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| Loop Tele case goes back to corporate affairs min |
| BS Reporter / New Delhi Aug 25, 2009, 00:03 IST |
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The Department of Telecommunications (DoT) is planning to refer the issue of possible violations in telecom crossholding restrictions by the Essar Group back to the Ministry of Corporate Affairs (MCA), which had suggested licensing transgressions some months ago.
Essar holds a little under 10 per cent in Loop Telecom, one of eight new players to be given all-India mobile service licences, and 33 per cent in Vodafone-Essar, India’s third largest telecom service provider.
Current telecom policy disallows a group with a majority stake in one telecom company from holding more than 10 per cent in another telecom operator.
DoT’s decision follows clean chits by the Central Bureau of Investigation (CBI) and Reserve Bank of India (RBI) to DoT’s decision to issue Loop an all-India operator’s licence, after the MCA made out a strong case on cross-holding violations.
RBI told DoT that issuing a licence to Loop did not violate foreign direct investment (FDI) policy and CBI said it did not find a criminal angle to the case.
DoT’s legal department has also said it does not support action to issue a show-cause notice based on evidence collected. DoT, therefore, has said it needs to obtain conclusive expert opinion from the MCA before proceeding with a show cause notice, which implies entering a quasi-legal process that should withstand judicial scrutiny later.
A Loop Telecom spokesperson declined to comment on the issue.
The confusion over cross-holding violations has arisen because of Loop Telecom’s complex holding structure. Essar Group holds 9.99 per cent in a company called Santa Trading Pvt Ltd (STPL), which, in turn, owns Loop Telecom via BPL Communications and an indirect holding in BPL Mobile Communications.
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 Ltd 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.
Also read: Apr 28: MCA questions Loop Telecom ownership
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