Jay Shah's cash windfall: The many questions the BJP and Amit Shah need to answer

The contents of the report

Here is an analysis of the inferences that the report makes and the defence from the company and the government.

Inference 1: Temple Enterprises Private Ltd, a company owned by Jay Shah (Amit Shah's son) reported a 16,00,000% (16 lakh per cent) in its turnover at Rs 80.5 crore in 2015-16 from a meagre revenue of Rs 50,000 and a profit of Rs 18,728 in 2014-15. The company is involved in the business of exporting agri-products.

The website has not alleged that this sudden rise in revenues of the company is due to corruption or illegal activities. However, the report raises questions over the ability of a company to raise its revenues by 16,00,000% within a year.

Interestingly, in the same year when the company's revenues touched unimaginable heights, the company reported a loss of Rs 1.4 crore, and shut down by October 2016.

Company and government response: In its response, the company told the author of the report that the massive increase in the revenue was accrued from sale of products, which included "Rs 51 crore of foreign earnings”. Shah’s lawyer also responded to the author's allegations claiming that “a turnover of Rs 80 crore in the commodity business is not abnormally high.”

In his press conference, Railways Minister Piyush Goyal also said that commodities business generates high revenue with very low margins. Since the company had just begun its operations, there was a massive jump in its revenues.

Doubts and questions: If we look at the response and explanation by the company's lawyer and the government, no doubt comes to mind.

But we are living in times of when the BJP-led NDA government claims to be waging a war against black money in the country. In fact, the government has initiated probes against shell companies suspected of being involved in money laundering.

More so, the company owned by Jay Shah was involved in the export of agri-products.

It is a well-known fact that the common modus-operandi for those involved in money laundering is to show higher value of exports. For example, an exporter sells goods worth Rs 1,000 rupees but declare earnings of Rs 10,000, he can legalise Rs 9,000 of his black money generated within India by receiving payments in its bank accounts.

One has to remember that agricultural income is tax free in India, being the very reason why the export of agri-products is the most common activity to make black money white in the country.

The company not being able to make profit does not lift the suspicion. In fact, the whole exercise of tax evasion relies on showing higher expenses than total revenue.

Therefore, in order to counter the allegations, the government must lay bare the details of transactions that Temple Enterprises was involved in. Given the all round attacks on the government’s way of handling the economy, it is important for the government- now that they have decided to come defend a private citizen- to clear all doubts that are being raised by the opposition.

Shadow lines

Inference 2: The story also mentions that Temple Enterprise received an unsecured loan (a loan without any collateral) of Rs 15.78 crore from a listed entity, KIFS Financial Services. The story also says that the "revenue of KIFS Financial Services for the same financial year when the loan was given was Rs 7 crore. The annual report of KIFS Financial Services also does not reflect the Rs 15.78 crore unsecured loan given to Temple Enterprise".

Government response: Piyush Goyal, in his press conference, argued that KIFS is a non-banking financial company and it had lent out money to the company at commercial rate of interest.

Doubts and questions: The explanation looks justified as the job of a NBFC is to give loans to businesses. However, Goyal did not elaborate upon the reasons for KIFS to not mention in its annual report the loan amount of Rs 15.78 crore given to Temple Enterprises. Every listed company is supposed to report every financial transaction in its annual report.

It would be pertinent to bring in an instance that gave the BJP a reason to cheer a few years ago. An investigative news report about Robert Vadra, ironically written by the same author, Rohini Singh, in March 2011 for The Economic Times said that:

“DLF has also extended loans to various companies owned by Vadra. Some of these are unsecured loans or debt without any collateral. As on March 2009, Sky Light Hospitality had received unsecured loans amounting to Rs 25 crore from DLF Ltd. As on March 2010, only Rs 10 crore remained. It 's unclear from the statement of accounts if the rest was paid back or written off. Sky Light Hospitality has, in turn, loaned money to other Vadra owned companies such as Blue Breeze Trading Pvt Ltd, North India I .”

Along with Delhi's current Chief Minister Arvind Kejriwal (who was an aspiring politician then), the BJP made a political issue out of it.

“A company (DLF) which itself has a loan to the tune of Rs 22,000 crore and paying an interest of 15 per cent thereon, was extending interest-free loans worth Rs 65 crore to Vadra,” BJP national spokesman Prakash Javadekar told media persons, as per PTI report.

In a fair comparison, DLF did report its loans to Vadra's firms in its statement of accounts but the firm that has extended loans to the firm owned by Jay Shah has kept it a secret as per the news report by thewire.in

Given BJP's posturing as an incorruptible party it becomes important for the party to draw a clear distinction in front of the public between the case of Vadra and that of Shah.

Murky waters

Inference 3: Another point mentioned by news report is that of Kusum Finserve- a limited liability partnership incorporated in July 2015- in which Jay Shah owns 60% stake. This company received Rs 25 crore worth of finance from the Kalupur Commercial Cooperative Bank against a collateral of 'under Rs 7 crore'.

The story also raises questions over Kusum Finserve receiving a Rs 10.35 crore loan from a public sector enterprise, Indian Renewable Energy Development Agency or IREDA” .

This fact is important because Kusum Finserve is a company that is involved in the business of stocks and shares trading, import and export activities and distribution and marketing consultancy services.

A sudden venture into the renewable energy business and getting a loan sanctioned from a union ministry controlled company needs some explanations.

Government response: In his press conference, Railways Minister Piyush Goyal defended the reason for giving the loan to set up a wind-power project, saying, “Are the authors of thewire.in and authors of the report against start-ups in India? ...The country has 100 of entrepreneurs who have gone into renewable energy in the most transparent manner in which we have promoted renewable energy in the country.”

Goyal's argument is legitimate. Since the size of the wind energy plant under question and the loan required for it was not big, it may not require any prior experience for the company to be in the business. India has been trying to promote renewable energy power generation in the country by assisting first timers in various way.

While Jay Shah's company has decided to sue the website for publishing a story that raises doubts over company's business model, sudden rise in revenues followed by a sudden shutdown, it does not change the already negative political narrative in the country against the incumbent government.

The BJP came to power by projecting the Congress as the most corrupt party in the country. People believed that narrative and gave the party a brute majority in the Lok Sabha. With next Lok Sabha elections just about a-year-and-a-half away, it is ironical that the party is finding itself defending against allegations that were once its salvo against the opposition.

For the BJP to come back to power, it will probably need to undergo a baptism by fire.