2G scam: ED slaps Rs 7,100 crore fine on Etisalat DB

NEW DELHI: TheEnforcement Directorateon Friday slapped a Rs 7,100 crore showcause notice onEtisalat DBfor allegedly violatingForeign Exchange Management Act(FEMA) in what marks the second prong of the multi-agency investigation into the2G scam.

The notice, based on details of the investigation into alleged violations of law by Etisalat DB, comes with the warning that the penalty will be increased three times if the company fails to respond to the showcause within a month.

Listing the alleged transgressions, ED's investigating officer has said thatEtisalat-DubaiandGenex Eximacquired equity in Shahid Balwa-promotedSwan Telecomin contravention of rules. The ED report said shares were issued at very high prices just to bypass the Foreign Investment Promotion Board (FIPB).

As the CBI is moving ahead to prepare the third chargesheet in the spectrum scam case, the ED's investigations into the massive fraud have also gathered pace. This is the sixth showcause the ED has issued in the 2G scam. Four more are likely in what represents a parallel track of the probe.

Allotment of three shares of Swan Telecom to Etisalat was made for Rs 316 crore and the ED says this was done to escape approval of the FIPB. If these shares had been issued at the earlier agreed price of Rs 285 per share, the holding of Etilsalat in Swan Telecom would have gone up to 47.04%. Taking into account Genex Exim's stake, the total foreign holding in Swan Telecom exceeded theFDIcap of 49%. "In order to manage the threshold of 49% equity under the automatic route, both Swan Telecom and Etisalat agreed to abnormal price for three shares," the ED report said.

The ED has also questioned the manner in which Swan gave Etisalat control over the joint venture. The appointment of a director nominated by Etisalat-Dubai in the telecom venture while shares were issued to it contravened rules, investigating officerRajeshwar Singhsaid.

He also questioned the appointment of a steering committee in Swan Telecom which had members of Etisalat-Dubai.

The sale of equity to Genex Exim under resident category has also been found in violation of rules. The report said it was an "indirect foreign investment in Swan Telecom Pvt Ltd because funds into Genex Exim were brought from Dubai through an intermediary for investment in Swan Telecom".

Earlier, the ED had filed a case against Swan Telecom, allegedly considered to be a front ofReliance Telecom, for selling its shares to Etisalat in violation of FEMA guidelines. Swan is facing a separate case under FEMA, penalty for which could exceed Rs 3,600 crore.

Loop MobileIndiaLtd and Loop Telecom Ltd, S-Tel and Wellcom Communications India Pvt Ltd besides Swan Telecom are the companies against whom the agency has already filed complaints for violating FEMA rules.

Loop Mobile India Ltd and Loop Telecom Ltd had not reported the receipt of foreign funds to RBI. It had also failed to report shares issued to foreign investors and purchasing shares of Indian company with FDI funds, according to the ED's case.

Cases against S Tel and Wellcom Communication relate to non-refund of the balance FDI to foreign investors and not informing the RBI about the foreign funds inflow.

source: TOI