Blasts DoT for lapse in due diligence; accuses firms of misrepresenting facts.
Telecom companies that received new licences in 2008 could be in the dock as, according to the Comptroller and Auditor General (CAG) of India, they did not meet the eligibility criteria prescribed by the Department of Telecommunications (DoT) for issuance of UAS (Unified Access Services) licences.
“DoT failed miserably to do the necessary due diligence in the examination of these (new) applicants, though they took three-nine months to process these applications, as against the prescribed period of 30 days,” CAG said.
Many of these companies did not have the stipulated paid-up capital at the time of application and even failed to satisfy conditions of the main object clause in their Memorandum of Association (MoA).
These companies include six from Unitech Group, Allianz Infratech (now merged with Etisalat DB) and Loop Telecom (earlier Shipping Stop DoT Com).
In its report, tabled in Parliament today, CAG said six newly-incorporated applicant companies belonging to Unitech group (brand name Uninor) had submitted their applications for grant of 20 licences to DoT on September 24, 2007. Along with their applications, these companies had submitted copies of their MoA/Articles of Association (AoA) and indicated they meet the eligibility criteria for grant of UAS licences.
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CAG said it was found on verification that all these companies had suppressed the conditional nature of certification of registration with the Registrar of Companies (RoC) on September 20, 2007, while registering the alterations in the main object clause in the MoA/AoA.
While certifying the alteration of the main objects of all the six Unitech Group companies, the RoC had said the certificate was subject to the change of the name of the company. However, the condition was met in May 2008 only, while the licences were issued in January 2008.
“As a result, all these six new companies were registered afresh with new names in May 2008 by RoC. As a result, the MoA of these companies did not permit them to operate in the telecom sector on the date of application — September 24, 2007. Hence, they were ineligible for the grant of UAS licences,” CAG said.
Allianz Infratech submitted its application for licences in all 21 circles on September 3, 2007, to DoT without disclosing the fact of non-registration of alteration of the main object clauses in the MoA as on the date of application.
“The company had changed the main object clauses in the MoA and AoA so as to include the telecom sector... But these alterations were registered by the RoC on September 28, 2007 only. Thus, they were also not eligible for grant of UAS licence on the date of submission of application,” CAG said. In a similar fashion, Loop Telecom also misrepresented facts while submitting its applications.
CAG said 13 companies did not have the requisite share capital on the date of submission of applications. Hence, the question of meeting the eligibility criterion of the paid-up capital did not arise. For six companies of Unitech Group, the authorised share capital was only Rs 5 lakh each, against the requirement of Rs 10-26 crore each.
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Swan fronted for Reliance Telecom
CAG also observed that Swan Telecom, one of the new companies that was given licences in 2008, acted as a front company on behalf of Reliance Telecom while applying for a new UAS licence.
Reliance Telecom held a stake of 10.71 per cent in Swan Telecom when Swan applied for the licence. According to rules, an existing telecom company cannot hold more than 10 per cent in another competing company in the same circle.
“At the time of applying for the UAS licence, Reliance Telecom held a stake of 10.71 per cent in Swan Telecom. Since Reliance Telecom was operating in all the service areas where Swan had applied, the application of Swan Telecom was not in conformity with UAS licence guidelines and hence, was not eligible to be considered,” CAG said in its report.
It said DoT did not have any mechanism to verify the correctness of the shareholding pattern of the applicant and the matter should have been referred to the Ministry of Corporate Affairs as was advised by the finance wing of the department.
The email ID of Reliance Telecom as well as registered office of Swan Telecom Pvt Ltd in its application, dated March 2, 2007, was shown as hari.nair@relianceada.com, the report said, adding the same email ID was also given for the correspondence address and the authorised contact person of the applicant.
The CAG said Company Secretary Hari Nair had given a certificate while applying for a UAS licence for the J&K service area in January 2007 that Tigers Traders Pvt Ltd held the shares of Swan (then Swan Capital Pvt Ltd) as trustees of Indian Telecom Infrastructure Fund and these corporate beneficiaries were not part of Reliance ADA Group and neither Anil Ambani nor his family or Reliance ADA Group companies held any share in these companies.
Reliance Communications, in a statement, said: “Our group had no shareholding in Swan Telecom (now Etisalat DB) at the time of grant of licence to them or any time thereafter, and that issue is accordingly not relevant to our company.”