Home BusinessDoT refers Loop case back to MCA despite clean chit
The Department of Telecom (DoT) is planning to refer the alleged violation in the substantial equity condition by Loop Telecom and Vodafone-Essar by virtue of the Essar group companies holding equity in both the companies to the Ministry of Corporate Affairs (MCA) once again.
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The move comes after the Central Bureau of Investigation (CBI), the DOT and the Reserve Bank of India have given a clean chit to the deal saying that there seems to be no case of a further investigation or violation.
Responding to a complaint some months ago, the MCA had asked the DoT to reconsider its decision to issue Mumbai-based Loop Telecom an all-India mobile services licence, suggesting the company had links with Essar Group that violate restrictions on telecom cross-holdings by groups.
Under current telecom policy, a group that has a majority stake in one telecom company cannot hold more than 10 per cent in another. Loop is one of eight new players to be given a mobile service licence and is expected to start operations soon.
However, the legal department of the DoT has opined that it does not support action to issue a show cause notice on the company based on evidence collected. DoT has argued that it needs to obtain a conclusive expert opinion of the MCA before proceeding with a show cause notice against the company and enter into quasi legal process which should withstand judicial scutiny at a later date. DoT officials have opined that even if a show cause notice is issued DoT may not be able to decide conclusively that the violation of substantial equity condition is established and that it would have to seek legal opinion from MCA later which only has the expertise to pierce the corporate veil.
The Reserve Bank of India, which has also gone into the case has categorically observed that as per their record there is no explicit violation of FDI policy and as no clear violation of FDI policy is evident no action appears at their end. They have also stated that DoT might be in a better position to take a view on violation of the telecom policy.
The CBI, which also investigated the case has informed DoT that it did not find any criminal angle in this case and therefore they did not intend to take up the matter for further investigation.
A Loop Telecom spokesperson, however, declined to comment on the issue.
The Essar Group holds 9.99 per cent in a company called Santa Trading (STPL), which owns Loop Telecom via a complex structure involving BPL Communications and an indirect holding in BPL Mobile Communications. Essar Group already owns 33 per cent in Vodafone Essar, India’s third-largest mobile service provider.
The MCA has said though Essar Group is not a major shareholder in STPL, it has invested a huge amount of money in that company’s non convertible debentures (NCDs) and also appears to have provided the funding for STPL through BPL Communications.
MCA has indicated that Essar Group has invested in Rs 1,592 crore worth of NCDs of STPL, "which is otherwise a small company with a paid-up equity of Rs 1 lakh".
STPL, in turn, has utilised this money to invest in BPL Communications in the form of equity (Rs 1,006 crore), preference shares (Rs 175.8 crore) and NCDs (Rs 410 crore), totalling Rs 1,592 crore.
Therefore, MCA says, it appears that STPL has been a conduit for investment for these funds in BPL Communications, which has a 48.76 per cent share in Loop Telecom.
BPL Communications, in turn, invested in convertible debentures issued by Essar Investment worth Rs 2,421 crore. As a result of this chain of investments, the Essar Group has invested a net amount of around Rs 800 crore in STPL.
"This means, STPL has operations and transactions that are substantially controlled or influenced by the Essar Group," the MCA source said.