Reverse sweeping a carrom ball

Man in a hurry Srinivasan has to complete the sale of his equity in CSKCL before March, Photo: AFP
Man in a hurry Srinivasan has to complete the sale of his equity in CSKCL before March, Photo: AFP

BCCI president N Srinivasan, who is also the vice-chairman of India Cements, is a master of Indian laws. Over the past few decades, he has shown his legal prowess. In the 1980s, he successfully wrestled with State-owned IDBI to wrest back his control over India Cements. The next decade, he fought legal battles to finally take over Raasi Cements and Sri Vishnu Cements. In this century, his ongoing wars are related largely to the IPL franchisee, Chennai Super Kings (CSK).
In January, the Supreme Court bowled a carrom ball. As of 30 September 2014, Srinivasan and his family had a 28 percent stake in India Cements, which owned CSK (a division of the company). Therefore, there was an inherent “conflict of interest”. In its judgment, the apex court said that cricket administrators couldn’t own commercial interests in BCCI events, and India Cements had to sell CSK if the BCCI chief wished to be re-elected as the president in the forthcoming board election.
But Srinivasan’s loyalists knew that the legal master and cricket maestro would not remain on the back foot. They were sure that he would reverse sweep the carrom ball over the short third man. The hints that he sought to do this came when India Cements announced that CSK would be spun off into a fully owned subsidiary. The new subsidiary, Chennai Super Kings Cricket Ltd (CSKCL), would then be demerged from India Cements, and the nearly 100,000 shareholders of India Cements would get proportionate shares in the cricket company. Thus, if an investor owned 1 percent of India Cements, he or she would get a similar stake in CSKCL.
Will this two-step strategy be enough to convince the Supreme Court and its three-member committee that was formed to look into issues related to CSK, illegal betting and match-fixing? A mere demerger and proportionate share allotment will be against both the letter and spirit of the January order. A demerger implies that Srinivasan and his family too get more than 28 percent holding in CSKCL. This may not be acceptable to the apex court or its committee.
In the past, the court rejected the argument that CSK was not owned by Srinivasan and his family, but by a listed company that had tens of thousands of shareholders. In its January order, the court added that “the argument that Mr Srinivasan owns only 0.14 percent equity in India Cements is of no avail if not totally misleading when we find from the record that his family directly/indirectly holds… equity in India Cements with Mr Srinivasan, his wife and daughter as directors on the board of that company”.
An option for Srinivasan is to sell his equity in CSKCL to AVM Productions, a Chennai-based movie production firm owned by the Meiyappan family, which is related to him. Although the BCCI chief has no commercial interests in AVM, this may muddy the legal issues. Srinivasan’s son-in-law Gurunath Meiyappan belongs to the AVM family and is both a shareholder and director in AVM Productions. Since his name is involved in IPL illegal betting cases, the apex court may reject this deal.
Insiders contend that there is another reason why this option is a non-starter. Srinivasan has fallen out with the Meiyappans. He blames Gurunath for his problems; if the son-in-law had not involved himself with the bookies, the court wouldn’t have intervened in India Cements’ ownership of CSK. For, before the match-fixing cases became prominent, Srinivasan struck a deal with AC Muthiah, who initially dragged the “conflict of interest” case to the apex court. Muthiah withdrew the civil suit against Srinivasan.
The BCCI chief can explore the possibility of creating layers of ownership, which will hide the identity of the true owner.
In the past, several Indian and global promoters have achieved this objective through legal and illegal means. They have either routed their monies through Indian benami and shell firms or through global tax havens such as Mauritius and Isle of Man. The real owners can be traced only through a rigorous investigation aimed solely to lift the corporate veil.
For example, Indian investigators have alleged for a decade that a substantial portion of foreign direct investment and foreign institutional investment — invested in the country’s stock markets — has come through the Mauritius route, and is essentially “round tripping”. The term applies to black money generated in India and stashed abroad, but which legally finds its way back into the country. In the process of this kind of laundering, it also becomes white money.
However, the problem with this choice is that the apex court or its three-member committee may insist on full disclosures. If Srinivasan is caught in this part legal-part illegal ownership construct, he may lose more than the control over CSK. In such a scenario, the income tax department and Enforcement Directorate may direct their investigations against him, CSK and India Cements.