A Stake In Business History

On 18th December 1982, I was flying to India for the holidays and met L K Jha on the plane. Jha discussed NRI portfolio investment and urged me to buy some shares: Swraj, if people like you who are involved with India are not going to invest, who will? I reflected on his invitation and thought I would make a modest investment. My brother Jit introduced me to Harish Bhasin, a well-known broker who was also Chairman of the Stockbrokers Association in Delhi.

I asked Bhasin whether there were any good Indian companies which merited investment. He said that, in Delhi, there were really only two worthwhile enterprises DCM and Escorts. I asked him to buy a few shares and send me their balance sheets. Back in London, my examination of their financial statements was hardly enlightening. They had the minimum of information with the maximum of public relations. Between January and March 1983 I was, of course, in London. I continued to study these two companies carefully and obtained more information on them.

 

In April 1983, I visited Delhi again. I met Rajiv Gandhi, who had recently become a Member of Parliament. I told him what I was doing on the stock market. His response was remarkable. Rajiv got quite excited and urged me to buy as much as possible. Buy DCM, buy Escorts, buy Mahindra and Tisco! They are not with us and we should control them.

I told him that DCM was a possibility, but that the Nandas owned too much of Escorts for any outsider to make an impact. Also, I indicated that I was in no hurry to rush into buying shares in many other companies. The next day, to my surprise, he called me on the phone to say that he had checked the Nanda holdings and, in fact, they held only a minor ownership position. I found that Rajiv was correct, and instructed Bhasin to buy whatever he could in both DCM and Escorts. As these purchases took place, the stock price of both companies escalated and several board directors and members of the Shri Ram and Nanda families sold shares, entranced by their rising value.

At this point, Rajiv Gandhi introduced me to Vivek Bharat Ram, deputy managing director of DCM and son of its chairman, and said: Swraj owns these shares in your company. He will be able to help you and you can do business with him. I never heard from Vivek again, but he was clearly in touch with Rajiv, who had been a schoolmate.

By mid-April, the news had got around that it was Swraj Paul who was buying the DCM and Escorts shares. The result was amazing: sheer panic among the Shri Rams and Nandas. The corporate establishment in India also seemed thunderstruck and rushed to give solace to both families. JRD Tata, the high panjandrum of Indian business, gasped: I could be next! The then President of Ficci rallied members to the defence of the alarmed Shri Ram and Nanda clans.

By this time, I had acquired 13 per cent of all DCM shares. The Shri Ram family jointly controlled 10 per cent. My Escorts holdings were 7.5 per cent of the total, while the Nandas controlled less than 5 per cent and financial institutions owned 54.9 per cent. I had now many more shares than either of the two families who had controlled the managements for decades. The fear which haunted the Nandas and the Shri Rams was that I could drive them from their plush jobs and call them to account for the way in which they ran their companies. The Nandas and Shri Rams now devised a campaign to stop me. I was soundly denounced in the media, sections of the business community rose up against me, my shares were not registered and attempts were made to turn senior bureaucrats and ministers and even Rajiv Gandhi against me.

A group from Ficci requested an interview with Mrs Gandhi to discuss Swraj Paul, a request she very properly turned down. The very businessmen who were soliciting NRI purchases of their shares in the autumn of 1982 were now screaming against what they had so anxiously wanted.

Then, on 26 April, the very man who urged NRI portfolio investment with all the authority of his office just six months ago, spoke. Reserve Bank governor Manmohan Singh said: It is necessary to protect well-managed companies against takeover bids from abroad.

Manmohan Singhs about-face presaged a major change in Reserve Bank policy. The Reserve Bank now declared that all past purchases of shares by NRI investors should have had their specific permission and that it was not sufficient to merely have sent funds through an Indian bank for this purpose. Although ultimately fruitless, the signal sent out by the Banks reversal of policy was evident Swraj Paul was to be blocked.

In all this, the role of Rajiv Gandhi was inexplicable. In April and the early summer of 1983, he was very supportive, even pressing me to acquire more shares. But somewhere around late summer 1983 it seems as though DCM and Escorts had been able to reach out to him. And to this date, I am not quite sure what changed. However, there are several possible reasons: his discomfort at the fuss which was being raised by DCM and Escorts; his growing realisation that I would not bend to his every whim had I taken control of the companies; and possibly other considerations.

Later, in November the same year, Rajiv made a statement on the floor of the Lok Sabha saying that no NRI should be allowed to own more than 2 per cent of the shares on any Indian company. And yet, he was simultaneously telling me that this was not meant for me and he was not against what I was doing!

Extracted from Beyond Boundaries: A Memoir, published by Viking, Rs 395, 226 pages