Ground for Karti arrest prepared after former FIPB members' interrogation

Former Union finance minister P Chidambaram and his son, Karti, are under the glare of investigative agencies for the approval of foreign investment in Peter and Indrani Mukherjea’s INX Media and in telecom company Aircel. The two cases were cleared when Chidambaram was in charge of the ministry in the UPA government.

Both approvals were routed through the Foreign Investment Promotion Board (FIPB), housed in the department of economic affairs (DEA), under the finance ministry. It had four permanent members who were secretary-level officials, in addition to secretaries from the nodal ministry and other departments.

Beside the secretary in the DEA who chaired FIPB, the secretaries of the departments of industrial policy & promotion, commerce and of economic relations in the ministry of external affairs were permanent members of the board.

Karti Chidambaram is in the custody of the Central Bureau of Investigation in the INX case. The father had said last year that the six secretaries who were with FIPB during the INX Media case were "distinguished" civil servants and could not have been influenced. Business Standard spoke to three of them but they were not willing to come on record. These secretaries have faced questions from the Enforcement Directorate (ED) in the past. While some of them seem to have been given a clean chit for now, the others are likely to be questioned further.

"We were called by the ED a few months back. It was not for interrogation but we were shown certain official papers and asked to respond, more for understanding purposes than inquiry," said one of the former secretaries, whose name has appeared in the media for being part of FIPB at that time.

Foreign investment proposals that did not qualify for automatic approval needed to be routed through FIPB before the body was abolished last year. The former secretary, quoted above, said the FIPB secretariat -- manned by director, deputy secretary and under-secretary level officials -- prepared documentation relating to the cases. "FIPB members took decisions based on those documents and then these were put up to the finance minister for final approval."

Chidambaram has been quoted earlier as saying he would go by the FIPB decision as a matter of routine.

The Maxis case preceded INX. It began when the Malaysia-based group wanted to enter the telecom sector in 2006. It wanted to buy 99.3 per cent stake in Aircel from C Sivasankaran, despite the fact that the rules did not allow more than 74 per cent foreign direct investment in the sector at that time.

The second alleged violation was when Maxis asked for permission to invest Rs 35 billion and got permission from FIPB. Under the rules, any proposal over Rs 6 billion had to go to the Cabinet Committee on Economic Affairs (CCEA) for a final green signal. Yet, this one only went to P Chidambaram, who endorsed it.

Those in the know say Maxis used a loophole in the law to acquire a stake which was more than 74 per cent. Under the law, preference shares which were non-convertible and redeemable were not considered as equity. While through two companies Maxis was able to acquire 73.99 per cent, following the rules of the FIPB, it bought the rest indirectly through a complicated structure, using this loophole. It was a method used by many other companies, too.

While approving it, Chidambaram was only doing what the FIPB had recommended, said a person in the know. They point out that the FIPB consists of secretaries and is the recommending body, which after looking at a proposal, sent it on to be cleared by the finance ministry or referred it to CCEA. In this case, they referred it to the ministry.

Chidambaram had on October 24, 2008, approved a total of 40 FDI proposals, based on the recommendation of FIPB, involving total foreign investment of Rs 15 billion. INX News' proposal, entailing a downstream investment of Rs 260 million, was one of these.