Thin Dividing Line: Ties between IPL team owners and offshore dealings

In this excerpt from his latest book, Paranjoy Guha Thakurta writes about the insidious ties between IPL team owners and their offshore dealings

The transformation of the popular game of cricket into a huge and highly lucrative business happened with the launch of the Indian Premier League in 2008. The IPL has a private franchise ownership structure akin to that of sports leagues in the United States. …

It did not take long for allegations of scams—spot-fixing, financial irregularities and sex scandals relating to the IPL to be carried in the media. Not surprisingly, Mauritius, the biggest source of foreign investment in India, has had intricate connections with the IPL….

Matters came to light in 2010, when Times Now television channel reported ‘a maze of dubious transactions across tax havens [that] links the BCCI to IPL league franchisees’. In October 2011, Outlook Business reported how the ED (part of the finance ministry, which is responsible for enforcing the FEMA and the Prevention of Money Laundering Act) had found complex layers of ownership of the IPL teams and the Mauritius connections therein:

Rajasthan Royals owner Jaipur IPL got 99.9 per cent of its investment from EM Sports Holdings Ltd (Mauritius) and 0.1 per cent from Emerging Media, UK. Emerging Media’s investors, in turn, include Tresco International, based in the British Virgin Islands. KPH Dream Cricket, which owns Kings XI Punjab, has investments from Mauritius-based Colway Investments, which, in turn, is wholly owned by Bantree Investments, based in the British Virgin Islands. ED sleuths also tracked the ownership of Sea Islands Investment Ltd, which has investments in Kolkata Knight Riders. Industrialist Jay Mehta finally admitted that he owned the company, but apparently struggled to prove his source of capital for this company.

Juhi Chawla with Sourav Ganguly

The BCCI slapped Lalit Modi with a show-cause notice, charging him with misconduct such as irregularities in the process of finalizing bids, bid rigging, arm-twisting bidders and manipulation of the ownership of media rights and internet rights….

In August that year, the parliamentary standing committee on finance, in a report, Tax Assessment/Exemptions and related matters concerning IPL/BCCI, analysed the details of the ownership of the teams in the IPL….In fact, by then the scope of the scrutiny of the finances of IPL stakeholders had been broadened to look into funds that had allegedly been illegally moved through hawala or informal channels.

The committee pointed out that in the cases of ‘Rajasthan Royals, Kings XI Punjab and Kolkata Knight Riders, the teams are predominantly owned by different companies in order to mobilize greater amount of funds from different sources both domestically as well as internationally and at the same time to get the shelter of [a] corporate veil’. Most of the investments had been ‘layered’ through a number of intermediaries in the nature of benami (or front) companies located in Mauritius, the Bahamas and the British Virgin Islands. Investments made by Rajasthan Royals, Kolkata Knight Riders, Kings XI Punjab and Mumbai Indians through foreign entities had been brought into the country without the approval of the RBI and the Foreign Investment Promotion Board (FIPB). ….

Under the franchise agreements, shareholding patterns of a team cannot be changed without the BCCI’s permission. However, this condition was not adhered to. During the financial year 2009–10, 7.37 per cent of the shares of existing shareholders of Jaipur IPL Cricket Pvt. Ltd, the owners of Rajasthan Royals, were transferred to Kuki Investments Ltd in the Raj Kundra Group, and fresh shares (3.63 per cent) were allotted to it by EM Sports Holdings Ltd, Mauritius. In the case of Mumbai Indians, Kolkata Knight Riders and Kings XI Punjab, either shares were transferred at face value or share capital was raised and fresh shares were allotted to the new shareholders….

When questioned by the parliamentary committee on whether BCCI officials were aware of the provisions of FEMA and other regulatory violations committed by the franchises, they replied that the BCCI did not have the machinery to determine whether a legal violation or money laundering had occurred…

The BCCI also defended the IPL by stating that one of its salient features was that it showcases Indian ‘culture’ to a global audience. … The financial shenanigans of the board were downplayed. There were evasive answers to allegations of tax evasion, money laundering and violation of foreign exchange laws. The convoluted manner in which the ownership of corporate entities associated with IPL were structured will be evident from the examples that follow.

Raj Kundra and Shilpa Shetty

First, Lalit Modi was accused of having a ‘silent stake’ in the Rajasthan Royals franchise owned by Jaipur IPL Cricket Pvt. Ltd which, in turn, was wholly owned by Emerging Media Sporting Holding, Mauritius, which was partly controlled by a company in the Cayman Islands and three different corporate groups. An individual from Nigeria, Suresh Chellaram, mentioned as the ‘co-brother-in-law of Lalit Modi’, controlled 25 per cent of the team, allegedly acting as a ‘front’ for Modi. Chellaram also owned a 44.15 per cent stake in Emerging Media Sporting Holding, Mauritius, through Tresco International Ltd based in the British Virgin Islands. A UK-based individual named Manoj Badale, who was allegedly associated with Modi, owned 32.4 per cent in the company through Emerging Media. Lachlan Murdoch, the son of media baron Rupert Murdoch, held 11.7 per cent in the same entity. Bahamas-based Kuki Investments, owned by the Kundra family (actor Shilpa Shetty’s in-laws) held an 11.7 per cent stake in Emerging Media Sporting Holding, Mauritius. The franchise of Rajasthan Royals was terminated by BCCI for alleged malpractices which have been disputed.

Second, popular actor Shah Rukh Khan was questioned by the ED for deals in his franchise Knight Riders Sports Pvt. Ltd. There were many proxy owners of his franchises. Links to Mauritius-based companies also came to light. The share transactions by Khan allegedly flouted FEMA rules and guidelines of the SEBI. In February 2008, Red Chillies Entertainment Pvt. Ltd, the entertainment company run by Khan, held 9900 shares of Knight Riders Sports Pvt. Ltd (KRSPL) and his wife Gauri (the nominee of Red Chillies Entertainment) held 100 shares. During 2008–09, the shareholding in the franchise company changed. On 31 March 2009, a Mauritius-based company, The Sea Island Investment Ltd, was listed as having 5 million shares in the company and another film actor, Juhi Chawla Mehta, got 4 million shares out of the total of 20 million shares in the firm. The remaining 11 million shares remained with Red Chillies Entertainment. 

The financial transactions indicated that KRSPL received Rs 6.06 crore from Sea Island Investment Ltd, which was owned by Juhi’s husband, Jay Mehta, in its Citibank Mumbai account. Of this, Rs 1.06 crore was remitted to the company on 14 March 2009. The allotment of shares to Sea Island Investment Ltd was made on 7 March 2009 at the rate of Rs 10 per share. The ED apparently had evidence to show that the shareholding of the franchise changed yet again on 10 March 2010 as Juhi Chawla Mehta sold her entire stake to Sea Island Investment Ltd, thus splitting the ownership of KRSPL between the Mauritius company and Shah Rukh Khan and his wife, Gauri.

THIN DIVIDING LINE | Author: Paranjoy Guha Thakurta with Shinzani Jain | Publisher: Penguin | Pages: 304 | Price: Rs 599

Excerpted with permission