[Separately, on Friday, a crusading member of India’s Parliament, Subramanian Swamy, called in a court complaint for an investigation into allegations from a government report that Mr. Tata in 2008 used a front company to apply for a telecommunications license, potentially circumventing the limits on the number of licenses one investor could hold. This is alleged to have happened at a time of furious maneuvering among companies trying to win the rights to offer cellphone service in India — a battle that resulted in one of India’s biggest corruption scandals ever.]
By Geeta Anand
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The Taj Mahal Palace
Hotel in Mumbai, India. The founder of the Tata Group,
Jamsetji Tata, opened the hotel, India’s
first luxury lodging serving Indians,
in the early 1900s. Today it is considered a
national landmark.
Credit Atul Loke for The New York Times
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MUMBAI,
India — In India, where
corruption is a fact of life, the Tata Group — a powerhouse conglomerate that
makes Land Rovers, operates the historic Pierre Hotel in New York and sells the
world Tetley tea — has been held up as the exception to the rule.
Its patriarch, Ratan Tata, 78, is a revered
figure here, a cross between Warren E. Buffett and Bill Gates whom even
schoolchildren know and look up to as Mr. Clean — the billionaire whose family
built its name in part on zero tolerance for corruption.
His company symbolizes the role an ascendant
India sees for itself on the global stage. In 2010 Mr. Tata arranged a $50
million donation to the Harvard Business School, the school’s largest gift from
an international donor, and its dean sits on the board of the empire’s umbrella
organization, Tata Sons. Mr. Tata has been knighted by Queen Elizabeth.
Now, however, Mr. Tata is caught up in a
nasty public fight for control of the business — with the man he had chosen to
succeed him as chairman. The company finds itself defending against serious
allegations of wrongdoing.
Some of the claims have been raised by his
chosen successor, Cyrus Mistry. Mr. Tata ousted Mr. Mistry in late October,
saying it was necessary because “the board of Tata Sons lost confidence in him
and in his ability to lead the Tata Group in the future.”
Mr. Mistry, 48, told Tata’s board in a letter
that an internal audit indicated that its airline joint venture, AirAsia, had
made more than $3 million in “fraudulent transactions” with two companies. In
recent days, India’s Directorate of Enforcement has started an investigation
into the AirAsia payments. The directorate did not respond to requests for
comment.
“Never before has the Tata Group, including
the philanthropic objectives of the Tata Trusts, been in jeopardy to this
extent and scale,” Mr. Mistry said in a public statement this month. He said he
was fighting “to protect the Tata Group from capricious decision-making by the
interim chairman,” a reference to Mr. Tata.
Separately, on Friday, a crusading member of
India’s Parliament, Subramanian Swamy, called in a court complaint for an
investigation into allegations from a government report that Mr. Tata in 2008
used a front company to apply for a telecommunications license, potentially
circumventing the limits on the number of licenses one investor could hold.
This is alleged to have happened at a time of furious maneuvering among
companies trying to win the rights to offer cellphone service in India — a
battle that resulted in one of India’s biggest corruption scandals ever.
Ultimately the scandal helped sweep India’s
founding political party, the Congress party, from power in an epic defeat.
The New York Times has reviewed government
documents showing that India’s Serious Fraud Investigation Office recommended
prosecuting Mr. Tata in 2013. For reasons that are not clear, the government
did not file a case in court.
Officials at the fraud office and at the Central
Bureau of Investigation, the federal agency responsible for bringing cases, did
not respond to requests for comment.
The fraud office documents, which Mr. Swamy
filed as part of his court complaint, say that the Tata Group invested $250
million in eight subsidiaries of a real estate firm, Unitech — a sum roughly
equivalent to the telecom license application fee. Unitech used that money to
apply for a license on Tata’s behalf, the report from the government’s fraud
office said.
A Tata spokesman said the company made “a
bona fide real estate deal” with Unitech unrelated to telecom licenses, adding
that “no evidence was found which could be attributed to any criminality.”
Unitech did not respond to requests for
comment.
The Tata Family Empire
The Tata Group was started in 1868, when the
British ruled the Indian subcontinent. The founder, Jamsetji Tata, was a
descendant of Persian immigrants, known as Parsis, who form a tiny and vibrant
community in Mumbai. He began with a trading business, and over the decades the
company grew — building India’s first steel mill, its first hydroelectric power
station, its first locally made trains and its first airline.
In 1903, Mr. Tata opened India’s first luxury
hotel serving Indians, the Taj Mahal Palace Hotel, which is today considered a
national landmark. In 2008 the hotel was one of the targets of the dayslong
Mumbai terrorist attack by Pakistani infiltrators that shocked India and the
world.
The company today has its hand in almost
every business imaginable, from consulting to automobiles. Ratan Tata, the
cousin of his predecessor, took over the company in 1991 at the age of 53. He
became the group’s fifth chairman. He widened the group’s international
presence, acquiring Corus Group, the Anglo-Dutch steel company, in 2007 and the
Jaguar and Land Rover brands in 2008.
Mr. Mistry — the first non-Tata family member
to lead the nearly 150-year-old company — was elevated in 2012 after a two-year
search. However, in India’s tight-knit Parsi community, the ties can be close.
Mr. Mistry’s family, which owns a major construction business, was the biggest
shareholder in Tata Sons, with 18 percent, and Mr. Mistry had been on the board
since 2006. His sister is married to Mr. Tata’s half brother.
According to several people close to Mr.
Mistry, the relationship between him and Mr. Tata soured in part because Mr.
Mistry had begun reining in some favors that the company had previously
extended to Mr. Tata’s personal friends.
In one instance, after Mr. Mistry raised the
issue, the Tata board explored starting legal proceedings against C.
Sivasankaran, a longtime friend and close business associate of Mr. Tata, to
try to recover $100 million the company said it was owed from a telecom deal.
Mr. Sivasankaran also had been renting a 5,300-square-foot penthouse for
$11,000, less than half the market rent, from the company, according to
correspondence reviewed by The Times. Mr. Mistry raised his rent to the market
rate.
Mr. Sivasankaran, in an interview, said he
was indeed a friend of Mr. Tata’s. He said, though, that he had suffered
financially from the investment and had no intention of paying back the $100
million he owed.
“I don’t want to pay it because Tata has not
managed the company properly,” he said. “Siva is alleging the Tata Group does
not have management skills,” Mr. Sivasankaran said, referring to himself in the
third person.
He also confirmed that he was ousted from the
luxury apartment. Mr. Sivasankaran said he had a long-term contract to stay
there, so he could have fought to stay, but decided to go quietly.
Another issue at Tata involved no-bid
dredging, shipping and barge contracts granted to companies belonging to
another of Mr. Tata’s longtime friends, Mehli Mistry, according to three people
who have reviewed company documents. (He and Cyrus Mistry, the ousted Tata
executive, are cousins.) Cyrus Mistry allowed the contracts to be put up for
bid once they expired, according to the people who have reviewed the documents.
A Tata Group spokesman referred questions to
Tata Power, the unit that made the contracts. Tata Power did not respond to
requests for comment.
Mehli Mistry, through a lawyer, said that the
contracts were not the result of his friendship with Mr. Tata, and disputed
that they were not fairly valued.
Inside the Cellphone Allegations
From a corporate perspective, the most
consequential allegations regarding Mr. Tata and the group are those contained
in the 33-page report from the Serious Fraud Investigation Office asserting
that Mr. Tata’s group was the real applicant behind a telecom license secured
by Unitech, the New Delhi real estate company.
A decade ago, India pried open its
notoriously dysfunctional telecom market. In the days before deregulation, it
could take a customer years just to get a new phone number. People would hang
on to their phone lines like family jewels and hand them down to relatives.
Against that backdrop, investors saw a
once-in-a-generation opportunity to build an Indian phone empire. But
applicants could seek only one license. And the Tata Group had already applied
for a different one.
The report says that Tata, “desperate to
acquire the license,” used Unitech as its front in pursuit of a second license.
Unitech was one of the eight companies
granted licenses in 2008. But the Supreme Court later ruled all the licenses
illegal, in part because government investigations said that the licensing fee
paid by the companies was substantially below market rates.
Fourteen people — including India’s former
telecom minister and several Unitech officials — have been on trial in a
special court on charges of cheating the government by underselling the
licenses. A verdict is expected early next year. All have said they are not
guilty.
Prashant Bhushan, a lawyer and
anti-corruption activist, in 2014 submitted to the Supreme Court the
government’s fraud investigation report charging that the Tata Group used
Unitech as a front for its telecom application. He urged the court to direct
the Central Bureau of Investigation to take up the case.
Mr. Bhushan also charges in the court
petition that the Tata Group, in “glaring evidence of an apparent quid pro quo”
for a telecom license, transferred property valued at tens of millions of
dollars to the family at the helm of the political party of the
telecommunications minister at the time.
Mr. Bhushan’s actions are still pending
before the court.
A. Raja, the former telecom minister,
declined to comment. A spokesman for his political party could not be reached.
The bureau of investigation did not respond
to requests for comment. Vivek Priyadarshi, the bureau’s investigating officer
in the case at that time, declined to discuss its conclusions.
India Opens Its Skies
In 2012, India allowed its cash-starved
airlines to accept investments from foreign carriers, as long as an Indian
partner retained control. Yet another Indian market — jet travel — suddenly
looked sexier. Tata and others raced in.
Tata teamed up with AirAsia Berhad, a budget
airline from Malaysia, and set up AirAsia India. This happened during Mr.
Mistry’s tenure — but he has distanced himself from the deal. In a letter to
the Tata board after his ouster, he said that he opposed the deal, but that Mr.
Tata pressured him to proceed, and that Mr. Tata himself negotiated the terms
with AirAsia.
“My pushback was hard but futile,” Mr. Mistry
said in the letter, which The Times has reviewed.
The allegations of questionable payments to
two companies came after whistle-blower complaints prompted AirAsia’s board to
order a forensic audit. That audit, delivered by Deloitte India in September
and reviewed by The Times, identified the payment of more than $3 million to
two such companies. Neither company appears to have offices, the audit found.
Mr. Mistry had shared the audit summary with
the Tata Sons board members before the October meeting where he was fired, a
person close to Mr. Mistry said.
A spokesman for Tata referred questions to
AirAsia, which did not respond.
Friends in Business
At the time of Mr. Mistry’s ouster, he was
also confronting an issue with Mr. Tata’s friend, Mr. Sivasankaran, whose
company owed the Tata Group more than $100 million.
Mr. Sivasankaran in 2006 had invested in a
Tata telecom start-up that also received a big investment from NTT DoCoMo, a
Japanese company. In 2014, DoCoMo exercised its right to sell back its shares
to Tata. The money Mr. Sivasankaran refuses to pay back represents his portion
of that buyback expense, according to correspondence between the two sides.
Mr. Sivasankaran, in an interview, said he
had invested in the company purely out of friendship with Mr. Tata. He said
neither he nor anyone else had influenced Mr. Tata’s decision to fire Cyrus
Mistry.
A spokesman for Tata said it was pursuing
“all legal options” to recover the money.
Mr. Tata’s friend Mehli Mistry maintained a
lengthy financial relationship with the Tata Group. Over the last two decades,
his companies were granted contracts for dredging, barging and shipping by Tata
Power, often renewing them without a bidding process.
But after Cyrus Mistry took over, Tata Power
put Mehli Mistry’s contracts out to bid. Other companies won those contracts,
according to two people familiar with the bidding process.
Mr. Mistry was so disappointed at losing the
contracts that he sent a message this year to Cyrus Mistry through a family
member, people close to Cyrus Mistry said. A person familiar with the message
said that Mehli Mistry told Cyrus Mistry to stop interfering in his contracts
or he would take steps to defend himself.
People close to Cyrus Mistry say he thinks
his ouster was, in part, Mehli Mistry’s retaliation. In his letter to the board,
Cyrus Mistry wrote, “I had to ease out hangers-on.”
Mehli Mistry, his lawyer said, “emphatically
denied” sending any message regarding contracts to Cyrus Mistry and played no
role in his ouster.
