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New Delhi: Set to monitor the second generation (2G) spectrum scam probe, the Supreme Court today widened the investigation in the case by bringing in its ambit the telecom policy from 2001 to 2008 covering both the NDA and the UPA regimes, reports PTI.
A bench comprising justices GS Singhvi and AK Ganguly made it clear that the emphasis of the investigation would be to determine the loss of money to the public exchequer and said a progress report on the probe has to be filed by the Central Bureau of Investigation (CBI) and Enforcement Directorate in a sealed cover on the next date of hearing on 10 February 2011.
However, the bench said there was no need for a special team to investigate the scam as the government has agreed for court-monitored investigation which is moving in the right direction and Solicitor General Gopal Subramanium and senior advocate KK Venugopal, appearing for CBI, have assured that there will be comprehensive investigation by the two agencies (CBI and ED).
“We are giving directions that the CBI shall carry investigation based on the CVC report and consider the findings of Comptroller and Auditor General (CAG) which has prima facie found that ineligible entities were granted licences,” it said.
The bench allowed the appeal filed by NGO, Centre for Public Interest Litigation (CPIL), against the Delhi High Court which had rejected the plea for CBI investigation into the irregularities in the grant of licence for 2G spectrum.
“The high court has committed serious error in dismissing the writ petition. Prima facie, there was sufficient material supported by documents to proceed on the allegation,” the bench observed.
The bench said that the report of the Central Vigilance Commission (CVC) and the findings of the CAG needed impartial investigation.
It said that how licences were granted to the ineligible operators has to be investigated and as to why the Telecom Regulatory Authority of India (TRAI) did not take action has to be looked into.
The bench said that the CBI should consider the investigations done by the CVC and the findings of the CAG on the irregularities, which according to it, were blatant violation of norms.
The bench further said that the investigation will also cover why roll out obligations were not fulfilled.
The bench asked the investigating agencies to probe the transfer of dual technology—CDMA and GSM—saying while the notification for the dual technology was issued on 19 October 2007, one of the service provider was given the permission a day earlier.
The investigation shall also cover huge loans by public sector banks and if the Department of Telecom (DoT) officials were signatory to the licence agreements, the bench said.
The bench directed the CBI and ED to carry out investigations without being influenced by any individual, their ranks, functionaries and agencies.
The bench asked the Directorate of Income Tax to hand over the transcripts of the tapped conversations carried out under the order of the home secretary to the CBI.
The court had reserved its judgement on 8th December after hearing arguments forwarded by CPIL, CBI, ED, DoT and former telecom minister A Raja who resigned from the cabinet in the wake of the scam.
In earlier hearings in the apex court, CVC PJ Thomas, whose appointment had come under a cloud, had offered to recuse himself from overseeing the CBI probe into 2G spectrum scam.
The recusal was prompted by SC’s posers about his ability to oversee the CBI probe into the 2G scam as he happened to be telecom secretary under A Raja, as well as in view of a pending charge-sheet against him in Kerala's palmolein import scam.
The apex court, while hearing arguments earlier, had favoured widening the ambit of the probe to include spectrum allocation since 2001 under the NDA regime.
“The issue raised in the case is not limited to only Rs1.76 lakh crore but has a much wider compass. We would not like to prejudice the probe. But what happened in 2001 needs to be looked into. It is for the CBI to investigate and find out,” the bench had observed.
Raja's counsel TR Andhyarujina, in his arguments, had maintained that his client had only been following up the 2001 policy initiated by his predecessors.
The court had also expressed surprise over public sector banks providing loans to the tune of Rs10,000 crore to the 2G spectrum licensees on the basis of hypothecation of their respective licenses.
“If it is true it is astonishing. It goes much far beyond what you are advancing,” the bench had quipped as Prashant Bhushan, appearing for CPIL and quoting various reports, told it about the disbursement of huge loans by various banks, including the State Bank of India (SBI) to licensees.
Mr Bhushan had told the bench that the SBI granted a Rs2,500 crore loan to Uninor, which is a joint venture between real estate major Unitech Ltd and Norway’s telecom giant Telenor.
“A bank, which is the most premier bank of the country, the State Bank of India, functioning under the Act of Parliament, is lending Rs10,000 crore. It is a matter of such great public importance. It needs to be covered under the CBI investigation,” the bench had observed while favouring “holistic investigation.”
Senior counsel KK Venugopal, who appeared for the CBI, had supported the bench's view saying that the CBI will register a separate case to probe the bank’s role in the fraud.
“The investigation on this issue cannot be carried out in the pending case and a fresh FIR has to be registered,” he had submitted.
The FIR in the telecom scam was registered by the CBI on 21 October 2009, against unnamed persons under various provisions of the Prevention of Corruption Act.
The ED had also lodged the complaint under the Prevention of the Money Laundering Act and Foreign Exchange Management Act.
The Zurich-based brokerage urges institutional clients to consider stocks that are high on corporate governance; surprisingly it names such dodgy companies like DLF and Lanco in its list of high conviction ideas
UBS Investment Research believes that India’s structural story continues to be resilient and that the market is seeing a flight from over-owned stocks such as banks on account of various scams and tight liquidity conditions. In a report last week, the brokerage said it expects the Indian economy to grow at a real growth rate of 8% in FY12 after 9% growth in FY11, and that corporate earnings would grow at 16% in FY11 and 21% in FY12. So far so good.
The report talks about how investors should consider stocks that are “high quality, from the corporate governance perspective—like Bharti, Asian Paints, Infosys, TCS and Murugappa group companies; trim exposure in over-owned sectors such as banks; and stay away from names with corporate governance issues, irrespective of how attractive the valuations look.” Still good.
Now comes the whopper. UBS says that its “high conviction” ideas include Bharti Airtel, Lanco Infratech, DLF, Jai Balaji and Murugappa group companies such as Coromandel International & Tube Investments. DLF and Lanco? Are not these names in the list of companies that have a dodgy corporate governance record?
DLF has been in the eye of a storm recently, when the Competition Commission of India (CCI) restrained it from cancelling allotments in two upcoming projects in Gurgaon, after flat-owners approached the anti-monopoly office saying that the company was abusing its dominant position. CCI allowed interim relief to Bellaire Owners’ Association and DLF Park Place Residents’ Welfare Association and restrained the company from creating “third party rights”, which means that it cannot re-sell or transfer the apartments where it has cancelled allotments.
After an outcry by shareholders, in March this year, DLF decided to resolve the conflict of business interest with erstwhile group company DLF Assets, by merging it with a fully-owned subsidiary. But it is still a long way from resolving all shareholder issues, as the debt brought on its books through the merger will remain a big concern until it manages to list the newly-merged arm. It probably plans to list it as a real estate investment trust abroad. From the merger, DLF now has Rs210 billion ($4.6 billion!) of debt on its books.
Lanco Infratech, which is promoted by Lagadapati Rajagopal, Vijaywada member of parliament belonging to the Congress party, has been under a probe for allegedly reworking insurance deals to claim crores of rupees as reimbursement from state government corporations. The company’s political connections are known and it is speculated that it could have bagged a lot of projects because of the cosy relationship Mr Rajagopal enjoyed with late YS Rajashekhar Reddy, former chief minister of Andhra Pradesh. Rajagopal is said to have started his political career on YSR’s padayatras across the state.
Lanco’s power project in Dhenkanal, in West Bengal, is also under a shadow on account of a probe ordered by the district collector into the direct purchase of tenancy land belonging to ayacut area (land served by an irrigation project) despite a ban order in force. In the hawala scam in 2007, G Venkatesh Babu, the then managing director of Lanco Infratech, was held at Hyderabad Airport with a suitcase containing cash amounting to about $90,000.
There are rumours that the company has started a real estate project on land allocated to it for an IT SEZ and that it has claimed duty waivers and tax reductions. There is also talk about shadowy dealings in the cancellation of its bid for the Sasan project and its eventual pullout from the Vizhinjam port project.
The ludicrousness of the recommendations does not end here. In a more recent report (13th December), UBS has put out “six contrarian stock ideas”. In its own words: “Companies whose stock price has taken a beating but UBS analysts are still bullish. While we believe that our six stock ideas offer excellent risk reward at current levels, adverse news flow in the near term may potentially result in further weakness in some of these names.”
The six are DB Realty, IBREL, Pantaloon, Reliance Communications, Reliance Infra, and Welspun Corp. Ramachandran R Nair, chief executive officer of LIC Housing Finance, is said to have showed undue favor to some companies, among them DB Realty, in the bribes-for-loans scam. DB Realty’s name has cropped up in the 2G scam as well. The company has a debt of Rs4 billion on its books, that includes a Rs1.9 billion loan again from LIC Housing Finance. The company has said that it does not have any direct or indirect shareholding in Etisalat DB Telecom (originally Swan Telecom) and that promoters of DB own around 45% in Etisalat DB.
Reliance Communications is being probed in the 2G scam, along with Unitech, Tata Teleservices, Shyam Telelink (now Sistema Shyam Teleservices) and Swan Telecom (now Etisalat DB Telecom), which have sold stakes in their wireless ventures at significant premiums after they were allocated spectrum. RCom had issued a clarification, saying it owned a 10% stake in Swan Telecom until December 2007 but that it didn’t hold a stake in Swan when the license was granted in 2008.
In any case, UBS itself has a scandal-riddled history, particularly involving the Anil Dhirubhai Ambani Group (ADAG). In March 2010, a member of parliament from Uttar Pradesh alleged that ADAG had diverted funds raised through external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) into the stock market, through UBS, and that these funds were allegedly used for large-scale unauthorised trades. (Read: ‘The Swiss banking trail hits the market’,
http://www.moneylife.in/article/8/4241.html) We had also reported that Froriep Renggli, a Zurich-based law firm, had alleged the active connivance of UBS in routing trades in Reliance Energy and Reliance National Resources through its clients’ accounts. (Read: ‘UBS: The Indian Connection’, http://www.moneylife.in/article/71/4364.html) In another case related to sharing of client information in the market crash of 2004, UBS Securities Asia got away with a minor fine of Rs5 million for refusing to share information.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.)