New Delhi: A key charge made by the Central Bureau of Investigation (CBI) in its criminal case against Reliance Telecom Ltd and Swan Telecom (now Etisalat DB Telecom India Pvt. Ltd) hangs in the balance and it has to do with a definition.
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On Thursday, defence lawyers challenged CBI’s decision to disregard the law ministry’s definition of an associate company. If the law ministry’s definition is allowed to become part of the case, then Swan Telecom might not qualify as an associate company of Reliance Telecom.
This will undermine CBI’s claim that companies were used as fronts by existing operators to apply for fresh licences. And the same principle will apply to a similar charge CBI is said to be contemplating against Loop Telecom Pvt. Ltd (the agency is investigating whether the company is a front for the Essar Group).
Earlier, judge O.P. Saini deferred the framing of charges scheduled for Thursday and agreed to hear the plea questioning CBI’s action.
According to the law ministry’s definition, for one company to be considered an associate of another, “there must be either a holding and subsidiary relationship between the two companies, or there must be a more than 50% shareholding in both companies by the common parent holding shares in either of the two companies. In the absence of these facts, one company cannot be said to be an associate of the other company”.
“We can’t shut our eyes to the fact that this is an opinion of the law ministry... A prosecuting agency is mandated to produce said documents for the evaluation of your honour,” said Amit Desai, lawyer for Etisalat.
Special public prosecutor Uday U. Lalit countered that it was the prerogative of CBI to decide whether or not the law ministry’s view is to be made part of the case.
He said the accused cannot force CBI to use the document.
In its chargesheet, the agency had claimed that Swan Telecom was an associate of Reliance Telecom, making this a prima facie violation of telecom regulations. Telecom service providers are prohibited from holding more than 10% equity in more than one telecom service provider within the same operating area or circle. It has been pursuing a similar line of investigation regarding Loop and the Essar Group.
Given this, the definition of what makes an associate company is critical, and there’s evidence to suggest that even the government has more than one answer for that.
In February, the ministry of corporate affairs (MCA) sought the opinion of the then solicitor general, Gopal Subramaniam, on his definition of an associate company.
The query was made in the context of Loop and Swan, alleged to be associate companies of Essar and Reliance Telecom, respectively.
MCA’s stated position is that the large conglomerates didn’t have more than 10% stake in Loop or Swan.
Subramaniam immediately advised the ministry against any fresh interpretation of the definition under company law, given that the matter was sub judice.
“The matter on which the opinion is sought is under sub judice and it should not be entertained. Any attempt will be regarded as travesty of justice...,” he wrote, and, for good measure, added that “the reference lacks propriety”.
Subramaniam said that the investigating agency was free to use his opinion in a court of law.
In August, the law ministry disregarded Subramaniam’s note and sent in its advice that neither Loop nor Swan would qualify as an associate company of the Essar Group and Reliance Telecom, respectively. Law secretary D.R. Meena who wrote the ministry’s note declined comment.
An Essar spokesperson said that the firm is in full compliance with norms and is cooperating with the government. Reliance Telecom, Swan and Loop did not respond to Mint queries.
Meanwhile, accountants say the government has messed up. “How can the government take two different positions on the same concept? asked Amarjit Chopra, former president of the Institute of Chartered Accountants of India.
Harinderjit Singh, partner at Price Waterhouse, an audit firm affiliated to PricewaterhouseCoopers, said the law “that governs the corporate sector is the Companies Act and, therefore, (that) should be the basis of any definition”.
He added, without getting into the merit of the case, that “an associate is one in which the investing party has significant influence and promoters of Indian companies do play a significant role in associates”.
Responding to the position of the auditors, law minister Salman Khursheed said: “Honestly, it is not appropriate for the law minister to respond to every professional view, that also where matters are sub judice. We have taken a considered position based on an analysis of principles of law and standard business practices. The accounting standards have also been considered.”
Cordelia Jenkins and Shauvik Ghosh contributed to this story.