This would be the second round of questioning for KKR promoters by ED on the suspected forex violation of around Rs 100 crore in KRSPL deal.
Kolkata Knight Riders (KKR) promoters may soon have to face Enforcement Directorate questioning in connection with the share sale of Knight Riders Sports Pvt Ltd (KRSPL). The investigating agency has issued summons to KKR and its shareholders seeking their explanation on the alleged under-valuation.
This would be the second round of questioning for KKR promoters by ED on the suspected forex violation of around Rs 100 crore in KRSPL deal.
The move follows the recent audit finding that has indicated that shares sold to Jay Mehta-owned Sea Island Investment (SIIL) were 8 to 9 times undervalued by Knight Riders Sports Pvt Ltd.
"We have issued summons to all the shareholders involved in the transfer of shares between KRSPL and SIIL," a senior ED official told dna.
According to the ED sources, Mehta is suspected to have routed the money to India through dubious sources. The agency wants to probe if the funds in Mehta's name came from a third party, and whether it was legal.
On March 4, dna reported that KKR promoters may face trouble over Rs 100 crore forex violation.
An e-mail sent to KKR and respective entities remained unanswered.
According to the audit report, a copy of which is in possession of dna, when the equity shares of KRSPL were issued to SIIL, the fair value of KRSPL shares should have been between Rs 70 to Rs 86 per share. However, the shares were issued at Rs 10 per share. Similarly, in the case of transfer of equity share of KRSPL from Juhi Chawla to SIIL, the fair value per equity share of KRSPL should be between Rs 83 to 99. But shares were transferred again at Rs 10 per share.
According to FEMA norms, a non-resident investor in a non-listed company is eligible to exit at a price as per any internationally-accepted pricing methods certified by a chartered accountant or under the guidelines set by the stock market regulator, Sebi.
ED however suspects that value of shares issued to the Mauritius-based SIIL was not in the line with the established pricing guidelines.
The audit has been done on the calculation considering the potential future probability of KRSPL, assuming that the franchise agreement remains in force for more than 10 years.
Despite the calculation method, the finding also raised questions that why the share price was deliberately undervalued from its market price and hurriedly sold to an overseas entity within a year.
The share transfer is believed to have happened in 2008-09. At the time of incorporation in February 2008, Red Chillies Entertainment Pvt Ltd held 9,900 shares of KRSPL and his wife (the nominee of Red Chillies), 100 shares. In March, 2009, Red Chillies sold 50 lakh shares to the Jay Mehta's company, while it bought the entire lot of 40 lakh shares from Juhi Chawla. Juhi received Rs 4 crore for the sale of the 40 lakh shares on March 26, 2010.
As of now, Red Chillies holds 110 lakh shares, while Sea Island Investment holds 90 lakh shares of the total 2 crore shares.
In its first questioning, ED wanted to know if there was any due diligence conducted on SIIL before the allotment of shares to them on March 7, 2009. It also probed why KRSPL allotted 50 lakh shares to Sea Island Investments at a value which appears to be understated the basis of fair valuation of shares as per guidelines of the erstwhile Controller of Capital Issues (CCI).
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