It's a tale that deserves to be made into a Bollywood movie. But the plot line has some serious consequences for how India is viewed by investors and businesspeople worldwide.
Here's how a potential investor in an India enterprise might view the tangled web of illegal financial dealings involving Malvinder and Shivinder Singh, a.k.a. the Singh brothers, and their uncle (or maybe cousin) -- Gurinder Singh Dhillon, the guru of Radha Soami Satsang Beas (RSSB).
Hey, I like your business plan. But I've been reading about how an Indian guru installed his right hand man as CEO of a company controlled by his billionaire nephews, who also were devotees of the guru. Then the guru's guy, Sunil Godhwani, orchestrated hundreds of millions of dollars of illegal loans to shell companies managed by the guru's family and close associates. They never repaid the loans, and now the company the money was siphoned from, Religare, says Godhwani was part of a criminal conspiracy. This is freaking weird stuff. How do I know that some guru isn't going to take control of your company and rob me of my investment?
A Bloomberg story shared in the Washington Post, "India's Crony Capitalist Edifice is Creaking," helps explain why the Singh brothers/RSSB financial wrongdoing has broader implications. Here's how the story starts out. I've boldfaced the mention of the Singh brothers and their guru.
A smug, entitled business class driven by greed and hubris, but sorely lacking in resources to legitimize their control. I could be describing the India Inc. of today – or 1959. Nothing much has changed.
Jet Airways Ltd., India’s oldest surviving private-sector airline, is about to crash land. Founder Naresh Goyal neither brought in enough new equity of his own to rescue the debt-laden carrier, nor did he allow a timely sale to suitors who wanted the business, albeit without him. Jet may yet survive, but it’s touch-and-go. Or take the country’s second-largest hospital chain, put into the trauma room by its founders’ 4 billion rupee ($56 million) fraud. Fortis Healthcare Ltd. wants brothers Malvinder and Shivinder Singh arrested. Complicating matters, Malvinder has accused Shivinder of siphoning funds from the family holding company and diverting them to a spiritual guru. The whole thing is an unholy mess.
For at least six decades, scholars and policy makers have been aware of the strain placed by India’s feudal system of corporate governance on capital formation, job creation and growth. Yet the last major reform was in 1969, which ironically was also when India was nationalizing banks and lurching toward a more virulent socialism. Subsequently, globalization caught up with India, the economy opened up and attracted hundreds of billion dollars in foreign capital, but the foundations of corporate structure stayed weak. It’s only now, when the edifice is showing cracks, that it’s becoming clear a fresh coat of paint alone won’t suffice.
This helps explain why the Chief Justice of the Supreme Court said this to the Singh brothers recently:
The court, then referring to the foreign tribunal award in the favour of Daiichi, told Singh brothers: "It is not just about Rs 4000 Crore or individual honour It is a question of honour for the country. It doesn't do good for the country. You were once the flag- bearers of this country. Pay your debts and come out of this."
So why are the Singh brothers having so much difficulty coming up with the Rs 4000 crore, which is about $577 million? A big reason is that around $870 million is owed them by guru Gurinder Singh Dhillon and his family via illegal loans that haven't been paid back.
Here's a graphic from India's Business Today that I included in a post, "Financial dealings of RSSB guru relate to India Supreme Court hearing."
The good news for India is that investigations are being conducted into the financial fraud with the twin goals of (1) recovering the money that ended up in the pockets of the guru, his family, and associates, and (2) learning who was responsible for the fraud besides Shivinder Mohan Singh (SMS below), Malvinder Mohan Singh (MMS below), Sunil Godhwani (SG below), and N.K. Ghoshal (NKG below).
Here's an excerpt from a complaint filed recently with the Delhi Economic Offences Wing by Religare Finvest Limited (RFL), one of the public companies that lost money when the illegal loans were made to the Dhillon family and others. REL stands for Religare Enterprises Ltd. I've boldfaced parts for emphasis.
22. In this context it is relevant to mention that RFL is ultimately owned by REL which in turn is largely held by public shareholders. Any loss caused to RFL is a loss to public shareholders.
It is evident from the replies of the aforesaid 7 entities that they did not intend to return the loan to RFL from inception of the transaction. The MoUs signed were documents created dishonestly to give the colour of genuine transactions to sham transactions the purpose of which was only to siphon away /misappropriate money(s) of the Complainant Company.
It appears that SMS, MMS, SG, NKG and other unknown persons (being the directors and employees of the 7 entities at the relevant time) colluded to wrongfully gain at the expense of the Complainant Company.
SMS and MMS breached the trust reposed in them by the Complainant Company, its shareholders, including REL and the public shareholders of REL.
Since it appears that Dhillon family members at one time were directors of some of the seven entities mentioned above, the guru's wife and sons now could be the target of investigators, as I wrote about in "Family of RSSB guru at risk of charges of criminal conspiracy."
A major remaining question is whether the guru himself will be implicated in the conspiracy. Almost certainly his family and devotees will do their best to protect Gurinder Singh Dhillon, since it would be a huge blow to the reputation of Radha Soami Satsang Beas if the organization's spiritual leader turned out to be a crook.
But if this happened, it would be good for India as a whole. Like I said, investors and businesspeople throughout the world need reassurance that India isn't a place where gurus, or anybody, can get away with stealing money from public companies.