Khushboo Narayan – THE MINT
Mumbai: An investigation into the business practices of Osian’s and Saffronart Management Corp., two of India’s premier art houses, has revealed several irregularities in their account books, including a possible attempt to rig the price of artworks and dupe investors, according to an income-tax (I-T) department official involved in the probe.The two houses—both set up in 2000—separately denied any wrongdoing, claiming all their transactions were transparent, well documented and in line with the law.Busted? Osian’s chairman Neville Tuli with a statue of Sean Connery. Tuli has denied allegations of any wrongdoing at the art house. Natasha Hemrajani / HTThe I-T department’s “appraisal report”, previewed by Mint, reveals that Osian’s had obtained fake purchase bills worth Rs15 crore for artworks. The department, which started a probe into alleged tax evasion in 2007, questioned three persons who provided Osian’s with such bills and admitted they were fake, the official said.“Fake purchase bills can be used to inflate the price of art by lesser known artists. This is the easiest form of manipulation of prices in the art world. The technique is similar to that used in the stock market to rig the share prices of any company,” said the official, who didn’t want to be named. Art houses can use these fictitious purchase bills to set an inflated benchmark price for works by artists, causing genuine investors to pay more, according to the official. “Some of the art galleries have inflated the price of certain artists up to as much as 700%,” the official said. The assessment wing of the I-T department in Mumbai is evaluating the extent of suspected tax evasion by the two houses.On Saffronart, the report said the art house had paid royalty to an associate firm, Planet Saffronart Management Corp., in the British Virgin Islands, to reduce its tax liability. The report also said Planet Saffronart had given Rs11 crore to Saffronart for acquiring its intellectual property rights. Also See Under Suspicion The department investigated such transactions and found them not in line with the law, said the official. “We have also found a lot of cash transactions in Saffronart,” he said.The report also said at least 18 investors, who had invested Rs10 lakh and above each in Osian’s Art Fund, could not explain the source of the money they had put in the fund.An art fund is like a mutual fund where investors do not pick the individual investment vehicles and instead invest in a pool of artworks. Typically, high net worth individuals invest in such funds. The minimum investment in some funds is pegged at Rs25 lakh.The I-T department has alleged that Osian’s was involved in synchronized trading and rigging of prices of art.
In an emailed response to Mint queries, Neville Tuli, Osian’s chairman, said: “The allegations are false and defamatory. The so-called Rs15 crore fake purchases are absolutely incorrect. These transactions were made to Gallery 7, a 20-year-old gallery, and (an) associate art dealer called Rashesh Shah, for purchase of artworks by artists such as J. Swaminathan, S.H. Raza, Ramkumar, A. Padamsee, V.S. Gaitonde, Jogen Chowdhury, Atul Dodiya, among others.“Like with many galleries and dealers, they told us that they would like to directly invoice Osian’s from their client’s company, as they do not own the artwork. We were told that the client will pay them their commission. All transactions were fully paid in cheque and all artworks physically handed over to Osian’s.”According to Tuli, the I-T department two years later told Osian’s that these clients of Gallery 7 and Shah were not genuine art collectors but benami parties. “We have never dealt with Gallery 7 and Shah thereafter.” A benami transaction includes any deal in which an asset is transferred to one person for a consideration paid or provided by another person.“Gallery 7 has no correlation with any claims made by Osian’s. We clearly state that there has been no involvement of Gallery 7 in any kind of transaction with Osian’s in the past few years. The claims are totally absurd and preposterous,” said Nicholas Sachdev, partner, Gallery 7.Sachdev said Shah was an independent art dealer and not a part of Gallery 7. “Being an art gallery we refer a lot of clients to auction houses but we have not done transactions on behalf of any client or received commissions,” Sachdev said.Mint could not ascertain the whereabouts of Shah.Tuli also said, “There is no question at all of Osian’s creating bogus turnover or synchronized trading to rig up prices. It is totally against our ethos and the very reason why we exist. Naturally, there are many people who bought art for investment and hence reselling is part of the process. That is absolutely normal.”On investments in the Osian’s Art Fund, Tuli said, “Every investor filled up a detailed form with PAN (permanent account number) and bank account details, bank references and all legal requirements. Every document was given to the authorities; every payment was in full cheque. Your claim is absolutely not true.”According to him, the success of the Osian’s Art Fund had upset many. “Many fear that art funds will soon become public platforms, and so help further destroy the black economy. At the same time, the levels of disclosure set by the Osian’s Art Fund make us easy targets,” he said.In an emailed response to Mint’s queries, a Saffronart spokesperson said, “Saffronart has been pivotal in introducing complete transparency in the market for Indian contemporary art by publishing transaction details and prices clearly on our website. We are a professional company and all our transactions are clearly documented and are in compliance with applicable laws.”According to Ranjit Hoskote, a Mumbai-based art critic, there is no such thing as an authentic price for a work of art. “There is only a current price widely agreed upon by all market actors and proportional to the available capital and purchasing power within a specific context—and you can take it or leave it. That is the nature of any market,” Hoskote said.
“The question of a conflict of interest can hardly arise, because the interests of artists, auction houses and galleries are closely aligned. And do remember that no collector or investor has ever been coerced into buying a work of art—you always have the option of not buying in a private sale, of not bidding in an auction. If people have been prepared to buy works of art at prices that are obviously steeper than they should have been, this is a comment on their own desire to profit from a boom-time scenario…to participate in the creation of a new market,” he said in an email.In a nascent art market such as India, according to him, systems of mutual regulation and transparent valuation are yet to be codified but are bound to come within the next decade. Art galleries and experts believe the market is slowing due to the downturn. “The galleries are bemoaning the fewer footfalls, and young investors who used to buy with their bonuses are no longer buying as easily,” said Saryu Doshi, former director of the National Gallery of Modern Art, Mumbai.Maitreyee Handique contributed to this story.
