When politicians and businessmen want to host funds abroad whose ultimate destination is India or Indians, their preference is for a Mauritius-based corporate structure called the protected cell company (PCC). A PCC is a cellular structured entity where each investor gets a separate cell, and the activities of one cell have no bearing on the activities on another. A PCC can thus have as many cells as needed, and each could belong to a different investor or investors.
Anil Ambani's vehicle for routing investments from Mauritius into Reliance Communications was Pluri Emerging Companies Cell E, a PCC. Sanjay Chandra, Managing Director of Unitech, a 2G scam accused who is currently out on bail, managed to "lose" $51 million by investing in a derivative instrument linked to the performance of Cell G in Pluri. Jagan Mohan Reddy, son of the late Andhra CM YSR and Accused No 1 in several Central Bureau of Investigation (CBI) chargesheets, allegedly received investments in one of his companies from two Mauritius-based entities linked to another PCC Cell. Jagan is currently in CBI custody in Chanchalguda jail.
What is there in a PCC that it is such a lure for domestic hot money? PCCs like Pluri Emerging Companies are umbrella 'management' companies that shelter individuals or companies that want to protect their identities from scrutiny. Which is why they are given mere alphabetical names like Cell A, B, C, etc. If the main company runs out of letters, it starts the process again with cells named 1A, 1B, etc.
2G scam accused Sanjay Chandra is being investigated for a $ 51 million transaction where the money was initially transferred to Unitech Overseas Ltd in the Isle of Man, a tax haven, through an order approved by the Unitech board of directors. Later, Unitech Overseas Ltd invested the entire money in a derivative product linked with the performance of Cell G of Pluri, according to Enforcement Directorate sources. However, the $51 million turned to zero in a few months, and, according to the CBI, Sanjay Chandra then issued a "comfort note" to his board saying that he would make up the loss.So who owned Cell G? And why did a derivative investment linked to Cell G vanish into nothingness?
Sanjay Chandra had bought this non-performing derivative product, a one-year yield enhancement certificate, on 3 January 2008.
The CBI, which is investigating the 2G scam, is looking at the dates and events linked to that period. Former Communications Minister A Raja had allocated spectrum licences to Unitech on 8 January 2008. To see if there was any linkage between Unitech's loss and the licence issue, it is in the process of issuing a Letter Rogatory (LR) to find the 'real' identity of Cell G's owner and the details of the $ 52 million investment.
In Jagan Mohan Reddy's case, his Sandur Power Company Ltd had sold 1,75,49,307 equity shares of Rs 10 at a premium of Rs 61 per share to two Mauritius companies, 2i Capital and PCC, during October-December 2005. 2i Capital is also known as a PCC Company.
Jagan Reddy raised Rs 124.60 crore from this deal. According to the CBI, Jagan used this money to float four more companies and also paid back his bank loans. Strangely, 2i Capital had appointed Jagan Reddy's family chartered accountant Vijay Sai Reddy as its representative in December 2005. After a year, he resigned as 2i Capital's representative and with this the company also disappeared. Later, Jagan Reddy apparently bought back the shares from the Mauritius companies at throwaway prices.
According to CBI, Pluri is not registered as a foreign institutional investor with Sebi.
In the case of Anil Ambani's Reliance ADA Group, Cell E of Pluri was created to invest in securities in Reliance Communications Ltd (RCom) through FII vehicles. A London-based UBS bank wealth manager provided the cover to camouflage the identity of Cell E.
"He (UBS wealth manager Sachin Karpe) proposed to use the Cell E investment structure to conceal the fact that this investment was in fact being made by Reliance ADAG. In order to achieve this objective he proposed to conceal the fact that Reliance ADAG was the ultimate beneficial owner of Cell E,'' the UK Upper Tribunal, the equivalent of India's Securities Appellate Tribunal, said in a recent order.
According to the Tribunal, the Reliance investors invested over $250 million in Cell E and this money was used to buy RCom shares and derivatives. UBS, a Swiss bank, even opened an account for Cell E at its Zurich branch. "RCom shares and derivatives (and other assets) were held on this account. At certain times, the value of these assets exceeded $ 400 million,'' the UK Court alleged.
While the details of Anil Ambani's and Sanjay Chandra's Pluri links emerged by accident, observers feel that the CBI is not going to get anywhere with its letter rogatory approach, not least because of the sheer delay in going after the money trail. As in Bofors, by the time the CBI gets its LRs and information, both the money and the identities could have disappeared.
The only way to get to the truth is by individuals like Prime Minister Manmohan Singh or Finance Minister Pranab Mukherjee using the power of their respective offices to get the information directly from Mauritius. But this is something they have not shown great eagerness for.
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Updated Date: Dec 20, 2014 08:47:48 IST