Aircel-Maxis deal: P Chidambaram twisted FIPB norms

An audit report of Comptroller and Auditor General (CAG) has put former Finance Minister P Chidambaram in a spot, as it alleges that he violated rules of Foreign Investment Promotion Board (FIPB) by clearing Aircel-Maxis deal involving Rs 3,514.45 crore. And the Department of Telecom (DoT) completely ignored the fact that Malaysia-based Maxis Group has as much as 99.3 percent stakes in Aircel, while the Indian government rules allow a foreign company to have only 74 percent stake in a telecom company.

FIPB rules clearly state that the Finance Minister can only approve proposal worth Rs 600 crore and it is mandatory that he refers all proposals above Rs 600 crore to the Cabinet Committee of Economic Affairs (CCEA). But Chidambaram passed it without referring it to CCEA.

Final CAG audit report, exclusively accessed by dna, says: “MoF (Ministry of Finance) letter dated 20 March 2006 conveying the approval of FIPB for foreign investment in Aircel Ltd was silent on the quantum of foreign investment of Maxis group of Malaysia approved investment in Aircel Ltd.’’

According to CAG audit report, the MoF was in the know way back on January 25, 2006 (through an application of Maxis Group to FIPB) that there would be total foreign exchange inflow of $800 million, approximately Rs 3,500 crore. “MoF did not recommend the proposal to the CCEA for approval as per the extant rules. There was nothing on record to indicate as to why the proposal was not sent to the CCEA for approval,’’ says CAG audit report.

CAG report further argued that FIPB had recommended all proposals above Rs 600 crore to CCEA, if one goes by 74 of its meetings held during 2007-2014. “Hence, MoF had the powers to approve the foreign investments only up to Rs 600 crore whereas Maxis/GCSH (Global Communication Service Holding Ltd, 100 percent Mauritius-based subsidiary of Maxis) invested Rs 3,514.45 crore in the Aircel Ltd on 21 March 2006 based on the MoF letter 20 March 2006,’’ says CAG report.

Above all, CAG audit report alleges that DoT did not do necessary due diligence while processing the telecom licences for the Aircel Group. Maxis Group itself declared in their filing for Quarter ended March 2006 before the Malaysian Stock Exchange that they had defacto 99.3 percent stakes in Aircel Ltd and “this effectively gives the Group (Maxis) 99.3% economic returns from the investment in Aircel,’’ says the CAG report.

Thus, CAG alleges that DoT failed to scrutinise and thus violated FDI rules for Unified Access Service License. DoT also did not seek to find if the Ministry of Finance has taken necessary CCEA’s approval for the Aircel project where a foreign company had invested more than Rs 3,000 crore, CAG report says.

dna has learnt that CAG has also sent its findings to the Central Bureau of Investigation (CBI) to further investigate the role of finance and telecom ministers and DoT officials.

The DoT official record shows that Maxis Group had entered Indian business through Mauritius route by 100 percent owning a GCSH.

The Finance ministry has given permission to Aircel, where GCSH was allowed to increase its direct equity from 26 percent to 65 percent and indirect holding of 8.999 percent through Deccan Digital Network Ventures. Besides, the Finance Ministry also allowed GCSH to set up an investment holding joint venture and wholly owned company, South Asia Communications Pvt Ltd.

GCSH procured 39 percent equity of Aircel for $422 million or Rs 1868.19 crore and raised the FDI in Aircel to 65 percent and remaining 35 percent equity owned by Indian JV Deccan for $378 million or Rs 1,673.41 crore and that too on the same day. Interestingly, Deccan was formed as JV between Maxis’ subsidiary GCSH and Indian company Sindiya Securities and Investment Ltd with ratio of 25.7 (foreign): 74.3 (Indian).

Deccan paid Rs 1,673.41 crore to procure 35 percent equity of Aircel on March 21, 2006. This was possible because in addition to paid up equity of Rs 46 crore, Deccan also got preference share equity of Rs 1,634 crore from India company South Asia Communication Pvt Ltd (SACPL), which is also 100 percent subsidiary of GCSH. It means GCSH actual investment in Deccan was (11.8+1634.46) Rs 1646.26 crore. Indian partner Sindiya Investment was only Rs 34.2 crore. It’s clear that foreign holding ratio in Deccan was 97.97:2.03.

Therefore, the total investment of GCSH turned out to be Rs 3,514.45 crore as on March 21, 2006. It is clear if we consider earlier investment of GCSH in Aircel worth Rs 1,261 crore in January 2006, the effective investment of GCSH or Maxis becomes 99.30 percent. Sindiya as an Indian partner had only 0.7 percent holding. This holding and number was not mentioned in the Finance ministry approval.

When asked, Chidambaram told dna: “Please talk to FIPB officials. These were clarified by Mr Mukherji in Parliament. There was no additional foreign investment in the company. Only the promoter changed. Mr Ashok Chawla was Additional Secretary and Mr Ashok Jha was Secretary, DEA.’’

Earlier, the issue was raised in the Rajya Sabha in May 2012, and Chidambaram had admitted that he presided over the clearance by FIPB and the discrepancies in the valuation of shares need to be addressed under purview of law.

He had then said, “The law can be set in motion on these two things. Parliament was assured that the then Finance Minister Pranab Mukherjee would address these violation of rule in the course of his reply. However, the clarification never came in Parliament.

Former Telecom Minister Dayanidhi Maran is already under the scanner of the probe agencies as he was accused of misusing his office to engineer the sale of telecom Aircel to Malaysia's Maxis Group.