In the current state of frenzy around the state of India's banking industry, any whiff of wrongdoing is bound to be magnified dramatically. And with this magnification follows frantic scrutiny and the frenetic race to be the first to judge or report a scoop. Nothing at all wrong with that, on the contrary it only goes to demonstrate the system of checks and balances our democracy offers us in such scenarios. However, even the staunchest of believers will agree that we do tend on occasion to present part of the picture that suits the most newsworthy outcome, resulting in a one sided discussion. That is not to say that the outcome may not be the one we are pitching but as history - and jurisprudence - would demonstrate, we must not pronounce judgement without balancing both sides of the story.
In l'affaire Chanda Kochhar, the general sense emanating from a prima facie look at the material in the news is that there could very well be quid pro quo involved. It seems from discussion that within short periods of loans being sanctioned to Videocon Industries Limited and its associates, about ten percent of that amount was lent by its promoter and his associates to NuPower, now controlled by Deepak Kocchar, who as we are now well aware is Ms. Kochhar's husband. The endeavor in this article is to work out a timeline based on public information & response from the parties involved in order to glean an understanding of how all of this played out. The idea is to clearly discern from the available material, the 'quid' and the 'quo' of the matter.
NuPower Renewables Pvt Ltd was setup by Deepak Kochhar and Venugopal Dhoot, promoter of Videocon in December 2008. Mr. Dhoot resigned from his position within 20 days and transferred all his shares at par which would be the price to be expected three weeks from the formation of a company. He also transferred his share in Supreme Energy to another associate - Mahesh Kumar Punglia - at par, as again the expected fair market value at that time. So while we shall examine Supreme Energy and its transactions subsequently, it would be fair to say that at this time onwards, Mr. Dhoot, his family and companies had to further business relationship directly with NuPower.
The questions that remain from this period are two. First, is there any relation here to the timing of Chanda Kochhar's appointment as CEO of ICICI Bank - it was announced in December 2008 that she would take over May 2009 - and the decision to exit NuPower. Second, while Mr. Dhoot has stated that he had exited Supreme Energy in January 2009, the filings with the Registrar of Companies show him to own the shares (99.9%) until October 2010. The second question is vitally important because it would mean that a loan of Rs. 64 crores came to NuPower from a company essentially fully owned by Venugopal Dhoot.
Subsequent to this, in June 2009, Pacific Capital, controlled by Deepak Kochhar sold 22,500 shares in NuPower to Supreme Energy at par, which one presumes would be fair value as this was within about six months of incorporation. This would make Supreme Energy owner of 94.99% of NuPower.
NuPower makes a claim that Supreme Energy never owned 95% of NuPower on a "fully convertible basis". This claim is at this time, until March 2010, fairly untenable unless the technicality being slipped in is that the ownership was 94.99% and not 95%. It also in a roundabout manner states duplicitously that in light of events yet to have occurred at that time, the holding would reduce.
In March 2010 - about 2 years before the loan granted to Videocon Industries - Supreme Energy, which was already a shareholder in NuPower, subscribed to Fully Convertible Debentures in the company against an investment of Rs. 64 crores. As Supreme Energy was holding 94.99% already in the company, the assumption one makes here is that the intent in the Debentures (whose terms are not public yet) was to issue fresh equity on a post-diluted basis. Even so, Supreme Energy would only end up holding even more than the already held 94.99% upon conversion of these debentures.
This transaction raises further questions in terms of holding and dilution because the subsequent transaction detailed hereafter in September 2010 valued Supreme Energy below par, presumably because it was loss-making. Also, as mentioned earlier, if indeed Venugopal Dhoot owned this company until October 2010 as the registry seems to indicate, then this money essentially came directly from him.
In April 2012, ICICI Bank as a part of a consortium of banks issued a loan to Videocon Industries Limited of Rs. 3,250 crores with a short term loan as a sub-limit of Rs. 650 crores, which has been erroneously presented in varied reporting as being a total of the two amounts, i.e. Rs. 3,900 crores. Loans to an associated company, Tuskar Overseas that is being mentioned in this context was actually disbursed in 2006 & fully paid back by 2010. Five other companies being mentioned (Trend Electronics Limited, Century Appliances, Kail Limited, Value Industries Limited and Evans Fraser & Company) were also not disbursed any loans by ICICI Bank at this time.
It is important to understand here that as with any other bank ICICI Bank's credit committee can only consider proposals from companies considered creditworthy by their credit risk evaluation teams. As ICICI Bank lent as a consortium member comprising only 8% of the total funds disbursed, the question of the propriety of the transaction should either be extended to all lenders or must be consigned to ashes at this point. The 'quid' of the transaction lies in this transaction, and therefore this begs for a larger investigation into the entire consortium and the advisors (SBI Caps & IDBI Bank) and cannot be focused solely on ICICI Bank & Chanda Kochhar.
Therefore, subject to the 'quid' as above being investigated and proven, it is in September 2012 is when we find the potential 'quo'. In a transaction two-and-a-half years after the issuance of FCDs for 64 crores to Supreme Energy, together with their 94.99% holding, a trust called Pinnacle Energy whose Managing Trustee was Deepak Kochhar purchased 9,990 shares (or 99%) of Supreme Energy at par - which was above the fair market value of Rs. 8.82, as stated by NuPower - and then subsequently, in April 2013, most likely got Supreme Energy to issue 80,000 fresh shares at par to Pinnacle Energy increasing its equity base to Rs. 9 lakhs - the supposed amount invested in NuPower by Deepak Kochhar and his associates.
The end result of the above transaction was that Deepak Kochhar, through Pinnacle Energy now owned 99.99% of Supreme Energy which in turn owned 94.99% of NuPower and the remainder of NuPower was of course directly owned by him and his family.
And that is what brings us to the quo: It is stated that in March 2016, the FCDs issued by NuPower to Supreme Energy were converted to equity resulting in a 10.1% holding for Supreme Energy down from 94.99% plus the potential converted value of the FCDs.
In summary therefore it appears:
" Venugopal Dhoot personally exited the venture(s) on 15th January 2009 and the only question that remains is whether the person taking over Supreme Energy - Mahesh Chandra Punglia - acted as his proxy.
" Supreme Energy invested Rs. 64 crore in NuPower but was sold for Rs. 9 lakhs to the Deepak Kochhar led Pinnacle Energy. Pinnacle Energy's books need either show repayment or current outstanding against this amount, and accrued interest if any. If not, then it raises a serious question about the intent & purpose of this transaction. This is the 'quo'.
" The extension of credit to Videocon Industries, as explained earlier, cannot be linked to this amount of Rs. 64 crores for two simple reasons. One the amount came into NuPower two years before the loan was sanctions. And two, the credit was extended as a part of a consortium of which ICICI Bank was merely an 8% contributor. If questioned and established as the 'quid', it directly follows that the entire Rs. 40,000 crores consortium loan must have subsequent 'quos' and then it's not just Chanda Kochhar whose conduct and role needs to be examined, but that of officials across banks that participated in the consortium.
" It is also important to note that Chanda Kochhar was just one member of the Credit Committee which was led by K V Kamath and consisted of other independent directors. Therefore, a link between an inflow two years prior being a result of a transaction in which ICICI Bank was a minor participant having been influenced by Chanda Kochhar solely can be tenuous at best.
ICICI Bank deals with most of the corporates in this country and so just by that association relatives - many of them well established and reputed by themselves - of senior officials cannot be prevented from associating with them. It is almost certain that these business dealings would have been declared by Chanda Kochhar to ICICI Bank as part of governance mechanisms, therefore it would be difficult to pin blame retrospectively. However, most importantly, it would appear from the timeline that the quid pro quo seems to be inverted and therefore not logically valid.
The real mystery actually revolves around two points
" One: the source of the Rs. 64 crores that was invested by Supreme Energy into NuPower, and its current position in lights of the fact that a company holding Rs. 64 crores worth of FCDs (at cost) was sold for Rs. 99,990.
" Two: Is there a pecuniary relationship between Venugopal Dhoot and Mahesh Kumar Punglia, which could point to the latter acting as a proxy of the former in order to create an impression of an arm's length dealing.
The source of the Rs 64 crore is not a loan given by ICICI Bank as the timeline shows, but these two points are the crux of the 'quo'.There may well yet be a Chanda Kochhar angle to the 'quid' once these two points are resolved. However, until then in my opinion we are collectively barking up the wrong tree.
Statements made by ICICI Bank, NuPower, Venugopal Dhoot & their associates to various media outlets, and already published are referred to in this story. These include the Indian Express & Business Today.