CBI’s Approach in Aircel-Maxis Case Is Consistent with the SC’s Observations in PwC Matter
The Supreme Court, on 23 February 2018 had ordered an investigation into affairs of PricewaterhouseCoopers (PwC India). The Enforcement Directorate (ED), the Institute of Chartered Accountants of India (ICAI) and the Government were tasked with the investigations.
 
One of the major issue flagged by the apex court was in respect of receipt of grants of  Rs477.64 crore by PwC India from PWC Services BV during 2009 to 2013.  
 
The Supreme Court had observed that, “….having regard to the statutory framework under the Chartered Accountant (CA) Act, current foreign direct investment (FDI) Policy and the Reserve Bank of India (RBI) circulars, it may prima facie appear that there is violation of statutory provisions and policy framework effective enforcement of which has to be ensured…The law enforcing agencies are expected to see the real situation…” 
 
Another major transaction that had to be investigated was in respect of an alleged benami investment of Rs41.42 crore made by Netherlands-based PwC Services BV to acquire Dalal & Shah, an Indian audit firm based in Mumbai. In this respect, the Court had stated that, “…It is not possible to rule of violations of FDI policies, FEMA regulations and the CA Act...
 
The message from the Supreme Court is loud and clear. Statutory regulatory provisions intended to advance the object of law have to be enforced meaningfully. No vested interest can flout the same by manifesting compliance only in form.  Compliance has to be in substance.  
 
Aircel-Maxis case 
The Central Bureau of Investigations (CBI) charge sheet claims that P Chidambaram, the then finance minister, had deliberately ignored the extant guidelines for granting FDI approval to Maxis to invest in Aircel.
Maxis, through its Mauritius-based subsidiary, Global Communication Service Holdings (GCSH), had sought approval to buy 18 crore shares of Aircel in 2006 at Rs10 each, totalling Rs180 crore, which would have taken its share in the Indian  company to 74%. With premium, the sale price was Rs197.78 per share and assuming a conversion rate of Rs44.50 per US dollar, the actual investment was Rs3,650 crore ($800 million).
 
According to a 2003 government order, the finance minister could approve foreign investment only up to Rs600 crore. Beyond this amount, the proposal was to be submitted to the Cabinet Committee on Economic Affairs (CCEA). 
 
What Wrong Did PC commit?
The only but critical wrong that Mr Chidambaram is alleged to have committed is that he approved a FDI proposal for which he did not have the  requisite powers. Probably, the proposal would have been approved even if it had gone to the CCEA.  
 
Approval of the FDI proposal caused no harm to the nation. Neither did Maxis gain  additional shareholding or voting power in Aircel—these are determined only with reference to the face value of shares. Some could even argue that it helped to bolster our foreign exchange reserves. So why this much ado about nothing? 
 
The Important Message
Authority can be delegated but not assumed. Mr Chidambaram allegedly approved something without the necessary authorisation. If the allegations are correct, this was, indeed, wrong.
 
The existing laws have to be followed in letter and spirit. Carving out unauthorised exceptions cannot be tolerated at all. Violators must be punished. Neither can “ends” justify the means. If allowed, people could rob banks on the pretext of donating to the poor. This is a dangerous proposition, which deserves immediate rejection.
 
PwC and Aircel-Maxis Comparison
Maxis FDI proposal was at least allegedly approved by the Government, though at the wrong level and the law is now taking its course. 
 
In PwC’s case, FDI approval was not even sought, let alone approved. Facts were misrepresented. The benami investment by PwC Services BV, in financial years ended 2009 and 2010, involved infusion of funds of Rs41.42 crore, more than 100,000 times the combined capital of 15 partners. Not surprisingly, the SC noted that “It is an undisputed fact that there are remittances from outside. The same could be termed as investments even though the  remittances are claimed to be interest free loans to partners.……….It is not possible to rule of violations of FDI policies, FEMA regulations and the CA Act.
 
The Supreme Court was equally scathing in its criticism of ICAI for failing to detect the prima facie illegal humongous inflows of almost Rs500 crore and stated that “…A premier professional body cannot limit its oversight function on technicalities and is expected to play proactive role for upholding ethics and values of the profession by going into all connected and incidental issues…...”  
 
Neither has the ED covered itself with glory. Despite the facts being made known to it some five years back, it is yet to finish its investigations, although the matter could involve issues of national security. One hopes that it will at least not be in contempt of the orders of the Supreme Court.
 
The Registrar of Companies (RoC) has established that the funds received by PwC India were not used for the purpose for which they came. Where did they go? In Augusta Westland (VVIP chopper) scam also, funds came from overseas based on fictitious invoices and were allegedly used to pay bribes. The hitherto sacrosanct credibility of the armed forces has been tarnished.  Can the nation afford this?
What happened to the controls in the banking system? Why were multiple inflows of humongous amounts from overseas firms into PwC India not detected? Who all have connived, including the public servants?
 
Consistent & Correct Approach Is Paramount 
Extant laws must be enforced ruthlessly.  Investigating authorities, regulators, law enforcement authorities need to  work in tandem, follow a consistent 'no-nonsense' approach and act swiftly. Besides ensuring success and respect, it will avoid the regular criticism that they face: political witch-hunt and/or the Rich and Powerful getting away despite making mockery of the Law. 
 
Author’s Disclaimer: The above analysis is only intended to highlight the glaring difference in approach of various law enforcement agencies based on the limited facts available in the public domain but is not intended to comment on merits of any case. 
 
(Sarvesh Mathur is a senior financial professional, who has earlier worked as CFO of Tata Telecom Ltd and PricewaterhouseCoopers.)
 
Comments
Vasant Kulkarni
3 years ago
EXCELLENT EYE OPENER.
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