A Cobrapost Investigation unearths a Standard Chartered memo that states that the bank treated IP Khaitan’s monies as Ruia family monies. This tests the Khaitan claim that he had independent sources of monies while investing in Loop Telecom. The Khaitan Group, however, calls the memo fabricated and denies that they ever held money for the  Ruias.

 The Essar 2G case seems to getting into another loop. The CBI in its final arguments before the CBI Special Court argued before the judge that Essar created a “corporate veil” to establish that Loop Telecom was not in its control even while ingesting Rs 700 crore in the company for acquiring the 2G spectrum licenses. On the other hand, the Essar case is that Loop Telecom promoters IP Khaitan (IPK) and wife Kiran Khaitan had independent sources of finance and were not in collusion with the Essar group promoters Ravi Ruia and Anshuman Ruia while they acquired the spectrum licenses.

In fact, in the June of 2011 Standard Chartered Senior Director William Rego wrote a letter to Khaitan saying that “We confirm that the IP Khaitan Group had sufficient funds in deposit with us, generated out of revenues and profits, which were utilized to finance downstream investments into various companies of the Loop Telecom Group.” The letter was quoted in a Times of India report as well.

However, an internal Standard Chartered bank memo accessed by Cobrapost shows that contrary to the bank’s public position it, in fact, regarded all the monies in the accounts of entities in which Khaitan was the “Benefical Owner” as “Ruia family monies”.

Interestingly, the 2010 memo predates the public assertion by Rego and raises the question that if the bank considered those monies as Ruia family monies why did it bolster the claims of Khaitan that the group has sufficient funds of its own to fund the 2G license acquisition by Loop Telecom.

The bank memo is standard Relationship Manager documentation, part of the international Know Your Customer (KYC) norms prevalent in banks now. This particular one under the section

“Personal/Family Background of Beneficial Owner (s)” is revelatory. Importantly, in the memo the bank states, “we treat IPK as a part of the Ruia family for the purpose of the source of wealth of the various entities which bank with us.” The bank also states: “IPK is the beneficial owner (BO) of Arya Infrastructure Holdings Ltd, the Settlor of the Virgo and Triton Trusts. IPK is also the BO of the Northern Star Trust which is managed by Standard Chartered Trust (Cayman) Limited and the BO of various pics both directly and through The Northern Star Trust. In addition the Virgo Trust and The Triton have several PICs under them which hold the major portion of the wealth of the Ruia brothers.”

The memo has several sections, viz, “How was Client Due Diligence Conducted?”, “Background to Client’s Source of Wealth”, “Overseas Wealth”, “Client’s Source of Wealth/Estimated Net Worth”, “Client’s Potential/Existing AUM with ScB PvB”, besides others. According to the memo, SCB estimates the net worth of the Ruia family to be around US$ 15 billion. This in 2010. It also gives Essar Global Limited an enterprise value of US $ 25 billion. The Essar group, apparently, is the largest relationship of SCB PvB and the Industrial Essar group is one of the “largest relationships” worldwide for SCB and at its peak has enjoyed “Class 2 facilities of US $ 1 billion”.

Under the heading “Any Additional Support Required to Enhance Relationship” the bank writes: “There is likely to be a request for a credit line against the real estate holdings of the family which are estimated at close to US $ 500 million. Due to advice from tax advisors, the R-Group would like to move most of the accounts from London to Jersey which is expected to be completed by the end of October, 2010.”

The last heading in the memo is “Recommendations” and it states: “Based on foregoing and the importance of the relationship with the Ruia brothers we recommend that this memo should serve as an umbrella memo for the R-Group accounts and it is further recommended that the accounts be retained subject to periodic confirmations as agreed with compliance on shareholders, directors and other information as appropriate.”

Interestingly, under the heading “Background to Client’s Source of Wealth” the bank writes: “The brothers Shashikant (Shashi) Ruias, 65 and Ravikant (Ravi) Ruia, 59 (jointly the sponsors or R-Group) who inherited the family business on the untimely death of their father in 1969. Like many Indian business families, the Ruias started out as traders and their father Nand Ruia  set up independent business in Chennai in the 1950s.  He stuck to his trading roots, setting up an export business for the region’s iron ore mining industry. By 1966, the group added stevedoring services, transporting the iron ore from the mines to the region’s ports. By the end of the decades, the Ruia family had also entered the construction contracting market. Among Essar Group’s first major construction contracts were the construction of an outer breakwater in Madras Port in order to support large tankers, completed in 1971, and the construction of a wharf and berth complex at Tuticorin port, completed in 1972. Essar then moved on to buy a petroleum transport ship. Petroleum tankers were, then, the domain of large international companies of India. The beginnings of Essar Group’s construction, steel and oil & gas business can be traced to these events.”

The bank goes on to list the group’s master stroke. It says: “But their masterstroke by far was the decision to enter into the then nascent world of mobile telephony by buying Sterling Cellular and then entering into a 33% joint venture with Hutchison Telecom on a pan-India basis. When Hutchison decided to sell its 67% stake to Vodafone last year, the Sponsors made headlines as their 33% stake achieved a minimum value of $ 5 billion by virtue of a put option granted to them by Vodafone. This stupendous deal catapulted them firmly into the top league of the world’s billionaires.”

However, in a response to queries of Cobrapost, Nalin Khaitan, vice chairman of Khaitan Holdings says: “It is a fact that Mr. IP Khaitan is the brother-in-law of Mr. Shashi and Ravi Ruia, However the claim that Mr. IP Khaitan holds monies on behalf of the Ruia’s is completely incorrect and baseless. The Khaitan Holdings is a multi-million dollar group and all monies managed by the group belong to the Khaitan Family. Absolutely none of the Ruia Family money is managed by Khaitan family or any of the companies belonging to Khaitan Holdings, whether in Standard Chartered Bank or otherwise.” (Full response here)

Nalin Khaitan also writes that “with regard to the document mentioned in your email, we are not aware of any such memorandum that is maintained by the bank. We have never sighted such a document neither have we ever shared any such information with the bank. In fact, we have reasons to doubt the genuineness of this document, as the position of the bank, as evident from its records is completely contrary to what is claimed by you.”

Khaitan also quotes submits a declaration (full text) from their Dubai based auditors Mahendra Asher & Co that, “I P Khaitan Family Group of Entities are maintaining cash deposits in excess of USD 100 million with Standard Chartered Private Bank London and Dubai since 2004.” They also go on to say that “Based on review of corporate documents of I P Khaitan Family Group of Entities, we can confirm that the ultimate owners of cash deposits with Standard Chartered Private Bank London and Dubai are Mr I P Khaitan and Mr Nalin Khaitan.”

The response from Standard Chartered Bank is blander. Says Dan Mobley, head of corporate affairs, India and south asia: “I’m sure you will understand that we are unable to disclose or comment on information relating to our clients.”

It may be recalled that pursuant to the CBI probing the 2G spectrum allocations the Agency launched prosecutions on Essar Group promoters Ravi Ruia and Anshuman Ruia, the Loop Telecom promoters, Kiran Khaitan and her husband I P Khaitan as well as director Vikas Saraf. Also facing trial are the telecom companies, LTL, Loop Mobile India Ltd and Essar Tele Holding Ltd. The agency had submitted its chargesheet on December 12, 2011 accusing them of cheating the Department of Telecommunication (DoT) by hatching a conspiracy to use Loop Telecom as a “front” company to secure 2G spectrum licences in 2008. The special CBI court framed charges against the accused on May 25, 2012 and subsequently launched a trial which concluded in September 2014. While the prosecution brought 95 witnesses to buttress its claims the accused put forward 12 witnesses to support their argument. The trial is now ongoing.

The above memo might have to be read in the context of the new Indian black money law passed by the Indian cabinet. For instance, those declaring overseas assets by September 30 will have to pay 30% tax and 30% penalty by December 31.The law provides for stiff penalties and imprisonment of up to 10 years for violations. The finance ministry’s 32 FAQs explain the provisions of the one-time compliance window, which allows those holding unaccounted assets overseas to pay tax and penalty to escape the harsh provisions of the black money act.

Importantly, even assets held by a person in his or her name or in respect of which the person is a beneficial owner come under the ambit of the law. That is, the person need not directly hold the asset. So if a person derives benefit from an undisclosed asset overseas then he or she can disclose the same through the one time compliance window. While persons declaring unaccounted wealth under the scheme will not be charged under the Prevention of Money Laundering Act (PMLA) there will be no protection from the black money law if it’s later discovered that the assets declared are the proceeds of corruption. Sum total of all deposits into the account will be totaled to estimate the value of assets. However, assets acquired when a person was non-resident from income not taxable in India need not be disclosed under the Black Money (Undisclosed Foreign Income &Assets) and Imposition of Tax Act, 2015, that came into force on July 1.

With the 2G trial nearly over it remains to be seen whether the CBI did a thorough investigation on the source of monies that the Khaitan group invested in Loop Telecom.