The country's premier investigating agency, the Central Bureau of Investigation, is looking into whether or not a case of corruption can be made out in the questionable Rs 250 crore (Rs 2.5 billion) investment made by the public sector Mahanagar Telephone Nigam Limited in the Maharashtra government-owned Maharashtra Krishna Valley Development Corporation Limited.

A number of leading politicians are said to have been associated with this controversial investment.

They include Pramod Mahajan, general secretary of the Bharatiya Janata Party and former Union minister for communications, information technology and parliamentary affairs.

Other politicians who took a keen interest in the deal included Lok Sabha Speaker and former Union minister for heavy industries and public enterprises Manohar Joshi, who belongs to the Shiv Sena, former irrigation minister in the Maharashtra government and Mahajan's brother-in-law Gopinath Munde, and former Maharashtra chief minister and senior Congress leader Vilasrao Deshmukh.

Whether the CBI will eventually register a criminal case remains to be seen. Nevertheless, what is clear is that certain powerful politicians bent rules to ensure that a profit-making PSU under the central government made a large investment in a loss-making state government company.

Whereas the public sector telephone services provider in Mumbai and New Delhi, MTNL made its investment in MKVDC more than a year ago in May 2002, the unusual aspects of the episode were first brought out in reports published in The Indian Express and its sister publication, The Financial Express, on October 9.

On February 18, on rediff.com, this columnist asked if Mahajan's sudden 'demotion' had something to do with MTNL's generosity towards MKVDC. I also wondered if a few of Mahajan's political opponents had gained from the transaction.

There were certain highly critical reactions to my column from particular readers. But more of that a bit later.

On April 27, journalists Navika Kumar and Prafulla Marpakwar of the Express disclosed for the first time the documents detailing the precise manner in which Mahajan and Joshi had bent rules to clear MTNL's proposal to invest Rs 250 crore in MKVDC's 10-year bonds.

Here's a brief chronology of events:

In early April 2002, Vilasrao Deshmukh, the then chief minister of Maharashtra, and the then state finance minister J N Patil had written to then communications minister Mahajan requesting him to urge companies under his ministry to invest in MKVDC bonds.

The MKVDC issued bonds worth Rs 400 crore (Rs 4 billion) that had been subscribed to the extent of around Rs 150 crore (Rs 1.5 billion) at that juncture.

On April 15, MTNL's board of directors decided to park Rs 250 crore of its surplus funds with MKVDC for a period of ten years subject to the concurrence of the Department of Public Enterprises and adherence to the guidelines, if any, issued by the finance ministry.

The MKVDC bonds carried a rate of interest of 11.5 per cent per year against the then prevailing market rates of interest that varied between 7 per cent and 9.7 per cent, according to MTNL's internal records.

Since DPE's 1996 guidelines specified that a central public sector undertaking could invest in financial instruments of a state government undertaking provided the instruments carried the highest credit rating and the investment was for a period of one year, MTNL sought the communications ministry's approval.

Two days later, on April 17, the file was placed before Mahajan for his approval.

By then, according to the Express report, the relevant file prepared by a general manager of MTNL's finance department had moved super-fast.

It moved through the hands of the company's finance director, followed by its chairman and managing director (Narinder Sharma), then on to the telecommunications secretary (Shyamal Ghosh), member, finance of the Telecom Commission and three other officials in the telecom ministry before coming back to secretary Ghosh -- all within the span of a single day, April 17.

Deshmukh wrote to Mahajan the following day (April 18).

On May 6, Mahajan approved the MTNL board's decision. The same day, Mahajan wrote to the then minister in charge of the DPE Manohar Joshi asking him if the investment guidelines could be relaxed.

Three days before he was made Lok Sabha Speaker, on May 7, Joshi approved the investment after 'keeping the Hon'ble Finance Minister (Yashwant Sinha) informed.'

When contacted by the Express, Joshi first said he did not remember the details of what had happened a year ago. He then added that he saw nothing wrong in relaxing the DPE guidelines for MTNL since its was investing in Maharashtra government-guaranteed bonds.

The investment finally took place on May 10, 2002.

In between these decisions, Sinha told his officials that he had received a call from Mahajan asking him whether or not MTNL should invest in the bonds issued by MKVDC.

The finance ministry officials observed that since the bonds issued by MKVDC did not have the highest credit rating, MTNL should not park its funds in such bonds.

Despite advice to the contrary, Joshi says he did not 'see any problem' in the investment.

Though the MKVDC bonds are guaranteed by the Maharashtra government, credit rating agency ICRA downgraded them to 'non-investment grade' by January 2003.

One reason why ICRA downgraded the MKVDC bonds was the delays in payment of interest to bondholders.

Another credit rating agency, CARE, had in March downgraded MKVDC bonds to the BB(SO) level from the earlier level of A+(SO) that in any case was below the mandated highest triple A rating.

It is common knowledge that the Maharashtra government is currently steeped in debt -- the state's total debt burden went up from around Rs 18,000 crore (Rs 180 billion) in March 1996 to over Rs 57,000 crore (Rs 570 billion) in March 2002 and is right now in excess of Rs 80,000 crore (Rs 800 billion).

Meanwhile, the Bombay Telephone Users Association had written a letter to the MTNL chairman and managing director alleging that three ministers of the Government of India had taken 'personal interest' in authorising MTNL to invest in MKVDC bonds.

MTNL was not the only company that invested in these bonds. Other companies included the Housing & Urban Development Corporation, the Life Insurance Corporation and the General Insurance Corporation.

In recent years, MKVDC's financial condition has deteriorated considerably.

According to the Mumbai edition of The Economic Times (May 1), MKVDC owes Rs 2,243 crore (Rs 22.43 billion) to various debtors, including a sum of Rs 1,357 crore (Rs 13.57 billion) to its contractors, besides smaller amounts to financial institutions and the state government as guarantee fees.

The same newspaper has reported that Maharashtra Governor Mohammed Fazal had written a strongly worded letter to state Chief Minister Sushil Kumar Shinde cautioning him about the 'disproportionate expenditure' being incurred on various irrigation projects in the state, including those being executed by the MKVDC.

Having already spent around Rs 7,000 crore (Rs 70 billion), the MKVDC -- set up in 1996 to implement the Krishna Water Disputes Tribunal Award -- would need an additional sum of Rs 6,000 crore (Rs 60 billion) to stay afloat and reportedly does not know where this money will come from.

According to the Express, the MKVDC is supposed to execute 927 projects, of which 353 have so far been completed.

On May 5, Express journalist Marpakwar reported in his newspaper that the MKVDC had found out a 'novel' way of clearing the dues of its contractors, that is, by allotting bonds to them.

This correspondent has been told by a number of sources in various ministries that certain contractors paid kickbacks to ensure that the bonds issued by MKVDC were subscribed to by various companies.

Three separate individuals, speaking on condition of anonymity, said a considerable amount of money had changed hands to ensure that the transactions ran smoothly.

The CBI would presumably now look into these allegations.

It has also been reported by the ET (April 29) that the Department of Telecommunications' vigilance cell is inquiring into MTNL's controversial investment in MKVDC.

Significantly, Mahajan did not wish to speak on the record when he was contacted by journalists from the Express.

He also did not wish to be quoted when this columnist spoke to him.

I ended up quoting a 'source close to Mahajan' in my February 18 column.

Coming now to my critics, one Surinder Kumar had found my article 'amusing' and said it read as if  'a lot of effort had been put in by someone who has lots of time to follow up his home-made theories and conjectures.'

Well, Surinder-ji, it seems that it is not just I but the CBI as well, which has now decided not to follow your sage advice. I have been told that the highest in the land are aware of the unusual circumstances under which the deal was struck.

Another reader who had responded to my article went only by the pseudonym 'Axl.' This person questioned my journalistic credentials and the credibility of what I had written. 'Everyone can get away with taking potshots at anyone in the name of journalism,' this individual wrote in reply to my article, which was described as 'gossip' and 'garbage.'

This person added that the 'whole interview printed might as well be his own.'

Well, Axl my friend, let me assure you that the 'source close to Mahajan' does exist, that I indeed spoke to him on the phone on condition that I would not identify him and that the interview used was not a figment of my fevered imagination.

Surinder-ji, Axl and Nita (who felt there was no scam involved) -- may I request all of you to go to the rediff.com archives and go through the other mail messages that my February 18 column received. And, do remember to keep on writing.

Though I am not in the habit of responding to the hate mail that my articles occasionally elicit, I thought I could make an exception in this specific case.

I must say I did feel great when the Express and ET not only confirmed what my sources had said, but threw a lot more light on this murky affair.

Will anything come out of the investigations that appear to be at a preliminary stage at present? Well frankly, I am not so sure.

The author is Director, School of Convergence @ International Management Institute, New Delhi and a journalist with over 25 years of experience in various media – print, Internet, radio and television.