ED issues showcause notice to Emaar MGF

Cites violation of Fema to the tune of Rs 8,600 crore; company accused of buying farm land with foreign funds

The Enforcement Directorate (ED) has slapped a showcause notice on Emaar MGF Land, a joint venture between Dubai-based Emaar Properties and India's MGF Development, for violation of the Foreign Exchange Management Act (Fema) to the tune of Rs 8,600 crore. The company, which has seen many controversies in recent years, has been accused of using foreign funds to buy farm land, something it wasn't allowed to.

An ED statement said the directorate had noticed since April 2005, funds to the tune of Rs 8,600 crore were received by this company and its four subsidiaries from Dubai, Cyprus, Mauritius and other countries under the foreign direct investment (FDI) scheme of the Reserve Bank of India (RBI).

While Indian companies can receive funds from abroad under the automatic route for a number of business activities, including construction of development projects, Emaar MGF Land had utilised these funds to purchase agriculture land in India, either directly or through associated companies, an ED investigation showed. The statement added when asked to disclose the purpose for which the FDI was received, Emaar MGF and its subsidiaries had cited construction of development projects.

ED said Emaar MGF Land and its four subsidiaries were "guilty of the contravention of section 6(3)(b) of FEMA 99 for a total amount of Rs 8,600 crore". Along with the companies, their managing directors/directors have also been issued show-cause notices under FEMA.

An Emaar MGF spokesperson said, "We have not received any communication from government authorities and, therefore, we are not in a position to comment…the company continues to uphold the highest standards of corporate governance and follows the laws of the land."

Emaar MGF has estimated revenue of Rs 2,000 crore and a debt of about Rs 3,500 crore.

In September 2012, in a separate case, ED had attached properties owned by Emaar MGF in Delhi and Hyderabad for alleged violation of the Prevention of Money Laundering Act. The order was related to the Emaar Hills Township case in Hyderabad, where the company had allegedly sold plots for up to Rs 50,000 per sq yard but showed the sales at Rs 5,000 per sq yard in its books, resulting in revenue loss to the government.

The company has also been under Central Bureau of Investigation scrutiny in the Emaar Hills Township case.