Sweat Over Equity
The issue of sweat equity is another interesting case. Reliance Infocomm, like many India Inc ventures, has been funded by a mix of private equity, corporate investments, web company funding and a much-used instrument called preferential shares. Mukesh and his group reportedly own 55 per cent. But the funding has been mostly through RIL which has pumped in over Rs 12,000 crore through preferential shares. These shares deliver a return of 8 per cent and so they are debt instruments unless converted into equity. Apparently in December 2003, the Mukesh camp offered RIL through informal pre-board meeting papers to convert its preferential shares at Rs 48 per share into equity. Anil is reported to have objected and asked why RIL should pay Rs 48 when Mukesh has been issued 50 crore shares at Re 1 each.

The matter didn't come up at the board meeting. It cropped up again in April 2004 and the conversion premium was Rs 96. Anil objected again and asked that RIL appoint independent valuers to arrive at the premium. On their part, the Mukesh camp has held that shares issued to the senior Ambani were sweat equity which obviously doesn't attract premia. The Mukesh camp has also added that "there are no obligations under listing agreement requiring disclosure to be made either by Mukesh D. Ambani to RIL or by RIL to stock exchanges with respect to the equity holdings of the company's chairman in Reliance Infocomm. As per an agreement of July 2000 between RCIL and Mukesh, options were issued to him at full par value. Rules and regulations on sweat equity that came into force in December 2003 are not applicable to this agreement even though they allow sweat equity to be issued for free".

Dhritiman Bhattacharyya of Fox and Mandal explains, "The law allows issue of shares at a discount in the form of a sweat equity to directors and employees of a company in recognition for their contribution to the company. Accordingly there is no illegality in this issue." The Anil camp argues that the RIL Board was not kept in the loop about this development and that it is a corporate governance issue, wherein the CMD of the flagship company took sweat equity into a company at a discounted rate when his own company is the largest investor in Reliance Infocomm.

THE INFOCOMM SQUABBLE

Anil objected twice to RIL being asked to convert preferential shares of Reliance Infocomm at a premium and asked that the RIL board appoint independent valuers to decide on the issue.

Elsewhere in the group General V.P. Malik and Leena Srivastava, independent directors on the board of Reliance Energy, have written to the RIL Board and "sought the views and confirmations from the board of parent Reliance Industries on future resources available to REL for implementing its growth plans".

To be fair, the traffic in leaks and missives is not one way. Mukesh has alleged that Anil didn't take the board into confidence about his joining politics, about REL's investments in Uttar Pradesh, his involvement in the Rs 250 crore Mandke Foundation and, of course, Anil's ambitions to participate in the airport privatisation projects. The Anil camp has retorted that his entry into politics was notified via a press release, that no proposal to form a foundation was ever discussed and that participation in airport privatisation didn't fall in the RIL domain.

Taking On the Three Cs
Coming up soon will be documents relating to the "three Cs". The Anil camp now has stories of how chelas, chamchas and cronies have benefited from Mukesh. Consider this: Manoj Modi, a schoolmate of Mukesh at Hill Grange School, is a director of Reliance Infocomm Ltd along with Anand Jain, Mukesh and Bharat Goenka. Modi's brother-in-law Jyotindra Thacker is the chief technology officer for both RIL and Reliance Infocomm and is responsible for procurement for the entire group. Another brother-in-law of Modi, Parimal Nathwani, is group president, Gujarat, for RIL and Reliance Infocomm, and has been managing the group's court-related issues. Modi, along with Satish Parikh, allegedly controls the complex web of investment companies that is key to the ownership dispute. Others include: Mahesh Kamdar, first cousin of Nita Ambani, who is responsible for procurement across the group and all decisions are cleared by him. Anand Jain, another classmate of Mukesh, is the vice-chairman of Reliance Capital and a director of Reliance Infocomm and IPCL.

His companies are the largest distributors of POY and PSF for RIL. Jain's brother Veerendra supplies woven bags for packaging RIL products. His brothers-in-law too are involved in the Group's business activities in India and abroad.

Interestingly, Sandeep Tandon, a former Enforcement Directorate official who investigated RIL in the 1980s under Bhure Lal, joined the company in 1994 as group president, taxation. His two sons work directly for Mukesh in his office at Dhirubhai Ambani Knowledge City (DAKC).

ALL WITH MUKESH

FRIENDS IN DEED: Manoj Modi with Nita Ambani

In fact, the next missive loaded to be fired is on RIL directors, their independence and their pecuniary interests. D.V. Kapur, formerly secretary, chemicals & petrochemicals, Government of India, procured the petrochemicals licence for RIL's Hazira project; Y.P. Trivedi's sons Anand and Gautam are employed in Reliance Infocomm and T. Ramesh Pai has large personal financial outstandings with Reliance Capital Ltd.

The Mukesh camp, however, dismisses the allusions to any kind of nepotism or favouritism.

Its strong contention is that these arrangements have been in existence since the time of Dhirubhai. They have averred that the positions are borne purely out of the competency of individuals.

ALL WITH MUKESH

Sandeep Tandon (left)and Anand Jain.

Mother Will Decide
There is apparently a solution that the mother has suggested. That is both the brothers stay in the group, each controlling 40 per cent of the wealth (which will be achieved by unraveling the web of investment companies and transferring ownership) and the balancing veto power of 20 per cent rests with Kokilaben who would be loathe to see what her legendary husband created in a lifetime split and devalued so soon after his death. The first step has been already taken. Three months after Dhirubhai's demise, all four children, Dipti Salgaoncar, Nina Kothari, Mukesh and Anil, signed a deed of release in favour of Kokilaben. Under the deed of release all four children, including Mukesh and Anil, gave the rights over the entire property of Dhirubhai to their mother. In fact, Anil's camp has questioned how Mukesh can claim ownership of the web of unidentified companies that own 30 per cent of RIL not belonging to Dhirubhai. As a source close to Anil says, "If these companies did not belong to Dhirubhai, they cannot belong to Mukesh all by himself."

Kokilaben is now seized of the matter. For some weeks now, she has been visiting seers and seeking their blessings and advice on how to resolve the dispute and bring peace to Sea Wind, the Ambanis' residence in Colaba. It would seem her prayers are being answered. Earlier this month, it was Anil who said after his brother's statement to a TV channel on ownership issues that he would leave the resolution of the dispute to Kokilaben.

On December 15, Mukesh too indicated that since the two sides were rigid on their positions he too would leave the resolution of the dispute to their mother.

As with reel life, this real-life story too could just about have a happy ending. So hope the 35 lakh shareholders who invested their faith in a legend and his family.

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