ED slaps FEMA charges against top telecom firms

The ED is zeroing on the transactions made by Swan, Loop and S-Tel with legal entities based outside India to find out whether any guarantee/counter guarantee were given to obtain funds from abroad and the first source from where they originated
New Delhi: The Enforcement Directorate (ED) on Saturday slapped various charges of FEMA (Foreign Exchange Management Act) violations to the tune of over Rs4,300 crore against top telecom firms allegedly involved in the second generation (2G) spectrum scam including Swan, Loop and S-Tel, reports PTI.

The Directorate in its complaint filed before the Competent Adjudicating Authority for FEMA violations said it is also probing “suspected contravention” of forex rules in Virgin Mobile, a joint venture of Tata group.

The Adjudicating Authority in this case is a Special Director rank officer of the ED.

The ED, India’s law enforcement and economic intelligence agency, has charged Shahid Balwa-promoted Swan Telecom, with committing FEMA contraventions to the tune of Rs3,608 crore.

“This contravention was done by the company in issuing shares to a foreign investor and resident investor under an agreement and had issued shares to a foreign investor on an abnormal value to avoid the permission of FIPB (Foreign Investment Promotion Board), Government of India,” the ED said in its complaint against Swan Telecom.

Swan Telecom Pvt Ltd issued 44.73% shares to Dubai-based Etisalat and 5.27% shares to Genex Exim as per agreement on 23 September 2009.

Swan Telecom while issuing shares to foreign investor under the agreement also allegedly contravened the provisions of the laid down rules prescribed by the commerce and industry ministry by appointing a director who had been nominated by Dubai-based Etisalat and arrangement of a steering committee having members of their foreign partner for functioning of Swan Telecom.

The ED also alleged that Swan Telecom had disclosed that issue of equity to Genex Exim was under resident category but during investigations it was found that “it was an indirect foreign investment in Swan because funds into Genex were brought from Dubai.” 

“Thus issue of equity on 17 December 2008 by Swan to Etisalat and Genex totalling 50% under automatic route was in contravention” of various sections of FEMA “for the amount of Rs3,608 crore”, the ED alleged.

In the case of Loop Mobile India Limited based in Mumbai, the ED alleged FEMA contravention to a total amount of Rs431 crore.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within the stipulated period of time to Reserve Bank of India (RBI), in not reporting issue of shares to foreign investor within stipulated period of time and in purchasing shares of an Indian company from the funds of foreign direct investment,” the ED said in its complaint against the firm.

“The Directorate has also come across suspected contravention in Virgin Mobile (Tata group) and is analysing the pricing issue of shares between Unitech and Telenor,” the ED said.

In its complaint against Loop Telecom, the ED has charged the firm with forex violations to the tune of Rs184.28 crore.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within the stipulated period of time to RBI and in not reporting issue of shares to foreign investor within stipulated period of time,” the ED said.

The least amount of FEMA contravention was found to be at Rs96.60 lakh against S-Tel Private Limited based in Gurgaon after the ED investigation.

“This contravention is done by the said company in not refunding the balance of the FDI to foreign investor within stipulated period of time,” the ED said in its submission against the firm.

The Directorate charged Chennai based Wellcom Communications India and Wellcom Communications for a total amount of Rs11.87 crore in forex violations.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within stipulated period of time to RBI and in not refunding the balance of the FDI to foreign investor within stipulated period of time,” the ED said in its complaint against the firm.

The Directorate is zeroing on the transactions made by these companies with legal entities based outside India to find out whether any guarantee/counter guarantee were given to obtain funds from abroad and the first source from where they originated, the ED said.

The ED, according to its submission, is also probing the source of funds, ownership of the companies based in foreign shores and end-use of foreign funds.

“For this (probe of sources of funds and ownership) letters have been issued to the source abroad based in 12 countries and Letters of Request have been sent to five countries for investigation outside India,” the ED said.

Other aspects of the forex violations probe by the ED include “cash guarantee issue of Sistema” and the “issue of merger of companies after issue of licences.” 

According to ED sources, the penalty in such cases of FEMA contravention is usually three times of the amount involved.

The ED also submitted that its other angle of probe in the 2G spectrum allocation scam—under anti-money laundering provisions—are underway.

“Investigation under PMLA 2002, is under progress.

Action would be taken against individuals and companies who have figured in the charge-sheet filed by the CBI,” the ED said.

“We have not been able to confirm specific details in the charge-sheet yet. Telenor Group invested Rs61.2 billion over four tranches in a 100% transparent manner. Since Telenor Group increased its ownership in Unitech Wireless at each stage, the Indian authorities were informed about each investment. Telenor Group also announced each investment to media.

“Our investments have gone into the joint venture company and not to Unitech to result in any windfall gains. These are the funds with which Uninor was started and developed into a 25 million subscriber operation today. Beyond this, we will be able to respond once we know what the specific charge is,” director of communications, Telenor Group, Glenn Mandelid said in his reaction.

“We have not received a copy of or are aware of the charge sheet filed by the ED and hence unable to comment on the same,” a Swan telecom spokesperson said.

A Loop Telecom spokesperson said, “We are unaware of any such matter and therefore are unable to comment on the same.”
 

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