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Coalgate Witch-Hunt

Monday, October 21, 2013

India Inc is shocked, antagonized and alarmed after an FIR was filed against industrialist Kumar Mangalam Birla and former coal secretary PC Parakh on charges of criminal conspiracy. There is also a feeling that with repeated episodes of a trust deficit between Industry and Government, business sentiment and the investment environment would be vitiated and the country could slip further from the growth trajectory that is so necessary for India to maintain. Mayura Shanbaug reports...

By registering an FIR against industrialist Kumar Mangalam Birla and former coal secretary PC Parakh on charges of criminal conspiracy and misuse of official position over alleged irregularities in the allocation of coal blocks, the Central Bureau of Investigation (CBI) has stirred a hornet’s nest.

It has not only antagonized and alarmed India Inc, but also marred business sentiment in the country at a time when the overall sentiments and the economy are at an all time low. The news not only had an impact on the share markets but also on the confidence of foreign investors doing business or wanting to invest in India. And in an irony of sorts, the CBI’s action comes at a time when Indian firms have been judged for the best performance among emerging market economies in terms of transparency in corporate reporting by the anti- corruption watchdog Transparency International.

The CBI had booked Birla as a representative of the Aditya Birla Group and his company Hindalco, one of the biggest producers of primary aluminum in Asia, for alleged corruption in the allocation of the Talabira II coal blocks in Odisha which was allotted to it on November 10, 2005. The CBI may be doing its job in probing all the companies involved in the coal mining operation or allotment done during a period of 1993 to 2008. A Standing Committee report had suggested that allocation of all coal blocks between 1993 and 2008 was unlawful, seeking licenses of those mines where production hadn’t started to be cancelled, in effect indicting both the NDA and UPA regimes.

But “Dragging a well-known industrialist into this will certainly be seen as a deterrent for investment,” said Chairman of the Godrej group, Adi Godrej in an interview on television. “Hindalco owns only 15 % of that company. It doesn’t control that company. And just because some coal block reserved for public sector is partially allocated to private sector, there’s nothing wrong with that. It was done by the government. So I think it’s a bit ridiculous. It spoils sentiment, it spoils perception,” added Godrej.

Birla also found strong support from Deepak Parekh, Chairman, HDFC.

Describing Birla as "clean as a whistle", and one who has always walked the straight line, he said the move was "shameful". "I can give you examples of dozens of people who have defrauded investors, shareholders and banks and continue to walk free. You are scaring business out of the country, this is why industries are looking outside," Parekh said.

"Is the government aware of what is happening at the ground level and the way regulatory bodies are behaving? Whether it is the CBI or the EOW, there are far bigger fish in the water," he said.

Naina Lal Kidwai, President FICCI & Country Head of HSBC India, agrees that the key to sustaining economic growth and promoting development is good governance and quality decision making.  However, “In the recent past, we have been witness to some very unfortunate developments.  We find that cases are being registered against top bureaucrats and industry icons.  It goes without saying that such developments dent the national psyche and also dampen investor confidence; both domestic and foreign,” Kidwai said.

“There is also a feeling that with repeated episodes of a trust deficit between Industry and Government, the business sentiment and the investment environment would be vitiated and India could slip further from the growth trajectory that is so necessary for us to maintain,” she added.

According to CBI, the charges relate to criminal conspiracy and corruption in the allocation of a captive coal block in 2005 in Orissa, which was primarily meant for public sector firms. The investigation agency has alleged that the block was allocated to Neyveli Lignite and Mahanadi Coalfields (both PSUs) in 2005 but sometime in the middle of the year Birla met Parakh after which the earlier decision of the screening committee was overturned and Hindalco was also accommodated along with the two.

The CBI claims Hindalco did not meet the criteria for being awarded a mining lease, but the AV Birla Group, on its part, has strongly denied the charges stating that every process stipulated under the coal allocation policy by the government were followed.

The CBI has so far lodged 14 cases against individuals and firms including other high profile industrialists like Naveen Jindal and his company JSPL, Kumaramangalam Birla, Congress MP Vijay Darda and his brother Rajendra Darda, JLD Yavatmal Energy Limited, AMR Iron & Steel Private Limited, Vini Iron & Steel Udyog among others.

Incidentally, Hindalco Managing Director Debu Bhattacharya has clarified in a statement that the application for the Talabira II mine (for which CBI filed the FIR) was made in 1996 by Indal, the Indian subsidiary of Alcan, the Canadian aluminium major. Indal was acquired by Hindalco in 2000, which subsequently pursued the matter. “The reality of the matter is very different from what has been projected… The actual allocation of the mine was done in November 2005, which is nine years after the first application was made,” said Bhattacharya, adding that Hindalco made several representations to the government, but only through “formal channels”.

“To imply that our Chairman, Kumar Mangalam Birla, managed to overturn the decision of the screening committee is preposterous. The truth of the matter is that the Talabira II and III mines together have been finally allotted jointly to Mahanadi Coal Fields and Neyveli Lignite, both public sector undertakings, with Hindalco having only a 15% stake in the joint venture,” explained Bhattacharya.

However, Kris Gopalakrishnan, President, The Confederation of Indian Industry (CII) said that it is absolutely within CBI’s rights to proceed against any person to ensure that the law of the land is preserved, irrespective of the stature of the person. “It is desirable though to ensure that all facts of the case are laid upfront before proceeding against respected and reputed individuals,” he said.

Commenting on the underlying issue of allocation of natural resources, Gopalkrishnan feels that there is no one method which applies to all natural resources, when it comes to pricing and allocation.

“However, every effort must be made to ensure that the process followed for a particular kind of natural resource ensures that there is no human discretion possible, even while ensuring that the national interests are given supremacy. The process of coal block allocation has to be such that there is no scope for discretionary decision making,” he added.

Government in damage control mode….
Looking at the backlash of CBI’s action, the government has swung in damage control mode. According to reports the Prime Minister Manmohan Singh had asked Chidamabaram and Commerce and Industry Minister, Anand Sharma to reassure the industrialists that the government is not against them.

 Finance Minister P Chidamabaram met Birla recently. According to reports during the meeting which lasted for about half-an-hour, in which the Aditya Birla Group Chairperson is believed to have told the finance minister that he has done nothing wrong.

“I am not worried about the FIR... I have done nothing wrong but I cannot comment on it now. Life moves on,” Birla said after coming out of the chamber.

Birla may move on after this incident but this incident has put forth many unanswered question about transparency of government machinery, conducive business climate of this country, India’s reputation amongst Indian as well as foreign investors, and over enthusiasm of investigating agency.  

What needs to be done to restore confidence is as Gopalakrishnan puts it correctly. “Every effort should be made to ensure that there is no atmosphere of fear created, when it comes to decision making. Swift decisions and transparent policy environment are pre requisites of an enabling business climate. This is best done if the Government and Industry work together,” he said.

I am not worried about the FIR...
I have done nothing wrong but I cannot comment on it now. Life moves on…
 - Kumar Mangalam Birla,
Chairman, Aditya Birla Group

“It is desirable though to ensure that all facts of the case are laid upfront before proceeding against respected and reputed individuals… Every effort should be made to ensure that there is no atmosphere of fear created, when it comes to decision making.
 - Kris Gopalakrishnan
President, CII

“The reality of the matter is very different from what has been projected… The actual allocation of the mine was done in November 2005, which is nine years after the first application was made.”
 - Debu Bhattacharya
Managing Director, Hindalco

“In the recent past, we have been witness to some very unfortunate developments.  We find that cases are being registered against top bureaucrats and industry icons.  It goes without saying that such developments dent the national psyche and also dampen investor confidence; both domestic and foreign.”
 - Naina Lal Kidwai
President , FICCI & Country Head, HSBC India

"Is the government aware of what is happening at the ground level and the way regulatory bodies are behaving? Whether it is the CBI or the EOW, there are far bigger fish in the water”
 - Deepak Parekh
Chairman, HDFC

“Hindalco owns only 15 % of that company. It doesn’t control that company. And just because some coal block reserved for public sector is partially allocated to private sector, there’s nothing wrong with that. It was done by the government. So I think it’s a bit ridiculous. It spoils sentiment, it spoils perception”
 - Adi Godrej
Chairman, Godrej group

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