaram who was then the finance minister. He sought to investigate the intelligence which he had received to the effect that there was a payoff of Rs 5000 crore involving finance minister Chidambaram himself! Some unintelligent officer put it on record to recommend action against Srivastava. But they soon realised that if that were put on record then the officer could not be proceeded against. Therefore they suppressed or destroyed that file and created another file in which action was recommended against S K Srivastava for alleged misbehaviour with his colleagues. But the officer was a tough nut to crack and he took on the most vindictive finance minster of India at that time and perhaps of all time. He also found that a lady Income Tax official who was assessing NDTV had been in collusion with the TV channel, which employed her husband from 2003 to 2007 and provided pleasure trips to her and her husband.

This later became a subject of assessment of the lady officer and a reference to CBI for action. Srivastava also unearthed evidence pointing to huge tax frauds by NDTV. He moved to make a fresh assessment on NDTV, which led to the discovery of tax fraud of Rs 300 crore for six years. On 7.3.2007, S K Srivastava raised the Inspection Note setting out the details of the tax fraud, sent it to CCIT on 07.03.2007, who passed it on to the CIT on 13.03.2007. The CIT issued notice on 17.3.2007, set aside the assessments giving illegal benefit to NDTV on 29.3.2007 and the very next day, 30.9.2007, S K Srivastava was shocked to know that he was suspended by the finance minister Chidambaram himself instead of being rewarded for tracking and taxing a huge tax fraud by NDTV. This was how S K Srivastava’s unprecedented battle against the most powerful finance minister of UPA began. From then on it was a lonely battle by the tax official. During the next few years Srivastava had to face the worst harassment: a series of change sheets, suspensions, transfer, false allegations of sexual harassment by lady tax officials known to have the favour of the finance minister, corrupt attempts to get him declared as insane and what not.

He battled all this alone till he happened to meet me through the spiritual master Sri Sri Ravishankar in 2013. In this six-year period, despite all the harassment and persecution, Srivastava helped the tax department to fix the NDTV fraud worth hundreds of millions of dollars abroad – which the tax department began taxing even before the Modi government came to power. This is what the tax authorities said while taxing the fraudulent monies: “In view of the above facts and circumstance of the case, involving round tripping, involving such large variations in rates without any basis or valuation, the transaction lacks economic substance and commercial purpose and necessitates piercing the corporate veil.” While the tax officer proposed to tax Rs 642.54 crore, NDTV’s protest against it raised it to Rs 1406.25 crore. This was in 2013, when the UPA was in power, when NDTV’s freedom to defraud was safe.

Ran away when questioned

When Sanjay Srivastava explained and showed the documents to me, I wrote a note to Ram Jethmalani and explained the entire case against NDTV. Jethmalani then wrote a stinging charge sheet on the NDTV fraud to P Chidambaram in December 2013, also charging him with offences under various sections of the penal and anti-corruption laws for protecting NDTV and punishing Srivastava. Jethmalani had sent a copy of my note to Mr Prannoy Roy who contacted me through an editor friend of mine and said that he would like to respond to that with documents. When his response came I found that the documents he had enclosed in support of the investments were not reliable. I gave detailed reasons for rejecting the documents and standing by my letter to Ram Jethmalani.

Concluding, I wrote: “I stand by what I have said in my note which Sri Jethmalani had forwarded to you.” After that Prannoy Roy fell silent. He did not challenge me. He did not sue me. My note to Ram Jethmalani, Prannoy Roy’s letter to me and my final letter are available at this link:

Will Mr Roy speak now? Is the CBI acting against fraud or against NDTV’s freedom? You want freedom to camouflage the money? Freedom to suppress the subsidiaries’ balance sheet? Freedom from tax law inquiries? What is the freedom, the freedom that Ambani’s paid for?

By S. Gurumurthy

(The author is a well-known political and economic commentator)