Last Part 3 – understand the CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores

Final Part Three – understand the [Comptroller and Auditor General of India]
CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores

1.Azare Properties Limited and Unitech Infrastructures Private Limited (Brand name Uninor) also misrepresented the altered MOA/AOA as the original MOA/AOA along with their applications to the DoT.
Further they suppressed the fact that alterations had not been registered by the ROC as yet on the date of submission of their application.

The ROC while certifying the alteration of the main object clauses in the MOA/AOA of these companies on 9th and 5th October 2007 respectively had also directed that the certificate was subject to the change of name of the Company.

The directive of the ROC was complied with only in May 2008 and thus the alteration of the MOA of these Companies became effective in May 2008 only.

As a result thereof, the MOA of these companies did not permit them to operate in the telecom sector on the date of application i.e. 24 September 2007.

Hence, they were also ineligible for the grant of UAS licenses.
Further, the submission of the altered MOA/AOA of the Companies as the original MOA/AOA along with their applications to the DoT without full disclosure of the alteration of the main object clause in the MOA/AOA and their non registration by the ROC was of the nature of a fraudulent act of these two companies for obtaining the UAS licenses for 2 service areas by misleading the DOT


2. Allianz Infratech Private Limited (Merged with Etisalat DB Telecom Private Limited), in their applications to the DoT on 5 September 2007 submitted the MOA/AOA of the company, which didn't include the telecom sector in their main object clause.

Hence the application should have been rejected forthwith. Even the alteration in the main object clause of the MOA of the Company was certified by the ROC on 26 October 2007 only.

Thus they were also not eligible for grant of UAS licence on the date of submission of their application in September 2007.

3. Computer Software Company also misrepresented facts - Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom Private Limited) also submitted their applications for grant of UAS licenses for 21 service areas on 3 September 2007 to the DoT without disclosing the fact of non registration of alteration of the main object clauses in the MOA/AOA with the ROC as on the date of the application.

The company had changed the main object clauses in their MOA/AOA so as to include the telecom sector in their MOA/AOA but these alterations were registered by the ROC on 28 September 2007 only.

Thus they were also not eligible for grant of UAS licence on the date of submission of their application in September 2007.
Further, the submission of the altered MOA of the Company by the Loop Telecom Private Limited suppressing the fact of non registration of the alterations in the main object clause of their MOA/AOA by the ROC on the date of application was also in the nature of a fraudulent act with the intention of fulfilling the eligibility criterion prescribed for UAS licenses.

4. 13 Applicant Companies, which had applied for 123 UAS licenses and were granted 85 UAS licenses, did not have the requisite authorized share capital on the date of submission of the applications.

5. Hence the question of their meeting the eligibility criterion of the Paid up capital as on the date of application did not arise.


6. Of these, eight applicants* belonging to Unitech Group (Brand name Uninor) had been incorporated in August-September 2007 with an authorized share capital of Rs 5 lakh each.

All these eight companies passed the special resolutions for increase in the authorized share capital between 2 PM to 5 PM on 20 September 2007 in the extra-ordinary general meetings of the respective companies and deposited the requisite stamp duties on 3 October 2007 for increase in the authorized share capital.

After they submitted the requisite applications along with the proof of payment of stamp duties on 5 October 2007, the certificate of the registration of the increase in the authorized share capital was issued by the ROC only on 8/11 October 2007.

Thus the claim of the higher paid up capital of these companies on the date of submission i.e. 24 September and the supporting certificates of the company secretaries of these companies submitted along with their applications was false and fictitious.

7. Another Company Allianz Infratech Private Limited, in their applications to the DoT on 5 September 2007 claimed the paid up capital of Rs. 10 crore as on the date of application.

Scrutiny of records by Audit revealed that the paid up share capital of this company as on the date of application was Rs. 5 lakh only.

Though they claimed that they had increased the authorised share capital to ` 10 crore through the special resolution on 1 September 2007 in the extra-ordinary general meetings of the company, verification of the records revealed that they deposited the requisite stamp duties for enhancement in the authorised share capital on 24 December 2007 and Form No 5 along with other papers with the ROC on 27 December 2007 only for registration of increase in the authorised share capital of the company.

They also violated the provisions of the Section 18 (1) of the Companies Act which provides that a certified copy of the order confirming the alterations in the MOA/AOA shall be filed by the Company within three months from the date of the resolution with the ROC. Hence their claim of the paid up capital of ` 10 crore as on 5 September 2007 was false, fictitious and without any basis.

8. Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom Private Limited) also made a patently false claim of the paid up capital of Rs. 130.65 crore through their company secretary V V Chakradeo & Deo while submitting their applications for grant of UAS licenses for 21 service areas on 3 September 2007 to the DoT.

Audit found that the Company had deposited the statutory stamp duties of Rs. 18.87 lakh for increase in the authorised share capital from Rs. 5.20 Crore to Rs. 131 crore on 25 September 2007 and submitted the form 5 along with the proof of payment of stamp duty on 24 October 2007 to the ROC Delhi for registering the increase in the authorised share capital to Rs. 131 crore. The question regarding any increase in the paid up capital beyond Rs. 5.20 crore could therefore arise on or after 24 October 2007 only.

Thus the certificate given by the Company for the claim of the paid up capital of Rs. 130.65 crore through their company secretary V V Chakradeo & Deo at the time of submission of application for UAS licence was a fictitious document submitted to the DoT with a malafide intention to secure the UAS licence.

9. Datacom Solutions Private Limited (later changed to Videocon Telecommunications Limited) while submitting their application for the grant of 22 UAS licenses on 28 August 2007 made a false claim of the paid up capital of Rs. 150 crore through their company secretary although the MOA and AOA attached with the applications indicated that the authorised share capital of the company as Rs. 1.00 lakh only.

Since the requirement of the requisite amount of the paid up capital was an important eligibility criterion, their applications ought to have been rejected forthwith.

However, on 27 November 2007, the company suo-motto submitted a so-called “correct” version of MOA/AOA as on 28 August 2007 stating that they had submitted an old version of MOA/AOA inadvertently along with the application.

The new version of MOA/AOA claimed to have increased the authorised share capital from Rs. 1.00 lakh to Rs. 150 crore through an ordinary resolution passed in the extra-ordinary general meeting on 27 August 2007 i.e. the day preceding the date of submission of applications by the Company.

Since there is a procedure prescribed in the Companies Act for effecting increase in the authorised share capital of a company, the Company could under no circumstances have a paid up capital of Rs. 150 crore on 28 August 2007 and hence the certificate furnished by the Company Secretary of the Company appeared to be false.

The DoT failed miserably to do any due diligence in the examination of claims of the company even when the Company claimed to have passed the resolution enhancing the authorised share capital on the preceding day of the date of application of the applicant company.

10. S Tel Private Limited, a company incorporated on 19 June 2007 with an authorised share capital of Rs 10 lakh, applied for 6 UAS licenses on 7 July 2007 claiming the paid up capital of Rs. 18 crore on the basis of increase in the authorised share capital through a special resolution in the extra ordinary general meeting on 2 July 2007.

Audit found that the company submitted the request to the ROC for registering the resolution only on 3 August 2007.

Hence the question of the paid capital of Rs.18 crore on the date of application did not arise when the ROC had not even registered the special resolution approving the increase in the authorised shares capital as of 3 August 2007. Thus S Tel was ineligible to get the 6 UAS licenses from DOT.


11. Swan Telecom Private Limited (changed to Etisalat DB Telecom Private Limited) applied for grant of UAS licence in 13 service area in March 2007.

In compliance to substantial equity clause the applicant declared from the declaration of the Company for UAS licence, it was evident that at the time of applying for UASL, the equity stakes of Reliance Telecom Ltd in Swan Telecom Private Limited was 10.71%. Since Reliance Telecom Ltd were operating in all the service areas for which Swan Telecom Limited had applied for UASL, the application of Swan Telecom Private Limited was not in conformity with the UASL Guidelines, and hence was not eligible to be considered.

The DoT did not have any mechanism to verify the correctness of the share holding pattern of the applicant and hence the matter should have been referred to the Ministry of Corporate Affairs (MoCA) as was advised by the Finance Wing of the Department.

No reference, however, was made to the MoCA and instead Swan Telecom was given an opportunity to resubmit a revised stake holding pattern in December 2007 i.e. 9 months after their date of application which declared that Reliance Telecom Limited had divested their entire stakes.

This was accepted by the DoT and Swan Telecom Private Limited was given the benefit of seniority from the date of their initial application i.e. March 2007.

As Swan Telecom did not meet the eligibility criteria on the date of application, its application should have been rejected by the DoT and the company should have been directed to apply afresh.

Even if it was to be considered eligible on the basis of its old application, the date of priority based on FCFS basis should have been revised from March 2007 to December 2007 in order to ensure fairness.

Had it been so, the company would have been out of the race as the department processed only those applications which were received up to 25.09.2007. if the stake of RTL was considered less than 10%, then the application of Swan Telecom would have been liable to be rejected on the grounds of non-fulfillment of the requirement of the net-worth as the Swan Telecom had claimed the net-worth of the applicant company only on the strength of the RTL (` 314.7 crore ) with the contribution of the major share-holder ( Tigers Traders Private Limited) being ` 1 lakh in their application on 2 March 2007

Audit further found that the basic claim of the paid up capital of ` 110 crore by Swan Telecom Private Limited itself was false as the authorised share capital of the company as on the date of application i.e. 2 March 2007 was ` 4 crore only.

The company had passed a special resolution on the preceding day i.e. 1 March 2007 to increase the authorised share capital from ` 4 crore to ` 125 crore but deposited the statutory stamp duties and submitted the Form 5 to the ROC, Mumbai on 14 March 2007 only for registration of the increase in the authorised share capital of the company.

Only after the registration of the resolution of the Company by the ROC, the increase in the authorised share capital would have come into effect. The question of the increase in the paid up capital would have arisen thereafter only.

Thus the paid up capital of Swan Telecom Pvt. Ltd. was ` 4 crore on the date of application i.e.2 March 2007 and hence they were ineligible on both account i.e. non-fulfillment of the requirement of the net worth as well as paid up capital for grant of UAS licenses for 13 service areas on the date of application if the reply of the DoT is accepted

12. Audit also found that the email ID of the corporate as well as registered office of the Swan Telecom Private Limited in their application dated 2 March 2007 was shown as hari.nair@relianceada.com. The same email ID (hari.nair@ relianceada.com) also was given for the correspondence address and the authorised contact person of the applicant company.

Though the Company Secretary Hari Nair had given a certificatewhile applying for a UAS licence for J&K Service Area in January 2007 that the Tigers Traders Private Limited held the shares of Swan (then Swan Capital private Limited) as trustees of Indian Telecom Infrastructure fund and these corporate beneficiaries are not part of Reliance ADA Group and neither Shri Anil Ambani nor his family or Reliance ADA Group companies holds any shares in these companies, holding of NCRPS of `1 at a premium of `999 by the RTL in Swan Telecom, a newly incorporated company with no fixed assets (The total equity/ stakes of RTL in the Swan Telecom was of `1002.79 crore as against equity holding of `98.22 crore by the majority share-holder-Tiger Traders Private Ltd.) raises doubts about the intention of the RTL and the control it would exercise in a new company incorporated barely few months ago.

Hence the application of such company to enter telecom sector goes against the intent and spirit behind the UAS guidelines, which state that “A promoter company/ legal person cannot have stakes in more than one Licensee Company for the same service area.

No single company/ legal person, either directly or through its associates, shall have substantial equity holding in more than one Licensee Company in the same service area for the Access Services namely; Basic, Cellular and Unified Access Service. 'Substantial Equity' was defined as equity of 10% or more.”

Thus it would therefore appear that Swan Telecom Private Limited while applying for the UAS licenses in 13 Service Areas was acting as a front company on the behalf of RTL and their application was in effect against the intent and spirit of the UAS licensing guidelines

13. Spectrum under dual technology was allotted to HFCL Infotel Ltd. in Punjab only in September 2008 and Shyam Telelink Ltd.in Rajasthan in December 2008 though these companies also applied for spectrum under dual technology along with Reliance Communications Limited in 2006.

In Delhi service area, Reliance was allocated GSM spectrum in January 2008 while Datacom Solutions Pvt. Ltd, Unitech Wireless Ltd, Spice Communications Ltd, Loop Telecom Pvt. Ltd. and Tata Teleservices Ltd. were not allocated GSM spectrum till September 2010.

14. It was noted that the priority list was adjusted in Punjab, and Maharashtra service areas to give undue advantage to Swan Telecom Pvt. Ltd in allocation of spectrum.

In Punjab service area, 15 MHz GSM spectrum was available in September 2008 which was sufficient to meet the demand of only first three applicants in the priority list i.e. HFCL, Idea Cellular Ltd and Unitech Wireless Pvt. Ltd.

The request of Idea Cellular Ltd who was at the second place in the priority list was, however, not considered on the grounds of its proposed merger with Spice Communications Ltd who were offering service in Punjab service area. By keeping out Idea Cellular Ltd from the priority list, spectrum was allocated to Swan Telecom Pvt. Ltd who was at the 4th position on the priority list.

In identical situation in Maharashtra service area, Spice Communications Ltd was not allocated start-up spectrum citing its proposed merger with Idea Cellular Ltd. Here too, the resultant beneficiary was Swan Telecom Pvt. Ltd.

15. As per DoT guidelines on merger of licenses in a service area, the post merger licensee shall be entitled to the total amount of spectrum held by the merging licensees, subject to the condition that after merger, licensee shall meet, within a period of 3 months from the date of approval of merger by the licensor,
The prevailing spectrum allocation criterion. Hence, non allotment of spectrum to Idea Cellular Ltd and Spice Communications Ltd on the grounds of merger was against the DoT guidelines on the issue. Flouting the rules on both occasions by the DoT benefited Swan Telecom Pvt. Ltd.

16. It was noticed in audit that 9 operators as per the details in the box, were allotted spectrum beyond the upper limit laid down in the UASL agreement.

Thus while the DoT, on one hand, was not processing pending applications for licence due to non availability of spectrum, on the other hand it was allotting spectrum to existing operators beyond the contracted limit without any upfront charges being imposed or without determination of market price of spectrum.

17. TRAI also recommended in May 2010 for charging the additional spectrum held by operators beyond the licensed quantity which is under consideration of the Government.

In the event of these recommendations being accepted, the additional flow of revenue to the Government would come to Rs. 36,993 crore.

18. Out of 122 UAS Licences awarded in 2008, 85 Licences were awarded to the six new entrants (Unitech brand name Uninor, Swan name changed to Etisalat, Allianz since merged with Etisalat, Shipping Stop Dot Com name changed to Loop Telecom, Datacom name changed to Videocon and S Tel) to the telecom sector .

As per the conditions of the UAS Licenses, these licensees were required to roll out the services in the 90 % service area in Metros and 10% District headquarters (DHQ) in other service areas within 12 months of the date of award of Licences.

Audit found that though these 6 new operators obtained the initial 4.4 MHz spectrum in 81 service areas during the period April 2008 to January 2009, none of them had rolled out their services as per the provisions of the UAS Licences in any service area till 31 December 2009.

Since there were many existing telecom UAS Licensees in dire need of this scarce natural resource, it resulted effectively into hoarding of the finite natural resources of the Nation by these operators.

Thus DOT did not earn any revenue from this natural resource during 2008-09 and 2009-10 due to inordinate delay in the commencement of services by these operators.

Further, DoT also failed to recover Liquated Damages and penalty of Rs. 679 crore from these 6 operators for inordinate delay in the rolling out their services till 31 December 2009.

19. Auction of 3G spectrum was recommended by TRAI in its Report submitted to Government in September 2006 in which they had recommended a Reserve Price for one block of 2x5 MHz 3G spectrum pan India at Rs. 1010 crore which was subsequently enhanced to Rs. 3500 crore by the EGoM constituted to consider the issues relating to auction of 3G spectrum.

TRAI in its report of 2010 has observed that 2G services today are actually offering 2.75G services. Therefore “while comparing spectral efficiency and other factors, it is fair to compare existing 2.75G systems with 3G systems”.

20. The fact also remains that the Government got Rs. 1.03 lakh crore from the auction of 3G and BWA spectrum against their own estimate of ` 35,000 crore


21. 122 licenses and 35 dual technology approvals issued in 2008 could have earned the revenue ranging from` 58,000 crore to ` 68,000 crore to the Government against the actual revenues of ` 12,386 crore earned by them.

22. The entire process of allocation of UAS licences lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner .

23. the Department of Telecommunications, in 2008, proceeded to issue 122 new licences for 2G spectrum at 2001 prices, by flouting every cannon of financial propriety, rules and procedures.

The DoT did not follow its own guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of applications post facto and altered the conditions of the FCFS procedure at crucial junctures without valid and cogent reasons, which gave unfair advantage to certain companies over others.

24. The Department of Telecommunications also did not do the requisite due diligence in the examination of the applications submitted for the UAS licenses, leading to the grant of 85 out of 122 UAS licences to ineligible applicants.

These companies, created barely months ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means for getting UAS licences and thereby access to spectrum.

Owners of these licences, obtained at unbelievably low price, have in turn sold significant stakes in their companies to the Indian/foreign companies at high premium within a short period of time.

The premium earned by these new entrants to the telecom sector was nothing but the true value of the spectrum, which should have normally accrued to the public exchequer, had the transparent and fair market mechanism been followed for the allocation of UAS licences

25. Dual Technology was also introduced by the DoT in October 2007 in a hasty and arbitrary manner and in-principle approval was given to 3 operators on a day prior to the announcement of the policy, which gave the perception of discrimination against other players in the field. Further this decision was in contravention of the Cabinet decision of 2003, resulting in additional spectrum being allotted to certain operators at 2001 price.

26. The fact that there has been loss to the national exchequer in the allocation of 2G spectrum cannot be denied. However, the amount of loss could be debated. To ensure that such lapses do not occur in any Ministry or Department of the Government, there is an imperative need to fix responsibility and enforce accountability for the lapses highlighted in the Audit Report.

End of the CAG Report .

Update –
The Supreme Court pulled up Prime Minister Manmohan Singh for delay in taking action on a complaint against former telecom minister A Raja in the 2G spectrum scam.

The apex court questioned the lengthy delay in taking a decision pointing out that the Prime Minister's Office responded 11 months after Janata Party President Subramaniam Swamy filed a complaint and sought sanction for the prosecution of Raja.

A Bench comprising justices GS Singhvi and A K Ganguly said that "the alleged inaction and silence is worrying us
Can the sanctioning authority (Prime Minister) sit on the complaint?"

Though Swamy had sought sanction from the PM seeking for Raja's prosecution under the Prevention of Corruption Act in November 29, 2008, he got reply only after 15 months in March 2010.

The court expressed dissatisfaction over the language used by the PMO in its reply to the Swamy's plea that
The CBI was investigating the case and so it was not appropriate to consider giving sanction then.

Justice Singhvi also said Subramanium should also give response to Swamy's allegations that in spite of Anil Ambani's Reliance Communication holding beyond the stipulated 10% stake in Swan Telecom why was it given licence at a throw away prices.

An SC bench comprising Justices G S Singhvi and A K Ganguly hearing the 2G spectrum case asked solicitor general Gopal Subramaniam to examine relevant files before giving his response on Thursday on why it took the government a month short of a year to tell Swamy that prosecution would be "premature" at this stage.

But the bench left little room for confusion. It put its question based on dates and facts — Swamy had filed a petition before the PM on November 29, 2008 seeking sanction to prosecute Raja; CBI had lodged an FIR on October 21, 2009 against "unknown persons"; and the response to Swamy's petition came on March 19, 2010, from the secretary in the department of personnel and training (DoPT) on behalf of the PMO saying the petition was "premature".

"What happened between November 29, 2008 and October 21, 2010?" the bench wanted to know, adding, "We take it that the sanctioning authority was right in awaiting the outcome of a pending inquiry to defer a decision on a private petition seeking sanction to prosecute a minister.

But why was the authority silent for 11 months preceding the lodging of the FIR."

In view of these questions, the bench had felt it would be proper to issue notice to the government and ask for a response to Swamy's charge of "total inaction and silence" against the sanctioning authority.


"The three months time for grant of sanction laid by the SC is clear for fair and good governance,"

"The court has said clearly that the Prime Minister must answer whether there was a delay in acting against Raja," said Swamy.

As per the law it is possible that the license of the companies who got 2G spectrum can be terminated.
Thus the time has come to show the strictness , honesty and terminate the licence,
File the police complaint , first information report regarding forging of documents. Cheating etc.

Everything is possible , but we are afraid .
Even big shots fear to name the Ministers who demand bribe of 15 crores.


Reality views by sm –
Wednesday, November 17, 2010

Suggested Reading –

Part One – understand the [ Comptroller and Auditor General of India ]
CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores


http://realityviews.blogspot.com/2010/11/part-one-understand-cag-report-on-2g.html


Part Two – understand the [Comptroller and Auditor General of India]
CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores


http://realityviews.blogspot.com/2010/11/part-two-understand-cag-report-on-2g.html