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    From Tehelka Magazine, Vol 8, Issue 52, Dated 31 Dec 2011

    The Madness in the CBI’s Method

    A year into the high-profile telecom scam, selective chargesheets and investigations place the CBI in dubious light and raise questions about its fair play and efficiency. Ashish Khetan dissects the latest chargesheet and the questions the agency needs to answer

    The CBI headquarters in New Delhi

    Feeling the pinch The CBI headquarters in New Delhi

    Photo: Vijay Pandey

    THE 2G spectrum saga is getting curiouser by the day. The latest Central Bureau of Investigation (CBI) chargesheet against the promoters of Essar Group and Loop Telecom is premised on dubious legal opinions, raising a serious question about the credibility of the entire 2G probe.

    IP Khaitan

    Ravi Ruia

    Feeling the pinch IP Khaitan of Loop Telecom (top) and Ravi Ruia of the Essar Group

    The agency has pressed the charges of cheating and criminal conspiracy against the Ruias of the Essar Group and Khaitans of Loop Telecom, ignoring the negative legal opinions put forth by both the Ministry of Corporate Affairs and the Ministry of Law and Justice, which had differed with the CBI on key legal issues and had concluded that no criminal case could be made against Essar and Loop.

    The CBI has alleged that Loop Telecom, owned by the Khaitan family who are relatives of the Ruias, was an ‘alter ego’ of the Essar Group. Interestingly, the CBI has used the three terms — ‘alter ego’, ‘front company’ and ‘benami company’ — interchangeably in its chargesheet without expressly defining any of them.

    What is baffling is that the criminal conspiracy and cheating alleged by the CBI don’t pertain to the 2G scam, which is basically about the collusion of telecom companies and former telecom minister A Raja to make illegal profits at the cost of the exchequer.

    The charges pressed are related to the violation of a universal access service licence (UASL) guidelines under which a telecom company cannot hold 10 percent or more equity in another company with a telecom licence in the same area of operation (since 2003, all telecom licences are known as UAS licences). Since the Essar Group companies held substantial shares in Vodafone-Essar at the time Loop Telecom had applied for 2G licences, it has been alleged that UASL guidelines have been violated. Whether violation of the 10 percent clause amounts to a criminal case is itself debatable, with different ministries taking conflicting stands on the issue.

    The moot point is that the CBI’s overzealousness in pressing charges against Essar when contrasted with its soft approach towards many other leading business houses involved in the 2G spectrum allocation raises the uncomfortable question of selective application of law.

    On 16 December 2010, the Supreme Court had given seven broad instructions to the CBI with regard to the 2G probe. Among them were the order to investigate the issuance of dual technology licences, the alleged irregularities committed in grant of licences from 2001-07 with particular emphasis on loss to the exchequer, investigation into the grant of massive loans to new telecom players by public sector banks, investigation against those companies who have failed to fulfil their rollout obligations and against 85 companies that were ineligible according to CAG but received licences/2G spectrum nevertheless.

    More than a year after this order, the CBI has not moved beyond the ambit of four companies, which are Swan, Unitech, Aircel and Essar. The issue of dual technology licence, of which the major beneficiaries were Reliance and Tata, has not been dealt with by the agency.

    The Story At A Glance

    The CBI has pressed charges against the Ruias of the Essar Group and Khaitans of Loop Telecom, ignoring the opinions of the Ministries of Corporate Affairs and Law

    The charges are related to the violation of Universal Access Service Licence guidelines instead of the 2G allocation issue

    A soft approach has been adopted towards leading business houses like the Tatas and Anil Ambani

    In the past year, the CBI has not moved beyond the ambit of four companies — Swan, Unitech, Aircel and Essar

    The agency has not investigated the alleged role of P Chidambaram in granting licences at the 2001 rate

    The legal opinion of Attorney General Goolam Vahanvati does not address the questions of law posed to him by the CBI

    There is a difference of opinion between CBI’s Director of Prosecution Abdul Aziz and its Director AP Singh on the Essar-Loop investigation

    On the same questions, Minister for Law and Justice Salman Khurshid had, in the first week of December, given a diagonally opposite opinion

    Khurshid has opined that there seems to have been distortion of competition but to say that these lead automatically to criminal culpability would be unwarranted

    There is another problem with Vahanvati — his alleged role in the 2G scam itself

    MANY BELIEVE that the CBI went out on a limb to give a clean chit to Ratan Tata and Anil Ambani. In fact, the agency devoted as many as seven pages to portray that the Tatas were a victim of Raja’s policies. This is in contrast to Ratan Tata’s own view about Raja. In November 2007, Tata had written a long letter to then Tamil Nadu chief minister M Karunanidhi praising Raja’s vision of the telecom industry. Again in 2009, in a taped conversation, Tata could be heard worrying about the fate of Raja and expressed a desire that he would like him to continue as the telecom minister.

    The CBI is yet to respond to serious allegations made against Videocon, Allianz Infratech and Sistema, the three companies that, among others, had received licences from Raja.

    Former telecom minister A Raja

    In the dock Former telecom minister A Raja

    Photo: Shailendra Pandey

    Also, except the Rs 200 crore deal between Swan and Kalaignar TV, the CBI has till date not found any other evidence of kickback against Raja. The CBI is yet to give any justification for not investigating the alleged role of former Union finance minister P Chidambaram in granting licences at the 2001 rate.

    BUT THE first and foremost problem with the case against Essar is the legal opinion of the Attorney General of India, Goolam Vahanvati, on the basis of which the CBI has proceeded to press the charges. The 13-page legal opinion of Vahanvati is indeterminate and questionable to say the least.

    A fine reading of the report written by Vahanvati reveals that the Attorney General has not put forth any legal reasons or justification to support his conclusions. Neither has he definitively answered the questions of law that were posed to him.

    The first 27 paragraphs out of a total of 29 contain background information and verbatim reproduction of the findings of the Director of Prosecution, CBI and the Superintendent of Police, CBI. Then paragraph 28, which is the second last paragraph, starts with the following: “The aforesaid facts (which are verbatim repetition of the findings of the SP, CBI) would show that the investigation has unearthed a prima facie case for proceeding further against the persons concerned who have suppressed facts pertaining to the shareholding of Loop Telecom. The facts analysed above are tell-tale.”

    It is shocking that the country’s top law officer, in support of his legal opinion, has only stated that the charges levelled are tell-tale and has not given a single substantive or legally justifiable reason. Can anyone imagine a judge convicting an accused by simply stating that the charges levelled against him are tell-tale and give no other justification for his verdict? In a manner of speaking, the learned Attorney General has done precisely this.

    Paragraph 29, which is the last, is just one sentence which reads as following:
    “In the circumstances I agree with the Director CBI and my answers to the queries (a) and (b) are in the affirmative.”

    The following four queries were posed to the Attorney General by the CBI:
    a. Whether there is sufficient evidence to indicate that Loop Telecom was an alter ego or an associate of Essar Group, under a corporate veil.
    b. Whether the accused private persons had conspired among themselves and suppressed the fact that Loop Telecom was an alter ego/associate of Essar Group with the intention to fraudulently obtain 21 new UAS licences in the name of Loop Telecom.
    c. Whether the Department of Telecom officials had adequate reasons to suspect suppression of facts and intentionally or by way of a conspiracy stalled the issue of showcause notice that could have resulted in cancellation of UAS licences granted to Loop Telecom.
    d. Whether, if above assertions are true, a case fit for prosecution against the accused officials and private persons is made out or whether any other action is stipulated in the terms of UAS licences including cancellation of licenses would suffice or whether both actions would be warranted.

    Attorney General of India Goolam Vahanvati

    Legal tangle Attorney General of India Goolam Vahanvati

    Photo: Fotocorp

    The need to pose these questions to the Attorney General arose because of the difference of opinion between CBI’s Director of Prosecution Abdul Aziz and its Director Amar Pratap Singh on the Essar- Loop investigation.

    On points (c) and (d), the Attorney General has noted that there was concurrence between Aziz and Singh and the two differed only on points (a) and (b). After citing a Supreme Court judgment, Vahanvati contended that as Attorney General, he could only offer his opinion on the issues on which there was a difference of opinion between the two officials and had no locus standi to comment on the issues on which the two had already concurred.

    IT IS clear from the official documents that both Singh and Aziz had agreed that there was no evidence to support the allegation that there was a criminal conspiracy between Essar, Loop and Department of Telecom officials, including Raja. So far as point (c) was concerned, there were no differences between Aziz and Singh. But the way question (d) has been framed, it appears that it was with regard to all the three preceding queries and not just question (c).

    More than a year after the SC order, the CBI has not moved beyond the ambit of four firms, which are Swan, Aircel, Unitech and Essar

    Question (d) in essence asks if all the allegations are found to be true, whether they merely warrant civil action, which could be cancellation of licences or levying of penalty or whether the alleged violations would amount to criminal liability. But Vahanvati has inferred that question (d) relates to only question (c) and has thus chosen not to respond to it.

    On questions (a) and (b), Vahanvati has simply stated in affirmative without, as reported above, assigning any legal explanation.

    On the same questions, Minister for Law and Justice Salman Khurshid had, in the first week of December, given a diagonally opposite opinion. Unlike Vahanvati, Khurshid had first defined in great detail the alleged offence and its essential ingredients and, after citing over a dozen Supreme Court judgments, had come to the conclusion that Essar and Loop could not be held guilty of the criminal offence of cheating as defined in Sec 415 IPC.

    In paragraph 5 of his opinion, Khurshid has stated: “A perusal of relevant papers reveals that Essar companies are holding only 2.15 percent shares of Loop, which was below the threshold limit of 10 percent or more which was necessary to attract clause 8 of the UASL guidelines. It is also noticed that CBI, in the course of their investigation has sought the opinion of the Attorney General on the issue pertaining to ‘associate’ and the Attorney General has tendered his opinion without considering the inputs of this ministry.”

    Aziz, who took the non-convertible debentures held by Essar also into account, concluded that its equity in Loop didn’t exceed 9.9 percent. Aziz also dealt with the evidence of several financial transactions between Loop and Essar Group and the relationship between IP Khaitan (the promoter of Khaitan Group), who is married to the sister of Shashi and Ravi Ruia. Aziz contended that the financial transactions have been duly entered under valid documents in the normal course of business and nothing has been done secretly.

    In his opinion, Khurshid has devoted five paragraphs to lay out as to what constitutes the offence of cheating by drawing upon several Supreme Court judgments.

    The Centre for Public Interest Litigation has petitioned the SC asking for Vahanvati to be made an accused in the 2G scam

    In paragraph 11, Khurshid has stated: “In the case in hand, admittedly Loop Telecom is neither a subsidiary nor a holding company of Essar nor do they share a common parent, which holds more than 50 percent shares in both. Essar is directly or indirectly only holding 2.15 percent shares in Loop Telecom and the same has been admitted by the Ministry of Corporate Affairs. It is also relevant to mention that even to establish that there has been cheating on the part of the one contracting party, the other contracting party, that is, Department of Telecom, has to admit that they have been cheated by concealment of the fact.”

    The Ministry of Corporate Affairs in its letter to Department of Telecom dated 13 April 2009 had opined that the Essar Group didn’t hold more than 9.99 percent equity in Loop Telecom, it had invested a huge amount in the form of non-convertible debentures in some of the holding companies of Loop Telecom. But subsequently the Essar Group and Khaitan Group submitted the details of their financial dealings to both the CBI and the Ministry of Corporate Affairs, in which they claimed that both Ruias and Khaitans had invested in each other’s companies through NCDs and debt securities between July 2005 and December 2006. And on the date of the application for 2G licences, which was 3 September 2007, the Ruias were net borrowers to the tune of 1,358 crore from the Khaitans, according to the statements presented by certified chartered accountants.

    The CBI is yet to respond to allegations made against Sistema, Videocon and Allianz, which also received licences from Raja

    In April 2011, the Ministry of Corporate Affairs changed its stand and stated that “the documents of the companies examined do not substantiate ‘associate’ relationship between the Essar Group and Khaitan Group”. It also contended that “the contention that Essar Group through Essar Investments Ltd (EIL) had given a huge loan of Rs 1,647 crore to Santa Trading Pvt Ltd (a Khaitan Group company) to acquire indirect and beneficial stake in Loop Telecom appears to be not tenable”.

    In his legal opinion, Khurshid has contended that the objective behind the 10 percent UASL guidelines was to prevent monopoly of any one particular company and the Department of Telecom accordingly has framed the guidelines. “Any separate finding about ‘alter ego’ cannot ipso facto have relevance to the conditions imposed by the department,” Khurshid has opined. He has further argued: “At best it could be said that concern about the monopoly as distortion of competition are implied. But to say that these lead automatically to criminal culpability would be unwarranted and against the jurisprudence of criminology.” He concluded by saying that “since admittedly in the case in hand no prima facie offence has been made out it may not be correct to initiate any prosecution which may not be in tune with the settled legal position”.

    Attorney General of India Goolam Vahanvati

    Photo: Shailendra Pandey

    Reliance ADAG Chairman Anil Ambani

    Easy way out? CBI Director Amar Pratap Singh (top); Reliance ADAG Chairman Anil Ambani

    Photo: Reuters

    SO, ON one hand there are legal opinions from the Ministry for Law and Justice and Ministry for Corporate Affairs which, after examining all related aspects like shareholding patterns, financial dealings, investments, etc of Essar and Loop, have laid out the substantive legal position supported by principles of law. On the other hand, there is a wishy-washy legal opinion of Vahanvati, who has neither interpreted nor applied the law. The CBI has chosen to go along with the Attorney General.

    There is another problem with Vahanvati — his alleged role in the 2G scam itself. The Centre for Public Interest Litigation has filed an application before the Supreme Court asking for Vahanvati to be made an accused in the 2G scam.

    Many scandalous policy decisions made by Raja were approved by Vahanvati. The press release of 10 January 2008 which laid the foundation for the scam was approved by Vahanvati. The file was sent to Vahanvati, who was at the time Solicitor General, on 7 January for his sanction. The two main scandalous decisions of Raja, namely the advancement of cut-off date from 1 October 2007 to 25 September 2007 and change of definition of first-come firstserved basis were part of the file that was read over and approved by Vahanvati.

    Also was the part of the file the letter written by the then law minister HR Bhardwaj, who had refused to endorse Raja’s decision of grating licences at the 2001 rate and had asked for the issue to be placed before an Empowered Group of Ministers. It is alleged that Vahanvati not only ignored the minister’s stated position but also gave a contrary opinion and paved the way for allocation of licenses. The only argument put forth by the CBI in Vahanvati’s defence is that the Attorney General had acted in good faith.

    The Capital’s grapevine is abuzz with the innuendos that the corporate agendas have hijacked the 2G probe. If one contrasts the approach of the CBI towards different telecom players, many would argue that the only logical inference one could draw is that the agency has adopted different yardsticks for different accused.

    Ashish Khetan is Editor, Investigations with Tehelka.
    [email protected]

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    From Tehelka Magazine, Vol 8, Issue 52, Dated 31 Dec 2011



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