On a day when the Supreme Court suggested the Central Bureau of Investigation (CBI) could also consider looking into loans amounting to around 10,000 crore taken by telcos given second-generation (2G) telecom licences in 2008, by pledging those very same licences, the federal investigating agency carried out searches at the homes of former telecom minister A. Raja and his aides.

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Meanwhile, the opposition parties refused to budge from their demand for a probe by a joint parliamentary committee (JPC) into the alleged preferential allotment of 2G licences in 2008.

Most of the telcos granted licences in 2008 availed of bank loans and documents reviewed by Mint indicate that while one of them, Swan Telecom (since renamed Etisalat DB Telecom Services Pvt. Ltd), pledged its licence as additional security for an existing loan in violation of the terms under which this licence was granted, another, Unitech Wireless (since rebranded Uninor), got around having to involve the department of telecommunications (DoT) in any pledging of the licence by hypothecating it instead.

Late Wednesday evening, Mint also reviewed mortgage documents between Loop Telecom Pvt. Ltd and State Bank of India (SBI), and Videocon Telecommunication Ltd and the same bank. None of these firms were contacted given the lateness of the hour.

To be sure, all that the last set of documents indicate is that both Loop and Videocon, also beneficiaries of the government’s 2008 issue of licences and spectrum, have raised money by pledging licences, an accepted method of funding in the telecom business and one that is entirely within the law. The government only requires that the money thus raised be used for rolling out the telecom network, which doesn’t seem to have happened in the case of Etisalat DB, and that it be made party to any pledges through a tripartite agreement that also involves the bank issuing the loan and the telco.

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The Supreme Court, which is hearing a public interest litigation that seeks its intervention to monitor the investigation of the so-called 2G scam by CBI, asked the agency to look at the bank angle after Prashant Bhushan, lawyer for the petitioners, said that the licences were valued far more than the amount for which they were issued and that this is evident in tripartite agreements signed by the telcos, the banks, and DoT—implying that DoT knew the real value of these licences.

CBI’s lawyer K.K. Venugopal told the court that the agency would expand the scope of its probe to include the allegations of irregularities against the banks and DoT. “We will refer it to the bank fraud cell and submit a preliminary report," he said. CBI’s Banking and Securities Fraud Cell will investigate this part of the probe and will submit a report towards the end of January, Venugopal added.

It isn’t clear at this stage whether the banks flouted any rules or participated in the alleged frauds.

The simmering 2G controversy came to a boil in early November when the government’s auditor, the Comptroller and Auditor General of India (CAG), presented its report on the subject to Parliament and said that the 2008 allotment of licences and spectrum, and other alleged malpractices in the telecom ministry, had cost the exchequer 1.76 trillion in terms of notional losses.

Pledging & hypothecation

Etisalat DB, one of the five companies given licences in January 2008, pledged its Andhra Pradesh licence as additional security for an existing loan of 1,917 crore. Seven officials at DoT (none of them wanted to be identified) and a person from CAG’s office, who also spoke on condition of anonymity, said that this violates a rule that says licences can be pledged to raise money only to roll out networks.

The telco, then called Swan, entered into a tripartite agreement with Punjab National Bank (PNB) and DoT, and pledged its licence to the bank in January 2009. The documents show that Swan wasn’t given a fresh loan, and that the pledge was security for a loan of 1,917 crore given by PNB and a few other banks that acted as a consortium in October 2007—well before Swan won a licence.

In a written response, Etisalat DB said the “licence was assigned only once for getting fund- and non-fund-based facility. Fund-based facility has been repaid and non-fund- based facility is outstanding as on date."

Interestingly, an attachment to the tripartite pact refers to the loan agreement entered in October 2007. A senior official of PNB, who did not want to be identified, said the loan was a short-term facility of 1,200 crore that was disbursed in January 2008, and a bank guarantee for the remaining amount, which continues. The bank is in the clear and it is within its prerogative to ask for more security, added this person.

PNB’s spokesperson declined to comment.

Unitech Wireless (Delhi) Pvt. Ltd (now Uninor), which won licences to offer services in several circles, including Delhi, entered into a deed of hypothecation with SBICap Trustee Co. Ltd without permission from DoT. The licence agreement states that a telecom licence cannot be assigned in any manner without the prior written permission of the department.

A Unitech Wireless representative said in an email that “none of our licences have been assigned. It is incorrect to draw an inference that execution of deed of hypothecation results in assignment because such assignment can happen only when any of the clauses in the loan agreement are triggered. In that scenario, of course, a formal pre-approval of the government is required through the prescribed tripartite agreement that has to be signed".

Interestingly, the hypothecation happened on 9 November 2009.

The Unitech Wireless representative added in the email that once the clauses in the loan agreement were triggered, the company did enter into a tripartite agreement.

Unitech Wireless entered into a tripartite agreement with SBI and DoT in May this year.

The representative said that there was no violation of the licence agreement.

“Only immovable assets can be mortgaged," said Ravi Singhania, senior partner at Singhania and Co., which represents Unitech Wireless, in an email. The licence isn’t one, he added.

“Furthermore, the deed of hypothecation clearly states that only those assets capable of assignment can be assigned," he said.

The deed of hypothecation clearly states that SBICap, in the event of breach or default by Unitech, can take possession of the hypothecated property.

The deed was executed for a commitment of 5,000 crore as loan from a consortium of banks led by SBI.

A senior SBICap official, who spoke on condition of anonymity, said the company hadn’t violated any laws. It didn’t respond to Mint’s queries.

CBI searches

CBI searched the residences of Raja, who resigned as telecom minister soon after CAG presented its report, in Tamil Nadu and New Delhi. It also searched the residences of his former personal secretary R.K. Chandolia, former telecom secretary Siddhartha Behuria, former telecom commission member K. Sridhar, and former deputy director general in DoT’s access service wing, K. Srivastava.

The agency also searched the houses of some of Raja’s relatives and associates, including Sadiqui Batcha, managing director of Chennai-based Greenhouse Exports.

“Raids are on and no further details can be given now," CBI director A.P. Singh told reporters. “No one has been arrested so far."

A senior CBI official, speaking on condition of anonymity, said Raja was present in his New Delhi house at the time of the search and that while the agency didn’t question him formally, it did seek some clarifications from him.

“We are questioning Chandolia and Batcha. We also have strong evidence against Behuria. We may soon formally question Raja and others," added the same official.

Behuria declined to comment, citing ongoing investigations. Srivastava didn’t answer calls on his phone. Chandolia and Sridhar could not be reached for comment.

CBI registered a case on 21 October 2009 against unknown DoT officials, unknown private persons and companies, and others under the charges of criminal conspiracy and the Prevention of Corruption Act.

The agency’s slow progress in the case prompted the public interest litigation in the Supreme Court. In recent weeks, however, both the agency and the government have indicated their consent to the court overseeing the investigation. The Supreme Court reserved orders on the case on Wednesday.

Meanwhile, DoT is expected to send notices this week to firms issued licences in 2008 that have violated the terms of their licence agreements. They will have 60 days to respond.


Liz Mathew, Sahil Makkar, Nikhil Kanekal and Anup Roy in Mumbai also contributed to this story.