The murky details of the Essar diaries.... - MoneyLife

The Essar diaries, which are part of an affidavit filed by the Centre for Public Interest Litigation (CPIL) in the Supreme Court of India provides a rare peek into the way influence-peddling by crony capitalists actually works in India. The leak of internal emails by a whistleblower reveals that the top secret Union Budget details were available to Essar in 2012. And why not? The group has enormous funds earmarked to buy these favours. For instance, the emails reveal that Gulfstream jet was sent to Trinamool Congress leaders, including chief minister Mamata Banerjee and a few journalists, at the behest of president Pranab Mukherjee for his swearing-in ceremony.

They indicate that Essar was able to influence the pricing and tax policies of the petroleum & national gas ministry under Veerappa Moily. This is corroborated by a separate investigation and arrests in the ‘corporate espionage’ scandal about purchase of stolen classified documents from the petroleum ministry.

By now it is widely known that the Essar group runs a large public relations (PR) operation to keep key journalists-cum-fixers happy. It generously opened its purse strings to fund a global ‘think-fest’ by Tehelka allegedly as a quid-pro-quo for killing a story against it.

Yet, when successive Reserve Bank of India (RBI) governors express concern at the mountain of bad loans in the system, there is rarely any attempt to plug the brazen manipulation of the system for personal aggrandisement. At the height of Essar’s problems in 1999, the chairman of Bank of India (BOI) sanctioned a fat bailout to a group company on the eve of his retirement. Two months later, he joined the group as an advisor at a fee that was a multiple of his last salary. RBI chose to look the other way and asked no questions.

Soon, every other institution fell in line and wrote off several thousand crores of rupees worth of loans and overdue interest to several group companies.

Again, when Essar Steel defaulted on $250 million floating rate notes it had issued in 1994, it tried hard to force the government to bail it out as though it were a quasi-sovereign default. This was in 1999. Eventually, bondholders received only 24% of the face value of their investment.

One of Essar’s strategies to minimise the public impact of its financial problems is to de-list companies at a low buyback price when there is no more scope to raise funds. In 2010, Essar Energy Plc was listed on the London Stock Exchange at 420p a share.

In 2014, the group bought back the 22% public shareholding at 70p a share, unfazed by the angry backlash. It attempted to de-list Essar Oil and even sent notices to the Indian stock exchanges. Essar Shipping and Essar Ports had also informed stock exchanges that they had the required board approvals to de-list their shares. The group’s shareholders know that Essar Steel was controversially de-listed in 2007 at a low Rs48 per share. Today, when it owes Rs30,000 crore, lenders cannot even hope for an upside by converting loans to equity if commodity prices revive.

The Essar diaries, and leaks, pertain only to a small recent phase, but provide an insight into how this well-oiled system of influence has worked for the past 30 years.  Essar had struck gold with its investment in telecom and had a real chance of cleaning up its act. Instead, it only used it to start borrowing heavily again and run up even bigger debts from Indian banks and institutions.

In fact, telecom and the 2G scandal is the first time that group chairman Ravi Ruia and his nephew Anshuman Ruia are personally facing trial along with several top employees and their three telecom firms—Loop Telecom, Loop Mobile India and Essar Tele Holding. Ravi Ruia, now needs court permission to travel abroad and, on 24th May, an irritated judge asked him not to waste the court’s time with repeated and causal requests for permission.

At the end of April this year, a consortium of 24 banks has a massive exposure of Rs30,000 crore to Essar Steel alone. In May, HDFC Bank decided to take a hit and sold Rs550  crore of its outstanding debt to Edelweiss Asset Reconstruction at a 40% discount. This is a loss of Rs200 crore.

Bank of India’s auditors have asked it to classify its Rs500-crore exposure to Essar Steel as a bad loan. Among its major lenders, State Bank of India (SBI) has an exposure of Rs8,000 crore to Essar Steel and ICICI Bank has an exposure of another Rs6,000 crore.

 Essar Steel’s outstanding of Rs30,000 crore is after it was made to raise Rs4,850 crore through a sale of assets and the promoters were made to pump in Rs1,300 crore under pressure from lenders. It is interesting to note that the money that was allegedly brought in by the promoters is twice its meagre net profit of Rs648 crore in the past financial year.

When the group’s strategy itself is to live off public funding, its financial problems are not limited to Essar Steel. Essar Shipping is also making losses and has reported a consolidated net loss of Rs159.69 crore for the quarter ending 31 March 2015. Essar Ports is also out there seeking relaxed loan terms from its bankers on its existing Rs6,000 crore outstanding to banks and wants money for a fresh investment of Rs3,000 crore.

This does not include the undue benefits running into hundreds of crores of rupees that ‘friendly’ officials gave the group over the years. Here is only one instance. A 2013 report of the CAG (comptroller and auditor general of India) on public sector undertakings lists multiple counts on which Gujarat Petronet officials favoured the group and passed on undue benefits running into hundreds of crores of rupees collectively to Essar group companies—Essar Steel, Essar Power Gujarat Ltd. The amount was over Rs650 crore.

For over a year now, Care Ratings has had a ‘default’ rating on Essar Steel but do you hear the government ordering a forensic audit into how the funds were used or diverted? Any such order can only be an outcome of the Supreme Court litigation filed by CPIL. That Essar’s outstandings can wreck the profits of major banks ensures that they are again working at ‘restructuring’ its loans with tacit support from the government. This is a sordid story of crony capitalism, first leeching off public shareholders and then public sector banks.

The Modi government claims to be keeping businessmen at arm’s length. Prime minister Narendra Modi told a newspaper a few months ago that “my government will make policies, if you fit into it, come on board, or stay where you are. My job is not to spoon-feed anyone.” It is ironic that public sector banks, owned by the government, are continuing with impunity to work at bailing out businesses houses like Essar.

Author- Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism.
Source- http://www.moneylife.in/article/what-the-essar-diaries-mean/42144.html

The Hindu : Opinion / Lead : India’s benign constitutional revolution

The Hindu : Opinion / Lead : India’s benign constitutional revolution:


How ‘We the People’ came to be the source of authority of the Constitution

This is the story of how and why the framers of the Constitution of India deliberately designed a procedural error in the adoption of the new Constitution with a view to severing the seamless transition of legal authority from the British Crown-in-Parliament to the new Republic of India. The deliberate procedural error consisted in a deviation from the Constitution making procedure prescribed by the Indian Independence Act, 1947 — the law enacted by the British Parliament granting India independence and formally authorising the Constituent Assembly to draft a Constitution for the newly liberated state. To be sure, the framers of the Constitution of India were not the first, and indeed they were not the last to deliberately incorporate such procedural errors in the process of Constitution making. The founders of the Constitutions of several other states including Ireland, Pakistan, Sri Lanka and Ghana, which were being liberated from the British Empire, took such a step. In doing so, they were all motivated by the same goal: that of ensuring constitutional ‘autochthony.’


CONSTITUTIONAL AUTOCHTHONY

The etymological roots of ‘autochthony,’ which is not to be confused with ‘autonomy,’ are to be found in the Greek autos (self) and chthon (earth). The goal of constitutional autochthony is to deliver an indigenous Constitution, the source of whose ‘authority’ can be located in the new state’s own soil. The dominant academic view in the middle of the 20th Century was that autochthony could not be achieved simply by drafting an original Constitution or verbally invoking We the People as the source of its authority, for autochthony does not so much concern the content of the Constitution as its pedigree: the chain of legal validity authorising it.


This proposition found doctrinal support in the influential theory propounded by the legal philosopher, Hans Kelsen, which had it that it was inconceivable for a legal system to split into two independent legal systems through a purely legal process. One of the implications of Kelsen’s theory was that the basic norm (grundnorm) of the imperial predecessor’s Constitution would continue to be at the helm of the legal system of the newly liberated former colony despite the legal transfer of power, precisely because the transfer of power was recognised as ‘legal’ by the Constitution of the imperial predecessor.

On Kelsen’s account, only an ‘unlawful’ or ‘revolutionary’ act could ensure an autochthonous Constitution by rending asunder all continuity with the imperial predecessor.
Such break in legal continuity is automatically achieved where a former colony’s independence is won as the result of an armed revolution, as was the case with the United States of America. Independence in such instances is not granted ‘legally’ by the Crown-in-Parliament and the Constitution of the newly liberated former colony is in no way authorised by the imperial predecessor. The situation is very different where independence of a former colony is not brought about by armed revolution, but is ‘legally’ granted by the imperial predecessor. This was the case with India, Pakistan, Ireland, Sri Lanka and Ghana whose independence was the result of the British Crown-in-Parliament’s enactment of separate statutes of independence (Independence Act) for each of them. The statutes of independence also set up Constituent Assemblies authorising them to draft new Constitutions for each of these States. Following the constitution-making procedure stipulated in the statute of independence would have meant that the validity of the new Constitution could ultimately be traced to an imperial grant. The mere verbal invocation of We the People as the ‘source’ of authority in such cases would have rung hollow, apart from being jurisprudentially implausible since the source of authority of the new Constitution would continue to be the imperial predecessor’s Constitution. In such cases, it was thought that since there was no ‘revolution,’ one had to be deliberately made up in order to secure an autochthonous Constitution. Accordingly, as John Finnis argues, the framers of new Commonwealth Constitutions took great care to do something illegal “so as to make up a revolution, however contrived.”
IRISH INFLUENCE

The Irish were the pioneers in conceiving the idea of a benign legal revolution geared towards constitutional autochthony. Ireland was granted independence under the Irish Free State Constitution Act, 1922 enacted by the British Crown-in-Parliament which also authorised the Irish Constituent Assembly to draft a Constitution for the newly liberated state. Thus, the Irish Constitution of 1922 was not autochthonous.
Though it was drafted by an indigenous Constituent Assembly, its chain of legal validity could be traced to an imperial statutory grant. With a view to changing this state of affairs, in 1937 the Irish Parliament amended the Constitution by deliberately violating the procedure for amendment stipulated in the 1922 Constitution and put the amended Constitution for acceptance in a referendum. Going one step further, the Irish Parliament also repealed the Irish Free State Constitution Act, 1922 enacted by the British Parliament, though it was not empowered to do so. It is widely accepted that this successfully severed the chain of validity with the Crown-in-Parliament and ensured a truly autochthonous Constitution. The framers of the Indian Constitution appear to have rehearsed the Irish route to autochthony to the extent possible in Indian conditions.
Independence was formally granted to India by the Crown-in-Parliament’s enactment of the Indian Independence Act, 1947 though the executive decision to grant India independence was arrived at earlier in the Cabinet Mission Plan (1946). It was under the Cabinet Mission Plan that the Constituent Assembly was envisaged and charged with the mandate of drafting the new Constitution for India. This was legally recognised in Section 8 of the Independence Act. The Cabinet Mission Plan had envisaged that the new Constitution would be put to the Crown-in-Parliament for approval. Though the Indian Independence Act did not reiterate this requirement, it did specify that the new Constitution drafted by the Constituent Assembly would have to receive the assent of the Governor General of India, who would assent to such law in the name of the British Crown.
The framers introduced two deliberate procedural errors in the enactment of the Constitution of India in violation of the Independence Act: a) They did not put the Constitution to the approval of the either the British Parliament as envisaged by the Cabinet Mission Plan or the Governor-General as envisaged in the Indian Independence Act 1947; b) Following the Irish precedent, Article 395 of the Constitution of India repealed the Indian Independence Act — something the Constituent Assembly did not have the authorisation to do. In doing so, the framers not only repudiated the source which authorised them to enact the Constitution but it was also a denial, albeit symbolic, of Indian independence being a grant of the imperial Crown-in-Parliament. This ensured that the chain of constitutional validity did not extend all the way to the Crown-in-Parliament, thus delivering a completely autochthonous Constitution. In this fashion, We the People, through the members of the Constituent Assembly, came to be the ‘source’ of authority of the Constitution, rather than the authority being traceable to the Indian Independence Act enacted by the British Crown-in-Parliament.

WHY DID IT MATTER?

This quest for autochthony is likely to come across to some as an abstruse quibble that shouldn’t concern anyone other than the most pedantic legal theorists. There were, however, two reasons why the framers of new Commonwealth Constitutions felt constrained to pay such close attention to it. Firstly, it was feared that the British Crown-in-Parliament could, however improbably, reassert its authority over the newly liberated state by repealing the statute of independence and abrogating the new Constitution. There was, of course, no immediate apprehension of the British taking such a step. All the same, the framers of new Commonwealth Constitutions would have found, as Geoffrey Marshall notes, merely prudential reassurances to be precarious pegs to hang their nation’s independence on. Secondly, for sentimental considerations, the framers would have been loath to let the new Constitution be grounded in an imperial grant or be assented to by the British Crown. They would have wanted the new Constitution to be truly autochthonous, stemming from the authority of We the Peopleso that an independent future could, albeit symbolically, be insulated from a troubled imperial past.
(Shivprasad Swaminathan is Assistant Professor, Jindal Global Law School)

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