ED issues Fema notice to Devas Multimedia2 min read . Updated: 07 Jun 2016, 04:55 AM IST
Show-cause notice issued to Devas Multimedia for allegedly making wrongful gains worth Rs1,217.76 crore
Mumbai: The Enforcement Directorate (ED) on Monday issued a show-cause notice to satellite communications and technologies firm Devas Multimedia Pvt. Ltd for allegedly making wrongful gains worth ₹ 1,217.76 crore.
The ED said the Bengaluru-based company was in contranvention of the provisions of Foreign Exchange Management Act 1999 (Fema) on three counts.
If the allegations are proven, under Fema regulations, Devas Multimedia and its directors may need to pay up to three times the contravention amount in penalties, which works out to ₹ 3,653.28 crore.
In a statement, the agency said it has initiated investigation against suspected contraventions of the provisions of Fema in the foreign direct investment (FDI) received by Devas Multimedia from various overseas investors, including CC Devas Mauritius Ltd, Telecom Devas Mauritius Ltd, Deutsche Telkom Asia Pvt. Ltd and Devas Employees Mauritius Pvt. Ltd.
The Indian company received investments from May 2006 to June 2010 totalling $131.44 million (equivalent to around ₹ 578.54 crore).
“... the share subscription agreements entered into by the Indian company contained clauses relating to settlement of disputes at courts other than India and applicability other than Indian laws on matters of dispute and thus the FDI received by Devas Multimedia were contrary to the conditions specified in the approvals granted by the Foreign Investment Promotion Board (FIPB) and thus contravening the provisions of Fema, 1999," the ED said.
Devas Multimedia had also assured that the overseas investors will get an annual 8% priority dividend on a cumulative basis.
“Such assured dividends are not the nature of any equity instrument and contrary to the provisions of FDI regulations under Fema, 1999." ED said.
The investment received by Devas Multimedia in lieu of assured returns was to the tune of ₹ 571.72 crore.
The third contravention, as alleged by ED, involved Devas Multimedia promising a return higher than the ceiling fixed by the concerned regulator, the Reserve Bank of India (RBI). The extent of contravention on this count is ₹ 67.50 crore.
As per the Fema provisions, an approval from FIPB for FDI is granted on condition that the agreement would be governed by Indian laws. However, the agreement entered into by the Bengaluru-based company and its foreign investors had an additional clause relating to settlement of disputes in courts outside Indian jurisdiction.
In 2005, Antrix Corp. Ltd, the commercial arm of the Indian Space Research Organization (Isro), had signed an agreement with Devas Multimedia under which the latter was to lease as much as 70 megahertz (MHz) of S-band spectrum from two satellites that were to be launched by Isro. The deal landed in controversy when the telecom spectrum auction scam surfaced under the former United Progressive Alliance government. Following a prolonged legal battle, the Cabinet Committee on Security cancelled the deal in February 2011.
Emails and phone calls to the PR firm handling Devas Multimedia Pvt. Ltd on Monday did not elicit any response.