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The Curious Case of Vinay Rai, the Vijay Mallya of a decade ago

The names of Usha Ispat and Malvika Steel, promoted by Vinay and Anil Rai have figured among the top 10 defaulters on what is called Reserve Bank of India (RBI)’s defaulters’ list, published by news portal The report says, Usha Ispat had been getting loans and defaulting on them for more than a decade despite raids by Central Bureau of Investigation (CBI), first information reports (FIRs) and the Serious Fraud Investigation Office (SFIO) initiating proceedings against the company promoters. But while Vijay Mallya is under tremendous scrutiny, Vinay Rai had reinvented himself. From a defaulter of mega steel projects he became an educationist but that venture also turned extremely controversial.
Vinay Rai, the promoter of Usha Ispat and Malvika Steel was reportedly close to Rajiv Gandhi and had managed to do a mega public issue of shares in 1989 that almost flopped. His steel venture in Gopalganj, Uttar Pradesh did not take off. He quietly went out of the limelight. But Rai, a Sathya Sai Baba devotee reinvented himself as an educationist. His website now describes himself as “A philosopher. A philanthropist. A visionary. An educationist.” His Ahmedabad-based Rai University is established by Gujarat State Legislature under Gujarat Act No12 of 2012.
However, his education venture also ran into trouble last year. In January 2015, the Enforcement Directorate (ED) attached properties worth over Rs500 crore belonging to Rai Foundation that runs various colleges across the country under the aegis of Rai University. The case was related to alleged sale of ‘fake’ degrees by Eastern Institute for Integrated Learning in Management (EIILM) in Sikkim, which is run by Rai Foundation.
According to ED, the money earned through sale of fake diplomas and degrees was used to buy property in Chhattisgarh, Rajasthan, Haryana and West Bengal as well as invested in its campuses in Bangalore, Ahmedabad and Ranchi. “While the purchase value of the attached properties stands at Rs160 crore, the market value has been pegged at around Rs500 crore by ED. The ED probe found that the management and owners of the university were “laundering” funds obtained from students as curriculum and tuition fees in purchasing large tracts of land and creating bank balances across the country,” says a report from Times of India.
The report from Newslaundry, says, Usha Ispat has defaults of Rs16,911 crore. However, “only Rs 5,093 crore of Usha Ispat’s total defaults are labelled as wilful according to the RBI’s list. Usha Ispat owes more than half of the total default sum to Life Insurance Corp of India (LIC) at Rs8,619 crore,” the report says.
Malvika Steel was owned by Usha Ispat before being conveniently taken over by SAIL in 2009. Malvika Steel had defaults of Rs3,057 crore, as per the list published by Newslaundry. The report says, “The steel plant (of Malvika Steel) is located in Jagdishpur, in Amethi district, and has defaulted on loans since 2007. All of its loans are owed to either General Insurance Corp or LIC. According to a Hindu Business Line report, the Modi government pulled the plug on the plant’s revival in 2014 and it may be up for sale now — Rs300 crore had been sunk into the project in the United Progressive Alliance (UPA) regime. We have to wonder how much of a part Rai’s political connections played in Usha Ispat staying under the radar for as long as it has, especially since the company seems to be about as substantial as Casper the Friendly Ghost.”
Earlier in 2002, the CBI raided premises of both the Rai brothers for allegedly duping financial institutions for over Rs100 crore.
In the same year, Financial Express, in an article had described lavish lifestyle of the Rai brothers even as there were huge debts. “The Rais have CBI FIRs for cheating — making fake bills and siphoning funds — registered against them, face investigations for income-tax evasion and will not repay their humungous loans — or even the interest on them. It was only in 2000 that Vinay Rai was among the 11 Indians in the Forbes list of the world’s 300 richest people with a personal net worth of Rs5,338 crore. Yet, this was the year that two Rai companies — Malvika Steels and Usha Ispat — defaulted on loans of about Rs2,400 crore,” the report says.
“But the family’s political clout hasn’t waned,” the report dated 12 December 2002 says, adding, “The Governing Council of the foundation boasts Oscar Fernandes and Subbarami Reddy of the Congress, Amar Singh of the Samajwadi Party, actress and former TDP MP Jaya Prada and the BJP’s Anjali Rai. Then there’s PK Kaul, former Cabinet Secretary and Indian Ambassador to the US; KS Sarma, CEO of the Prasar Bharti and Justice Eswara Prasad, former High Court judge.”
The newspaper also gives details on how Information Technologies India Ltd (ITIL), another group company of the Rai brothers, had become an engine of growth during 2000 with a market cap of Rs2,000 crore. The report says, “In contrast, total investment in the company did not exceed Rs70 crore. But that was during the great tech boom, when each ITIL share, issued at Rs10, were being traded for a whopping Rs2,250. And then the tech bubble burst in 2001, and Rs2,000 crore of ITIL went up in smoke. This was the starting point for trouble in other group companies.”
“In August 2000, when Kulwant Rai, the father of Vinay and Anil Rai, was on the board of IDBI, Koshika Telecom, another group company of the Rais, was sanctioned a loan worth Rs100 crore when it had three of its four licences cancelled by the government for non-payment of licence fees. The fourth licence, which was running by default, because there were no other cellular operators in that part of Uttar Pradesh, also owed money to the government. Yet IDBI sanctioned Rs100 crore against a personal guarantee of Vinay Rai and pledging of shares in ITIL,” the report says. As on 12 February 2003, ITIL was traded last on the BSE at Rs1.05 or 16% down.

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