ED issues Rs 1,200-crore notice on Devas Multimedia's 'wrongful gain'

Notice due to alleged violation of forex management rules of 1999

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The Enforcement Directorate (ED) on Monday issued a Rs 1,200-crore notice on the alleged wrongful gains made by private firm Devas Multimedia, due to a move by Antrix, the commercial arm of Isro.

ED’s special director (southern region) issued a showcause notice under Foreign Exchange Management Act (FEMA), 1999, against the Indian investors, the persons responsible in Devas, including the directors and also the foreign investors and initiated the adjudication process.

“In case the alleged contravention is proved in the adjudication proceedings, the noticees are liable for penalty under FEMA, 1999, which may be imposed up to thrice the sum involved in such contravention,” the ED order said.  The ED has initiated investigation against the suspected contraventions of the provisions of the FEMA Act in the foreign direct investment (FDI) received by Devas from various overseas investors, including C C Devas Mauritius, Telecom Devas Mauritius, Deutsche Telekom Asia and Devas Employees Mauritius.

The Indian company received investments between May 2006 and June 2010 totalling $131.4 million (Rs 578.5 crore). The Foreign Investment Promotion Board had granted approval for FDI subject to various conditions such as the agreement between the Indian company and the foreign investors would be subject to the India laws.

However, the share subscription agreements contained clauses relating to the settlement of disputes at courts other than India and applicability of laws other than Indian laws in case of dispute. Thus, the FDI received by Devas were contravening the provisions of FEMA, 1999. According to the ED, the extent of contravention on the said count is Rs 578.5 crore.  The Indian company also assured the foreign investor an annual eight per cent priority dividend (in addition to other dividends and distributions) on a cumulative basis. Such assured dividends are not the nature of any equity instrument and contrary to the provisions of FDI regulations under FEMA, 1999.

The investment received by the Indian company with such assured returns is Rs 571.7 crore. The Indian company for one particular tranche of receipt, issued a security in the nature akin to an ECB as per the extant regulations and promised return highern that the ceiling fixed by the RBI which is also in contravention to the provisions of FEMA. The extent of contravention on this count is Rs 67.50 crore.

In 2005, Antrix had signed an agreement with Devas to enable it to secure access to technology to beam high-speed video content on mobile devices on the S-band platform.

The deal came under scrutiny around the time a telecom spectrum auction scandal broke out under the United Progressive Alliance government. On the back foot and pushed by a bitter personal battle between then Isro chairman K Radhakrishnan and its former head, Madhavan Nair, the Cabinet Committee on Security cancelled the deal in February 2011.

An inquiry by senior aerospace scientist Roddam Narasimha found procedural lapses in the deal.

In 2012, the government removed four officials, including Madhavan Nair and former director of Antrix, K R Sridhara Murthi, from government posts. In March this year, the Central Bureau of Investigation (CBI) filed a case of allegedly cheating against Murthi and two unnamed US officials of Devas for cheating the government exchequer of Rs 578 crore. CBI also carried out raids on Murthi's premises and the Devas office.