Raids on Karti Chidambaram: What the CBI has not answered

The Central Bureau of Investigation on Tuesday raided 16 properties linked to Karti P Chidambaram, son of former Union Finance Minister P Chidambaram, in Chennai, Mumbai, Delhi and Gurugram. The raids are related to foreign investment clearances approved by the Centre’s Foreign Investment Promotion Board to media firms in 2007 during the United Progressive Alliance rule.

The First Information Report, which facilitated the raids, was filed in Delhi on Monday. The firms under scanner, INX Media Private Limited and INX News Private Limited, had Indrani Mukherjea and Peter Mukherjea as former directors. The two are currently in prison on charges of killing their daughter Sheena Bora in April 2012. Their bunglow in Mumbai was also raided.

Apart from the three, the FIR names Padma Vishwanathan as director of Advantage Strategic Consulting, “unknown officials” of the Ministry of Finance and “other unknown persons”. Chess Management Services, a firm in which Karti Chidambaram was a director during the alleged transactions, also finds a mention.

Officials aiding the CBI in the raids in Chennai said the FIR was the result of “three months” of investigation into the alleged transactions, which emerged during the “review of material” recovered from Indrani Mukherjea in the course of the probe into the Sheena Bora murder case.

The case is primarily based on two alleged illegalities:

1. The media firm obtained foreign funding multiple times higher than what was allowed and redistributed it to another firm for which it did not have approval. 
2. And that it used Karti Chidambaram’s links with his father to post facto clear these inherently illegal transactions.

Both the father and the son denied the allegations. P Chidambaram alleged that the Centre was targeting his son to silence his voice.

The plot

The Foreign Investment Promotion Board is an “inter-ministerial body, responsible for processing Foreign Direct Investment proposals and making recommendations for government approval”.

According to the FIR, INX Media approached the Board for foreign investment clearances on March 13, 2007. The investment was to be raised through allotment of shares to three companies – Dunearn Investments (Mauritius) Private Limited, NSR-PE Mauritius Private Limited and New Vernon Private Equity Limited. The shares were to be issued at a face value of Rs 10 each.

The foreign funding was sought to promote and run television channels in both English and regional languages.

In the application, INX Media also expressed its intention to allot 26% of the investment raised to INX News Private Limited and sought permission for the same.

According to the press release issued by the FIPB on May 30, 2007, a total FDI inflow of Rs 4.62 crore was approved. However, it disallowed the down stream financial investment of 26% that INX media sought to do to INX News and said a separate application had to be filed for such an allotment.

However, according to the FIR, the company went on to issue the shares, originally valued at Rs 10, at a premium of over Rs 800 for every share. This way, it managed to raise Rs 305 crores of FDI rather than the approved Rs 4.62 crore. Secondly, the company also completed the down stream financial investment of 26% to INX News without following the orders of FIPB to apply separately for such a move.

The role of Karti Chidambaram, according to the CBI, emerges here. After the Income Tax department, based on a complaint, raised questions on matter, the FIPB sought explanation from the INX Media for the alleged irregularities.

The FIR said INX approached Karti Chidambaram to fix the problem given that his father was the Union finance minister. Chess Management Services, in which Karti Chidambaram was a director, was roped in as “management consultants” to handle the FIPB.

INX Media sent a clarification to FIPB based on the advice of Chess Management Services. The CBI alleged that following the receipt of this clarification, the irregularities were ignored and post fact clearance for the down stream investment to INX News was approved. In this, a request from the Department of Revenue to investigate the matter was ignored. The FIR termed this post facto clearance of an inherently illegal transaction as a “deceitful and fallacious proposal” approved by the Ministry of Finance and P Chidambaram. No punitive action was initiated against the company.

Karti Chidambaram, the FIR argued, got kickbacks for helping INX Media at the FIPB. This was done through payments to the tune of at least Rs 3.5 crores to Advantage Strategic Consulting and other companies directly and indirectly controlled by Karti Chidambaram. Chess Management Services also received a payment of Rs 10 lakh for the management consultancy service it offered to INX Media.

Unanswered questions

While the CBI has named Karti Chidambaram and has gone after him with the raids, the investigating agency chose to remain mysteriously silent on the identity of officials, which it chose to mention as “unknown”.

According to the FIPB’s website, the board consists of the following officials:

•   Secretary to Government, Department of Economic Affairs, Ministry of Finance – Chairperson.
•   Secretary to Government, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.
•   Secretary to Government, Department of Commerce, Ministry of Commerce & Industry.
•   Secretary to Government, Economic Relations, Ministry of External Affairs.
•   Secretary to Government, Ministry of Overseas Indian Affairs.

Apart from the above mentioned, the FIPB can co-opt any secretary in the government to process an application.

Since the FIPB functions as a committee, any approval given by it has to be considered as a collective decision. The board’s website said “the Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs. 3000 crore. The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 3000 crore would be placed for consideration of Cabinet Committee on Economic Affairs (CCEA).”

When this is so, why the CBI chose to name Karti Chidambaram but not the officials who participated in the decision is a question that is bound to be raised. In fact, the FIR only names “unknown officials” of the Union Finance Ministry and not those of other ministries.

P Chidambaram himself pointed to this aspect when he said: “The five Secretaries who constitute the FIPB, the officials of the FIPB Secretariat and the competent authority in each case are the public officials. There is no allegation against any of them. There is no allegation against me.”

The former finance minister is clearly referring to the the FIR that doesn’t name him as an accused, though it mentions him in explaining the scam by pointing out that he happens to be Karti Chidambaram’s father.