23th Oct 2010 : The Board of Control for Cricket in India (BCCI) has terminated the contract of Rajasthan Royals (RR), winners of the inaugural season of the Indian Premier League (IPL). Manoj Badale, chairman of Jaipur IPL Cricket Pvt. Ltd that owns RR, said in an interview what the teams future course of action will be, their stand on alleged charges of Fema (Foreign Exchange Management Act) violations and whether he believes that the teams proximity to former league chairman and commissioner Lalit Modi has proved costly for them. Edited excerpts from an email interview:
What are the financial repercussions of the termination?
The financial repercussions are enormous. Just as an illustration, look at the recent valuations of the two new teams$333 million (Rs.1,482 crore) and $370 million. Those sums were paid to acquire new teams with no players, no sponsors, no fan bases, no brand equity and no existing ancillary revenue streams. Ironically, much of the reason for the value appreciation of these new franchises is down to the risk taken by the founder teams, which include RR. No team played a bigger role in season 1 of the IPL than RR. The loss and damage to RR from termination is incalculable, and cannot be compensated for.
What message do you think that the BCCI action sends to investors?
This is a big question, especially in the context of other recent major issues for foreign investors. I have been bringing new investors to India since 1993, when I set up the Indian arm of a global consulting firm (where Rahul Gandhi also spent his formative years), and I remain passionate about the long-term potential and opportunity that India presents. I have been investing my own money since 1998, and we have been active voices promoting India, regularly speaking on the subject in Europe. I sincerely hope that the BCCI action doesnt reflect a broader investment climate for overseas investors. Having encouraged the investment by global investors such as Lachlan Murdoch, the situation that we find ourselves in is an embarrassment. It is not a good signal if contracts can be unilaterally terminated without discussion or arbitration; compensation payments can be reversed after the event without discussion between the parties; and high-profile entrepreneurs who take real financial risks have their businesses taken away.
Do you think BCCI has taken a harsh decision on what most perceive are procedural flaws?
It was a harsh decision. Indeed, members of the governing council have privately indicated that it was too harsh, along with other members within BCCI who have expressed their private support. There was no notice and no opportunity given to us for any discussion. The decision was taken before conclusion of the IPL disciplinary panel, where the RR case is being reviewed, and before conclusion of any government enquiries into the IPL franchises.
What has their response been?
Our belief has always been that this is a commercial contract between two commercial organizations. Generally, if one of the parties has an issue, you sit around a table and see if you can resolve it, before pressing any termination buttons. In an attempt to resolve this amicably we wrote to BCCI, but as yet we have had no response.
Media reports suggest that the show-cause notice was never received by RR.
That is correct; there was no show-cause prior to the termination notice. We only learnt of the existence of a show-cause notice via the media, who had received it some days before our termination. We still dont have an official copy.
What will be your future course of action?
We have tried to engage BCCI, but with no success to date. We have always said that we believe ourselves to be on firm legal ground, and we have always tried to do the right thing. Clearly, we have to protect a valuable franchise, business, and importantly, our duty as an employer of peopleso legal recourse remains an option.
BCCIs grouse has been the transfer of shares and ownership within RR. But Suresh Chellarams presence at IPL workshops as well Raj Kundra and Shilpa Shettys public induction have been known. Didnt RR communicate these developments formally to BCCI?
Firstly, the transfer of shares has nothing to do with Suresh Chellaram. He was part of our original bidding consortium of three shareholders. The transfer relates to a transfer of a subsidiary to a holding firm, both with the same ultimate ownership. The Indian operating subsidiary was held in trust for the original shareholders (owners) by the chairman and CEO of the franchise, until the overseas holding company was set up by the same shareholders. This is a very common process for foreign investors. We have regularly communicated our ownership structure to BCCI-IPL. We communicated it ahead of the auction; we detailed a bid consortium diagram in our bid document; we have sent share registers; and we have published detailed ownership structures through our FIPB (Foreign Investment Promotion Board) applications. You are also right to point out that Suresh has been present at every owners gathering.
The Enforcement Directorate (ED) has alleged that Jaipur IPL has violated Fema norms when it sold stake to Raj Kundra and Shilpa Shetty in a deal that valued the franchise at $140 million.
Firstly, we have had no formal communication from ED as yet on any violations. I operate businesses in several countries, but I have yet to operate anywhere, where so much communication takes place indirectly.
The transfer of shares to Raj Kundra has not violated any Fema norms and was merely being reviewed to ascertain the source of funds, which have been provided fully to ED. This is not a franchise issue. As regards the issue of share valuation, this is in connection with the transfer of shares held by the interim shareholders under an agency agreement to the holding company. This was done in full compliance with Fema norms, as per the erstwhile CCI (Controller of Capital Issues) guidelines and filed with RBI (Reserve Bank of India) through our authorized dealer. This is not referred to in the termination notice.
I would like to reiterate that we have always done our best to comply, which is why we voluntarily sought the FIPB approval. Indeed, much has been made of our FIPB rejections, which simply refers to our request to convert our performance deposit into shares. Our existing structure is fine, as 100% foreign direct investment is allowed in sports under the automatic route.
By terminating the contracts with RR and Kings XI Punjab, is BCCI trying to obliterate any connection with Lalit Modi?
Its not for me to speculate on the motives behind the actions. However, for two weeks now I have had to endure people saying that you have been terminated because Suresh Chellaram is an investor. All I can say is: So what? He paid his money to support the tournament. He has been visible since Day 1, so why the problem now? No questions were raised when eight investors bet over $600 million on a 50-page prospectus for an unproven tournament in January 2008. If Lalit Modi has committed any wrong-doings, we have always said that he will need to face the consequences. However, that is nothing to do with us. It is not a reason to terminate franchises where his family members are involved. To be fair to BCCI, this is not a stated reason for their termination notice.
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