There is more to the INX Media case than what newspapers say

And more to Indrani & Peter Mukherjee than Karti Chidambaram. A 2013 SFIO report, publicly available, recommended criminal proceedings against RIL officials & Niira Radia in the News X sale

The partnership between Peter Mukherjee and his wife Indrani certainly went beyond the running of a television channel. It was also not just about the brutal murder of Sheena Bora, the latter’s daughter from her first marriage. That the CBI, which set out to investigate a homicide, managed to suddenly deviate from the probe and unearth a tale of bribery and political corruption involving Karti Chidambaram, son of then Finance Minister P Chidambaram, and perhaps the minister himself, is evidence of this.

The Mukherjees were a power couple who, the CBI informs us, pulled strings to get their media company (INX Media), which also ran the News X channel, off the ground. They also dealt in high finance. Among the maze of companies involved in the setting up of the media group of the Mukherjees in 2006 and its highly questionable sale in 2009 was Reliance Industries Ltd (RIL), several of its group companies, lobbyist Niira Radia and the Mauritius-based investment firm, New Silk Route, founded by Rajat Gupta and Raj Rajaratnam found guilty of insider trading charges in the US.

In 2013 the Serious Fraud Investigation Office (SFIO), which comes under the Ministry of Corporate Affairs, investigated the sale of News X. Its report was submitted to the government in January 2014 recommending the prosecution of senior RIL officials as well as Indrani and Peter Mukherjee, Niira Radia and others under various Sections of the Indian Penal Code (IPC) for the “fraudulent” sale of News X and INX Media.

The conclusions drawn by the SFIO in its report which is in the public domain has this telling bit. To quote: “Going back to the issue of the sale of News X, from the evidence emerging, the group which was behind causing wrongful loss to the companies, namely M/s INX Media Pvt Ltd and M/s IM Media Pvt Ltd and an equivalent gain to M/s Indi Media Company Pvt Ltd is the Reliance Group.”

The report goes on to add that those from RIL who were involved in the sale are “liable to be prosecuted under Section 415 read with Section 418 of IPC for causing wrongful loss of Rs 43, 81, 10, 298 to M/S INX Media Pvt Ltd and of Rs 124,69,29 533 to M/s IM Media Pvt Ltd and an equivalent wrongful gain of Rs 168,50, 39,831 to M/s Indi Media Company Pvt Ltd with a dishonest intention to cheat.”

The probe conducted by SFIO made news thanks to editor and business journalist Paranjoy Guha Thakurta. His two-part series in November 2013, carried by the media website The Hoot, focussed primarily on RIL’s role in the INX Media/News X sale. The SFIO report now merits a revisit, given the current focus on the Mukherjees and their ill-fated media venture.

Investigations into the sale of News X has so far not figured prominently in the CBI’s probe. However, the manner in which the Mukherjees got Foreign Investment Promotion Board (FIPB) clearance to get Foreign Direct Investment (FDI) for their project – allegedly with the help of Karti Chidambaram – seems to be its present priority relegating the murder case to the backburner. Ironically, it was P Chidambaram as Finance Minister who had cleared the SFIO probe into the sale of INX Media and News X, a case which has now come to haunt him and his son.

Complex multi-layered deal

So, what was the INX Media/News X-Reliance controversy all about? Like most financial frauds it is a complex multi-layered story which began with the Mukherjees starting INX News Pvt Ltd, a company incorporated in 2006. It launched the News X channel in 2008. Initially Indrani Mukherjee was the major shareholder in the company.

Subsequently, two outfits – IM Media Pvt Ltd and INX Media Pvt Ltd were floated by the Mukherjees with alleged covert financial inputs from Reliance group companies in the form of convertible loans. By 2009 both these entities, with IM Media Pvt Ltd in the lead, owned majority shares in INX News Pvt Ltd which ran News X.

Of the two companies, INX Media Pvt Ltd later attracted the attention of SFIO investigators. It was incorporated in 2007-2008 by the Mukherjees as a future entertainment platform and attracted close to 50 % investment from a consortium of private equity investors led by New Silk Route. However, the single majority shareholder in this company was IM Media Pvt Ltd (which was later renamed as Saraswati Media Pvt Ltd).

Within months of its launch, News X ran into trouble. Journalists complained of gross mismanagement and funnelling of funds. They even approached then Information & Broadcasting (I&B) Minister Priya Ranjan Dasmunsi demanding an investigation. He passed on their petition to Finance Minister P Chidambaram for action. Meanwhile, CEO and Editor Vir Sanghvi and a few senior editors walked out of the fledgling channel in protest. The buzz in the market was that News X was on sale.

That Reliance had a well concealed role to play in the media venture floated by the Mukherjees was not known even in media circles. It came to light only after tapped phone conversations between corporate lobbyist Niira Radia, a consultant to RIL, and Jehangir Poccha, the new editor of News X, established that Reliance was funding News X, even releasing payments for the day to day operations of the channel. This made the Income Tax authorities, who were investigating Radia and had ordered the monitoring of her phones, sit up and take notice.

In fact, it was conversations in the Radia Tapes that led the SFIO to summon KR Raja, Senior Vice President of RIL, to determine the exact role of his company in News X. His statement revealed the following which has been detailed in the SFIO report:

*INX Media Pvt Ltd and IM Media Pvt Ltd – which had 26% and 62.90 % shares in INX News Pvt Ltd (which owned News X) – were funded by “Private Companies” of Reliance.

*That he (Raja) was in constant touch with New Silk Route’s representatives in India. He claimed that they had approached him for advice on how to exit News X after its sale was completed. But SFIO discounted his version and recommended a probe into RIL’s links with the Mauritius-based investor.

The Sale of News X

It was on January 7 2009 that News X was sold with ownership passing on to Indi Media Company Pvt Ltd, a firm incorporated two months earlier in November 2008. It was co-founded by Jehangir Pochha, former editor of Businessworld and Vijay Chajjilani, promoter and CEO of the Madhya Pradesh based-daily Nai Duniya. According to the SFIO report, Nai Duniya was “portrayed” as promoted by Chajjilani but was actually “funded by Aarthik Commercials Pvt Ltd, a RIL company.”

The sale of News X was what raised red flags for the SFIO investigators. What they saw suspicious was the blatant fraud involved. Indi Media Pvt Ltd had picked up 92 lakh shares of INX News Pvt Ltd at a paltry sum of Rs 10 each. This was on a day when the share was priced at Rs 208. 24! The sale led to the loss of Rs 168.50 crore to INX Media Pvt Ltd and IM Media Pvt Ltd.

The SFIO report had this to say about the sale: “It is important to highlight that the cost of purchase of shares between March 2007 (Rs 208.23 per share) and January 7, 2009 (Rs 208.24) differs only by a decimal, that is Rs .01 only. However, when the shares were sold on January 7, 2009 the share price was taken at Rs 10 per share. There is no reason to show such a sudden decline in the share price by Rs 198 per share, especially when the company is not listed on the exchanges.”

The entire masterplan from the beginning as pieced together in the SFIO report was this:

* Promoter group companies of Reliance first advanced funds in the guise of convertible loans (a short-term loan that converts into equity) to acquire stake at a high price in INX Media and IM Media Pvt Ltd. The two companies in turn become majority shareholders in INX News Pvt Ltd which was operating the News X channel.

Investigation revealed that funds had been moved through a maze of companies from “Reliance Gas, Ornate Traders Pvt Ltd, Reliance Explorations and Reliance Extrusions” to make investments in INX News Pvt Ltd.

* Indi Media Company Pvt Ltd which acquired equity from INX Media Pvt Ltd and IM Media Pvt in 2009 at Rs 10 per share was advanced funds by Aarthik Commercials Pvt Ltd, a Reliance Group company.

After studying the transactions, the SFIO report concluded that, “the buyer and seller were one and the same group, that is, Reliance. The maze of companies and web of fund movement was created only to hide the identity of the group and to induce losses in the hands of INX Media Pvt Ltd and IM Media Pvt Ltd and gains at the hands of Indi Media Pvt Ltd as per a premeditated plan..."

The report also points out that a “thorough investigation” is called for into the links between New Silk Route and RIL. Following the sale of News X to Indi Media Company Pvt Ltd, the Mauritius-based investor did not exit from INX Media Ltd which was renamed 9X Media Pvt Ltd. Instead, New Silk Route became the majority stakeholder in the company with 79. 38 % equity. This would not have been possible if INX Media had stake in News X since FDI limits did not allow more than 48 % investment in media news channels although 100 % FDI was allowed in entertainment media.

By organising the sale of News X to Indi Media Company Ltd (funded by the Reliance Group), New Silk Route was allowed what the SFIO report describes as a “marching entry” into INX Media Pvt Ltd suitably renamed as 9X Media.

Very clearly, there’s more to the News X deal and the Mukherjees than meets the eye.

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