The Case against Anil Ambani

Did the Anil Ambani Group own only 9.9% or all of Swan when the latter applied for 2G licence? The CAG report reveals worse.

On 16 February this year, Anil Ambani was questioned by India’s Central Bureau of Investigation (CBI). It was an unprecedented event, signalling the shortening reach of the famed ‘Ambani arm’ that few of us ever thought possible. And this, despite the spin put on the case against the Anil Dhirubhai Ambani Group (ADAG), an alleged telecom puppeteer, by its public relations machinery. So chirped a press release that very day: ‘During the course of his weekly visit to New Delhi, Anil Ambani met CBI officials today to clarify ongoing issues relating to telecom matters for the years 2001 to 2010 and virtually every telecom operator in the country. No summons of any kind have been issued by the CBI to Mr Ambani.’

Since no corporate entity is allowed two telecom operators in India, the sector’s rules state that a telecom firm must not own more than a tenth of another such company, lest the latter operates as its puppet (though it takes a 26 per cent stake to gain effective control, anything above 50 per cent being complete control).

But ADAG appeared relaxed. After all, Salman Khurshid, Union minister of state for corporate affairs, had himself issued a clean chit to ADAG on the ownership of Swan Telecom Private Ltd, vide letter 3/92/2010/CL-II dated 24 December 2010, by certifying that Reliance Communications (RCom, an ADAG company) through its subsidiary Reliance Telecom had never held more than 10 per cent (it was 9.9 per cent) of all shares in Swan Telecom (now Etisalat DB), whose majority stakeholder is a firm called Tiger Trustees Pvt Ltd.

But the truth is more complex. In a rejoinder filed by the Centre for Public Litigation at the Supreme Court in the ongoing 2G spectrum case, this claim has been substantially demolished: ‘The Respondent (Union of India) has stated that Reliance’s equity in Swan Telecom Pvt Ltd was below 10 per cent at the time of application, i.e. March 2, 2007, and hence Swan was eligible for a licence. This is not correct. In fact, the entire equity of 100 per cent of Swan was held by Reliance. The factual position is stated below in tabular form (see chart overleaf)…Mr Ashish Karyekar, Mr Dinesh Modi, and Mr Paresh Rathod are employees of Reliance. This is also reflected in their address and occupation stated in the table.’

On crosschecking this information in the petition, Open confirms that this is true of two of Tiger Trustees’ directors who happen to be ADAG company secretaries as well—Ashish Karyekar, who is a director on the board of 13 ADAG firms, and Paresh Rathod, who is a director of 12 ADAG companies and has Reliance Energy’s Chembur quarters as his address.

Both were shareholders of Swan Telecom as well as its majority owner Tiger Trustees. However, they declined to comment on their status with Swan Telecom and Tiger Trustees. Email queries to their Reliance email IDs (ashish.karyekar@reliance.com and paresh.rathod@reliance.com) were not answered. Contacted over the phone by Open, Karyekar said, “I cannot meet you. Hari Nair [an ADAG company secretary who was interrogated by the CBI on 13 February, just two days before Ambani was called in] is the person who can give an official comment on the issue. He is at the Ballard Estate office. I am not authorised to speak to the media. It will not help if we meet. What do I say to you?” Rathod too refused to answer queries, and was instead keen on knowing how Open had managed to locate him. “I do not want to comment on this issue,” he said, “I want to be kept out of it.” Open has information on Dinesh Modi, or even Sujit Rao [see table of shareholders above].

In separate questionnaires sent to both Karyekar and Rathod on 15 February, Open had asked for information on the source of funds for the shares held by them in Swan Telecom and Tiger Trustees. The same day, we also sent Hari Nair a questionnaire asking whether Karyekar and Rathod has ADAG’s approval to buy shares in Swan Telecom and Tiger Trustees, given that both ADAG and Swan had applied to the Department of Telecom (DoT) for a UAS licence (Unified Access Service, that is, which allows both GSM and CDMA operations).

And if the requisite permission was not sought by Karyekar and Rathod, then had ADAG initiated any action against them when their holdings were discovered? A week later, while going to press, there has been no response.

The CAG report on telecom allotments had found that the email ID of the corporate as well as registered office of Swan Telecom in its application dated 2 March 2007 was shown as hari.nair@relianceada.com. The report further said that the same email ID was also stated as the correspondence address and authorised contact person of the applicant company. At the time, a statement by ADAG said: ‘Mr Hari Nair of our group was company secretary of Swan Telecom for a few months while Reliance Telecom held a 9.9 per cent equity stake in that company. But that shareholding was sold and he ceased to hold that post well before the licence was granted to Swan Telecom in January 2008.’

Even if this 9.9 per cent is taken at face value, the fact remains that the CAG has indicated that Reliance Telecom’s actual investment in Swan Telecom at the time was to the tune of Rs 1,002.8 crore (largely via ownership of preferential shares), far larger than Tiger Trustees’ paid-up equity holding of Rs 98.2 crore (over 98 million shares of Rs 10 each). Which is why the report concluded that Swan Telecom’s application was ‘in effect against the intent and spirit’ of the UAS licencing guidelines, as it was among those beneficiaries that had ‘suppressed facts, disclosed incomplete information and submitted fictitious documents’ to the DoT.

After the questioning of Anil Ambani, ADAG sought to underscore that, ‘neither Reliance Telecom, nor RCom, nor any Reliance ADA Group individual, company or affiliate held even a single share in Swan Telecom Ltd, at the time of grant of the 2G licence to them in January 2008, or at any time thereafter… Neither Reliance Telecom, nor RCom, nor any Reliance ADA Group individual, company or affiliate has obtained any monetary gain or other benefit, directly or indirectly, from the grant of a 2G licence to Swan Telecom in January 2008.’ Again, these responses are typical of the ADAG PR machinery, evading as they do the question at hand, which is the shareholding when the licence was applied for.

This is by no means all. There is another independent reason for the CBI’s questioning of Anil Ambani, and that deals with the entry of ADAG to the lucrative GSM market after having adopted CDMA technology that failed to deliver as promised. The CAG has clearly noted, ‘Dual Technology was also introduced by the DoT in October 2007 in a hasty and arbitrary manner, and in-principle approval was given to three operators on a day prior to the announcement of the policy, which gave the perception of discrimination against other players in the field. Further, this decision was in contravention of the Cabinet decision of 2003, resulting in additional spectrum being allotted to certain operators at 2001 prices.’

The above may well serve as the basis for a chargesheet against Anil Ambani, which CBI sources indicate is quite likely now after the Supreme Court at a recent hearing raised questions about the manner in which dual technology was permitted to a few select firms. In a section titled ‘Undue benefits to Reliance Communications Limited’, the CAG elaborates this point thus: ‘Four companies (Reliance Communications Ltd, Tata Teleservices, Shyam Telelink Ltd and HFCL Infotel Ltd) were providing CDMA based mobile services… Three companies (Reliance Communications Ltd for 20 service areas, Shyam Telelink Ltd for Rajasthan service area and HFCL Infotel Ltd for Punjab service area) had applied for permission to use GSM technology in 2006. Since the combination of technologies (CDMA, GSM and/or any other) under the same licence was not permitted, DoT had not acceded to their request till April 2007.’

Continues the CAG report: ‘Based on the recommendations of the TRAI [Telecom Regulatory Authority of India], the decision for use of alternate technology was taken for the first time by the DoT on 17 October 2007… DoT issued a press release in this regard on 19 October 2007. However, before announcing the acceptance of TRAI recommendations in this regard, ‘in principle’ approval for using GSM technology (dual/alternate technology) was given on 18 October 2007 itself (a day before the press release) to the three operators that had sought the facility of using alternate technologies in 2006 when it had not even been contemplated. The undue haste shown in issuing ‘in-principle’ approval [of the use of] GSM… to Reliance Communication (20 service areas), Shyam Telelink Ltd (one service area) and HFCL Infotel Ltd (one service area) was not evident afterwards, as when Tata Teleservices Ltd applied for dual technology immediately after the issue of the Press notification on 19 October 2007, a Letter of Intent was not issued to them till January 2008. Further, other applicants were still waiting for similar licences for over two-and-half years…’

Further: ‘Reliance Communication Ltd had complied with the requirements for permission to use dual technology on 19 October 2007 itself by depositing the non-refundable entry fee of Rs 1,645 crore for 20 service areas through their sister concern Reliance Infocomm Ltd. The acceptance of bank drafts for Rs 1,645 crore by the orders of Reliance Infocomm Ltd (third party) on behalf of Reliance Communications Ltd was also not in order, and shows the hurry with which the entry fee was deposited. As a result, Reliance Communications Ltd could acquire the right to allocation of 2G spectrum in 20 service areas on the day the policy itself was announced.’

Not only was undue haste shown, but even among the favoured few, Reliance was first among equals. To quote the CAG report again: ‘By taking the priority date of Reliance Communications Ltd as the date on which they had moved application for use of alternate technology (when it was not even formulated and permitted) i.e. 2006, they were allocated start-up spectrum on 10-11 January 2008 in 14 service areas (the operator withdrew their request for 6 service areas where they were already providing GSM services) ahead of other operators which had applied for new UAS licences and whose applications were kept pending on the grounds of non-availability of spectrum. Spectrum under dual technology was allotted to HFCL Infotel Ltd in Punjab only in September 2008 and Shyam Telelink Ltd in Rajasthan in December 2008, though these companies also applied for spectrum under dual technology along with Reliance Communications Ltd in 2006. In the Delhi service area, Reliance was allocated GSM spectrum in January 2008, while Datacom Solutions Pvt Ltd, Unitech Wireless Ltd, Spice Communications Ltd, Loop Telecom Pvt Ltd and Tata Teleservices Ltd were not allocated GSM spectrum till September 2010.’

Anil AmbaniSwan