Alleged mafia links

In May 2003 a controversy erupted over alleged links between Shetty's parents and the Indian underworld. The Surat police issued arrest warrants against her parents on charges of extortion. The Police Commissioner of Surat, D.K. Gupta, told the media that the owners of Praful Sarees had lodged complaints with them after claiming to receive threatening telephone calls from Mumbai-based underworld figures asking for money on behalf of the Shettys. The dispute between the two parties related to a 1998 modelling assignment where Shilpa endorsed Praful Sarees and had only been paid Rs. 50 lakh (US$ 100,300) out of a contractually agreed Rs. 3 crore (US$ 601,800).] Agarwal claimed that the full sum had been paid in advance, but he had no knowledge of how much had been paid to Shilpa. Surendra Shetty was refused bail by a Mumbai court although bail was granted to Sunanda, as she had been travelling abroad at the time the warrant was issued. The police further claimed to possess a record of a telephone call between Shilpa's parents and Pankaj Agarwal, the owner of Praful Sarees. The parents denied this and claimed the tape had been "manipulated".Sunanda Shetty held a press conference on June 5 in which she denied that the family had underworld connections and said that the whole fracas was a "plot to tarnish the image of my daughter. She further said that she was "definitely innocent" of the charges and was falsely implicated by Agarwal after he had failed to fully reimburse Shilpa for her work. On June 13 it was reported that after interrogation by the police, Surendra had confessed to establishing contact with associates of Fazl-ur-Rehman, leader of the Mumbai gang. A contradictory story surfaced that although the Shettys' driver, Dilip Pashekar, admitted to introducing Surendra to Rehman's associates, Surendra continued to deny that any links were forged. A senior police official confirmed that Surendra had "vehemently denied" his links even though he and Pashekar were interrogated side by side. Shetty's lawyer later clarified that the reports of confessing to Mafia links were false.
Court hearings revealed that, despite Shetty's denials, print-outs of cellular phone records proved that contact between Shetty and the gang had taken place. On June 20 Surendra Shetty was formally arrested after surrendering to the police, later telling news reporters that the entire issue was designed to malign him and his family. When asked about the underworld's involvement, Shetty said "I do not know, I talked to them only after they called up and said they were agents of Agarwal. Further court hearings cast doubt on the veracity of the evidence tapes; Shetty's defence claimed that it was Agarwal who recorded the telephone calls rather than the police, and that the possibility of dubbing or manipulation could not be ruled out.[54] Shilpa was quizzed by police upon her return to India from overseas filming assignments and denied all knowledge of any involvement between her parents and underworld figures, claiming that she had no knowledge of the case until it became public through the media. She further stated that her mother had power of attorney over her financial affairs and disclaimed any knowledge of payment for the Praful Sarees affair. Sunanda's bail hearing was adjourned three times on health grounds.
Another twist occurred when the Shettys' driver, Dilip Pashekhar, was arrested. On Nov 5 it was reported that Surendra and Sunanda Shetty, among three others, were chargesheeted, paving the way for a trial commencement in a local court. The trial is still pending. In August 2006 Sunanda said that Shilpa had no involvement with the case and that the arrest of Fazl-ur-Rehman earlier that month would not have a negative effect on her career. Shilpa has threatened to claim damages after an unnamed local tabloid allegedly printed incorrect information about the case. In an interview for Filmfare, she said that she was very "cut up" and "devastated" with the way the case had turned into a trial by media and that they had behaved "unethically". She also said that this was the worst controversy she had ever been through, and expressed her thanks to several film figures for standing by her, including Rajkumar Santoshi and Anil Kapoor.