FAQ: The CBI's case AGAINST Jagan Mohan Reddy

As the CBI tightens the net around Jagan Mohan Reddy over a corruption case, and the YSR Congress chief claims that he is a target of political vendetta, Rediff.com's Priyanka reviews the probe agency's case against the powerful Andhra leader

In response to the petition filed by P Shankar Rao, Congress member of legislative assembly from Secunderabad Cantonment, and Yerran Naidu, former member of Parliament and leader of Telugu Desam Party, the high court directed the Central Bureau of Investigation on August, 10, 2011, to investigate YS Jagan Mohan Reddy. 

In just seven days, the CBI's Anti-Corruption Branch in Hyderabad registered a case under sections 120-B, 409, 420 and 477-A and section 13 (2) and section (1) and (d) of the Prevention of Corruption Act 1988 against YS Jaganmohan Reddy and 73 others.

Who are the main accused according to the CBI chargesheet dated April 23?

YS Jagan Mohan Reddy, who is the founder-director of Jagati Publications. The case has also been filed against Vijay Sai Reddy, founder director and financial advisor to Ms Jagati Publications Pvt Ltd, whose occupation is listed as chartered accountant. He was arrested and produced before the court on January 2, 2012.

He has been booked under sections 120-B, 420, 468 and 471 of the IPC and Section 9 of PC Act 1988. He was granted bail on April 13, 2012.

The third accused in the chargesheet is Jagati Publications.

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What is the case in a nutshell?
 
Jagan Mohan Reddy has been charged by the CBI on grounds of Sections 120-B (criminal conspiracy), 420 (cheating), 409 (criminal breach of trust) and 477A (falsification of accounts) of the Indian Penal Code and Section 13 of the Prevention of Corruption Act.

The CBI believes that Jagan Reddy was involved in financial misdeeds which involved 'huge magnitude of government largesse and corporate dealings as part of quid pro quo arrangement, for the benefit obtained by the investors from the state of Andhra Pradesh'.

What are the specific allegations against Jagan Mohan Reddy?

According to the second chargesheet filed by the CBI in court, Jagan Mohan Reddy and his father, the late chief minister Dr YS Rajasekhara Reddy, 'adopted several ingenious ways to amass illegal wealth which resulted in great public injury' and at the cost of public exchequer, allegedly by misusing the office of the chief minister.
 
What was the modus operandi adopted?

The father-son duo indulged in a process of doling out public properties, licences, granting of projects, SEZs, mining leases, ports, real estate permission, which violated the government's norms. This was done with a 'clear understanding of quid-pro-quo.'

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How was it done?

The people who were granted public contracts, licences, mining and real estate permissions were made to purchase shares in different companies at unsubstantiated premiums. All these companies had been floated by Jagan Mohan Reddy.

The chargesheet specifically points to the role played by Jagan and says he, with the help of his father and other public servants, 'exercised influence' so that various projects and permissions are granted to 'chosen person and in the process received illegal  ratifications amounting to thousands of crores of rupees.'

Jagan Mohan Reddy floated Jagati Publications on November 14, 2006. As on March 31, 2010, Jagati Publication had already amassed a 'paid-up' capital and share premium of Rs 844.129 crore.

In the past two years, Jagati Publications continued receiving investments from the same companies, and their total investment is Rs 1,246 crore. Jagati Publications is also alleged to have incurred losses on Rs 349 crore.

The charge-sheet makes it a point that all the alleged investments from various companies are 'bribes' paid by 'beneficiaries who got allotment of lands for SEZs.' Hence, this is kickback money paid to Jagan Reddy.

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What about the evaluation of Jagati Publications to lure investors?

The CBI says Vijay Sai Reddy conspired with Jagan Reddy and employed the services of Deloitte Touche Tohmatsu India Pvt Ltd in the months after January 2008. The CBI alleges that the duo got the company evaluated at a very high price to lure investors.

It was also revealed that the evaluation of Jagati Publications was issued by Deloitte Touche Tohmatsu India Pvt ltd in April 2008 and a fee was paid to them in May 2008.

However, the report was 'ante-dated as November 16, 2007, clearly on the directions of Vijay Sai Reddy and Jagan Reddy', in order to 'solicit and justify investments August 2007 onwards', the charge-sheet cites. Jagan Reddy was soliciting investments at a whopping premium.

Also, there is no shareholder agreement detailing the rights of the investors, like anti-dilution protection and pre-emptive rights, a standard safeguard for investments in an unlisted company.

An investigation later conducted by the income-tax department found out that both the evaluations of the company done by a) P N Sudarshan, senior director of the audit firm named Deloitte Touche tohmatsu India Pvt Ltd dated November 16, 2007 and b) by Jagandisan & Co dated July 12, 2007 did not carry out any test to establish the accuracy of statements provided on Jagati Publications, it did not carry out a market survey to study the financial feasibility of the enterprise and largely depended on the inputs given by members of the board.

Also, the report of PN Sudharshan, senior director at Deloitte, was meant for internal purposes only, and was not meant to serve as a bait to lure investments from outside. However, Vijay Sai Reddy had used this report to seek investments from Madhav Ramchandra in violation of the Companies Act.

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Who are the main witnesses the CBI hopes to rope in?

TR Kannan, director of Lakshmi Textiles Pvt Ltd, had been in business for about 40 years. Investigations led by the CBI revealed that Kannan was approached by the then chief minister YSR Reddy, to invest in the state during a meeting organised by the South Indian Mill Owners Association in Hyderabad in 2007.

Kannan later came in contact with Vijay Sai Reddy in 2008 and was 'compelled' to invest Rs 5 crore in Jagati Publications, in order to 'have trouble free business of cement factory in AP.'

Till date, Kannan has not received any dividends on the investment.

Investigations also found out that Avanindra Kumar Danamudi was approached by Jagati Publications, and he invested close to Rs 10 core after being told about the 'projected credentials' of the company. He was issued 2,77,776 shares at a premium of Rs 360/share.

Madhav Ramchandra, a Dubai-based NRI, runs GBA products Company Ltd, a venture in cement and marine products. Upon investigating, it was found out that YSR Reddy had met him at a business mela in Dubai and asked him in invest in the state.

According to Ramchandra's statement, he received a phone call from Jagati Publications in November 2008, and was asked to invest in the company. He was further persuaded and told a public issue of Jagati Publication was slated for launch.

In consequent investments, Ramchandra invested Rs 19,65,99,830 in the publication, and was in turn allotted 5,46,110 shares.

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What are the specific charges against Jagan Reddy in this second charge-sheet?

A meeting of the board of directors of Jagati Publications was held on November 21, 2006, which decided that he would operate the accounts of the publication.

By the end of 2006-07, the 'paid up' capital of the company had risen to 5,00,35,800 equity shares at face value of Rs 10 per share.

Investigations had also led the CBI to believe that Jagan Reddy and Vijay Sai Reddy had issued shares to outsiders, even though the company was private. This is a violation of Companies Act 1956 under Section 3 (1) (iii).

Specifically, the CBI is trying to prove through court proceedings that Jagan Mohan Reddy, in conspiracy with Vijay Sai Reddy, had 'fraudulently obtained a wrongful gain of Rs 34,65,99,830 of investments into Jagati Publications from investors T R Kannan, Madhav Ramchandra and A K Dandamudi'.

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