Neeraj Monga, a former executive vice-president of Veritas Investment Research Corp., left the company in April, 2014.Galit Rodan/The Globe and Mail
A high-stakes legal battle between Toronto-based Veritas Investment Research Corp. and an Indian conglomerate has escalated dramatically, with Indian police arresting a consultant near New Delhi who had worked with the Canadian firm.
Veritas, an equity research firm with institutional investor clients, published a highly critical report in 2012 alleging financial "shenanigans" at Indiabulls Group, a large public Indian firm that spans finance, real estate and infrastructure investments.
The report, titled "Bilking India" and co-authored by Veritas's Neeraj Monga and an Indian consultant named Nitin Mangal, recommended that investors sell Indiabulls shares – prompting multiple, overlapping legal cases in both India and Canada.
Now, Mr. Mangal, who lives in India and no longer works with Veritas, has been detained by police in Gurgaon, the suburb of New Delhi. On Dec. 3, the Gurgaon court denied him bail – citing "a huge fall in the prices of the shares of the complainant company."
Mr. Mangal's lawyer, Amit Dube, says charges of extortion have been concocted in order to silence a critic of corporate India."This is a false case," Mr. Dube said in an interview. He said Gurgaon police had no right to detain Mr. Mangal, noting he received anticipatory bail from a separate court in Mumbai.
Indiabulls, which could not be reached for comment, called the Veritas report a "blatant bundle of lies and factual incorrectness" in a regulatory filing. The Indian firm also alleged Mr. Mangal's co-author, Mr. Monga, tried to extort Indiabulls through a shareholder in the U.K., London-based hedge fund Altima Partners LLP, by offering to withhold their critical report for $50,000 (U.S.) – a claim Veritas denies.
In a statement of claim in Ontario, Veritas said Mr. Monga was simply responding to a query from an Altima employee about Veritas's annual research subscription fee of $50,000, and said Veritas could delay wider dissemination – via Bloomberg terminals – of the already- published report "by one day" if Altima Partners LLP wanted to pay the fee and get a copy of the report.
At that point, Veritas's paying clients already had the scathing report on Indiabulls Real Estate Ltd., which said the Indian company's disclosures were "unreliable," that the "sole purpose" of the firm is to "bilk institutional and retail investors for the benefit of select insiders," and that "controlling shareholders … are running the organization as a piggybank." Previous Veritas reports had targeted Reliance Communications, part of a large conglomerate, and Kingfisher Airlines, which defaulted on loans and had its licence revoked.
In the Ontario case, Veritas accuses Indiabulls of doctoring an e-mail by removing the phrase "by one day" in order to imply that Mr. Monga would indefinitely delay the report's publication. The Toronto firm also accuses Indiabulls representatives of lying to Indian courts, fabricating evidence and defaming Veritas in public statements. Veritas has since abandoned India research efforts and is seeking $11-million in damages for "libel, conspiracy, and intentional infliction of economic harm."
Indiabulls followed that by seeking an injunction at the High Court of Delhi, banning Veritas and the two authors from pursuing cases against it in other courts. Mr. Monga, who was executive vice-president and head of research at Veritas with a 20-per-cent stake, sold his interest and left the company in April, 2014, and founded his own firm.
Mr. Dube said the authors stand behind their research and that the criminal proceedings were started to silence their independent criticism of corporate governance issues. He said that if the company had substantive complaints about the research that the proper avenue was India's securities regulator, the Securities and Exchange Board of India.
"The police are not competent to investigate this matter," Mr. Dube said. "The silence of the Securities and Exchange Board of India is deafening."
On Wednesday, Veritas CEO Anthony Scilipoti said in a statement the charges against Mr. Mangal were "unfounded allegations," and called for the man's release.
"Veritas Investment Research Corporation is outraged by the unjust incarceration of Nitin Mangal, an innocent Indian citizen, for co-authoring a research report on various Indiabulls companies," Mr. Scilipoti said. "Allegations made by Indiabulls in relation to our research report and sell recommendation, are completely without merit. It is our hope that Mr. Mangal will be released promptly from custody where he is being held without charge and allowed to go home to his family."
With files from Jeff Gray