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LKM Blogs
A Question of Trust
By Lalit K Modi - 9th September, 2012

The BCCI meets in Chennai next weekend, knowing it has many problems to solve and the list appears to be getting longer and longer by the day.  The Deccan Chargers issue is the latest problem that's dragging the IPL through the mud, but as well as that, sponsors are fleeing and new partners appear reticent to jump on board a ship that the beleaguered crew is finding harder and harder to steer.

And now there is another issue they need to address, which so far, hasn't been given much attention.
This week, I have presented my reply to the Directorate of Enforcement's 11 Show Cause notices relating to the Foreign Exchange Management Act (FEMA). In simple terms, the act requires certain foreign exchange transactions to be approved by the Reserve Bank of India (RBI) and the current investigations surround the potential contravention of the law in the BCCI's dealings with Cricket South Africa (CSA) for IPL 2. The ED delivered the notices to several recipients including me and in doing so, they gave me an opportunity to fully reflect the activities surrounding the tournament in South Africa. I have always said I have nothing to hide, which is why I have now published the Show Cause notices and my reply in their entirety elsewhere on this website. You can read them in full by clicking on the link at the foot of this page, but I've prepared an overview here, which will allow the world a swift opportunity to consider the facts.

Firstly, for complete clarity, let me make one thing clear. Show Cause notices and the subsequent replies, allow an adjudicating authority to make a judgement on whether a case for adjudication is made out. They are not, in themselves, a summons. But within the 11 notices I have received, there is not one single allegation against me personally. I was, of course part of the IPL at the time and that is why I regard the receipt of the notices as an opportunity to explain the issues at hand and, in doing so, clarify the innermost workings of the BCCI at the very highest level. Its also worth noting that I voluntarily received the Show Cause notices in order to do so.

The ED is investigating claims that the BCCI made payments to CSA and administered an account in South Africa without the necessary permissions required under FEMA. At the time, I was, of course, IPL Chairman. As a sub-committee of the BCCI, the IPL does not have an independent existence or any financial drawing or disbursement powers. All accounts are operated by the BCCI. When it became clear that IPL 2 couldn't take place in India because of security issues relating to the elections, we made the collective decision to take the tournament to either England or South Africa. That decision was taken at a meeting of the BCCI Working Committee on 22nd March, 2009. During the meeting, it was also agreed that an overseas event meant that a new bank account would be required somewhere abroad to take care of all financial considerations and that, in accordance with the constitution, the Secretary  of the BCCI, should seek clearance from the RBI.

On 25th March, I was one of several recipients of an e-mail sent by the then Secretary, Mr. N Srinivasan, which explained that RBI policies in South Africa meant the accounting set up would need to follow the methods adopted by the ICC during international tournaments. Specifically, this meant that CSA would administer the account on behalf of the BCCI with the latter making payments to balance the transactions.  As was reflected in the meeting on 29th March, the appropriate BCCI offices were required to ensure all regulatory processes were adhered to. That is a singular responsibility, which constitutionally rests with the Secretary in association with the Treasurer. Significantly, however, it was Mr. Srinivasan's view that because the IPL 2 account was now going to be operated CSA, any transfer of funds would be covered under current account transactions AND WOULD NOT REQUIRE RBI APPROVAL.

When the decision to play in South Africa was made, an agreement between the BCCI and CSA was signed on 30th March, 2009, a meeting at which I was not present. A transfer of money was overseen by the Treasurer with the approval of the Secretary. This remained the principle throughout the exercise.

I was surprised to learn that the BCCI in its reply to ED  is now portraying IPL 2 as a CSA-owned tournament in its own responses to the Show Cause notices. This is just untrue. IPL 2 was a BCCI tournament all along. The fact is that throughout the tournament, CSA administered the accounts, but was not authorised to make ANY unilateral payments from the account as the money was regarded as BCCI funds. Any transaction required BCCI authorisation and CSA was considered a service provider for which fees were paid. For additional clarity on this point, it's important to note that all vendors, contractors and suppliers were selected and appointed by the BCCI. It's therefore interesting to consider why the BCCI is now painting a different picture.

Everyone knows the tournament was an outstanding success. The CSA and the South African people embraced the event in a manner that was beyond our wildest dreams and IPL 2 brought in exceptional revenue for the BCCI - and consequently for India. The route for all funds was administered in accordance with the agreed principles. As Chairman of the IPL, I created the tournament, while the Treasurer operated the accounting process and at all times, only did so following approval by the Secretary. It has been standard practice for the BCCI that all FEMA compliances and RBI approvals are required to be actioned from the Treasurer's office but in turn all decisions and approvals in respect of the IPL, which had any financial implication, or required the drawing or disbursing of funds - including RBI approvals - were taken by the then Secretary. For the record, I had no transactional mandate, nor any cheque signing powers.
So these are the salient points I have reflected in my reply to the ED and are available in full by following the link below. It is important for me to explain the matter publicly because on 15th September, the BCCI meets in Chennai when they will apparently discuss the issue of changing the constitution to allow longer terms for officials - including of course, those currently in office. That meeting will take place under a cloud of issues that the cricket fans of India are awaiting answers to. It's up to you to work out wether or not, they deserve your patience any longer.

The Show Cause notices and my full reply can be seen in the 'Legal Issues' section of this website under 'Enforcement Directorate Matters' and entitled; 'South Africa Issue.' You can move straight to the relevant page by clicking here.

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