The resignation of Shashi Tharoor as minister of state for external affairs has striking similarity with another incident 18 years ago when Home Minister P Chidambaram had stepped down from the commerce ministry. The issue then involved alleged investments by Chidambaram’s wife Nalini in the scam-tainted Fairgrowth Financial Services that had been promoted by banker Bilgi Ratnakar, a close associate of rogue broker Harshad Mehta.
In Tharoor’s case, the controversy involves sweat (free) equity issued to his friend Sunanda Pushkar in the Kochi franchise of Indian Premier League (IPL) and the minister’s alleged interest in expediting the paperwork involved with the auction process.
Yet, the striking difference between the two episodes is Chidambaram had sent in his resignation in July 1992 without being asked to by his bosses, while it took Prime Minister Manmohan Singh’s personal intervention to force Tharoor to step down.
In both cases, it was a matter of shares issued under questionable circumstances.
In Chidambaram’s case, it was alleged that he and his family had secured 10,000 shares of Fairgrowth out of the promoter’s quota at the face value Rs 10 when their market price was much higher.
In the twist and turns of Indian politics, the person who helped Chidambaram come out clean was Leader of the Opposition in Rajya Sabha and Bharatiya Janata Party’s Arun Jaitley, a lawyer on the other side of the political divide.
Then prime minister P V Narasimha Rao re-inducted his colleague in his ministerial council in 1995. Prime Minister Manmohan Singh was handling the finance portfolio then.
Jaitley successfully defended Chidambaram, leading to the Delhi High Court dismissing the petition by Janata Party that sought a probe by the Central Bank of Investigation into the alleged irregularity.
In Tharoor’s case, what is being alleged is that his Dubai-based friend Pushkar secured “free” shares in the Kochi franchise of Indian Premier League (ILP), called Rendezvous Sports World, allegedly flouting norms laid down under the Companies Act.
What is now being probed is if due permission, indeed, was sought from the corporate affairs ministry while issuing the sweat equity, as under law such shares can only be allotted to employees or directors of a company.
According to corporate law experts, sweat equity can also be issued only if it is passed by a special resolution and the company has been in existence for more than one year.
For unlisted companies, the guidelines also require a “valuer” to determine the monetary worth that the intended recipient of sweat equity proposes to bring in after consulting relevant experts.
But more importantly, if the value of such sweats equity exceeds 15 per cent of the paid-up capital or Rs 5 crore, it also requires prior permission of the central government.