In a dramatic volte face on the eve of the general elections, the department of telecommunications has allowed JT Mobiles to transfer its Punjab cellular licence. The decision to allow the transfer to Evergrowth Telecom, which was spun off as a separate venture by JT Mobiles, violates existing regulations.
The cellular tender conditions laid down by the DoT clearly specify that a licence may not be transferred to any third party. In this case, the Essar group has picked up quasi-equity: fully convertible debentures worth Rs 98 crore. Essar will, thereby, be an indirect beneficiary.
Documents available with Bus-iness Standard show that DoT has also allowed the companys promoters to transfer 20% equity the ownership of which is disputed between R K Associates and Parasrampuria Credit & Invest-ments to United Telecom violating tender norms.
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JT Mobiles is the cellular licensee for Andhra, Karnataka and Punjab. Sanmar Electronics has 20% in th equity, PCIL or RK Associates the disputed 20%, UTL 11%, Telia of Sweden 26%, Bangkok-based Jasmine Telecom 13% and Telecom Authority of Thailand 10%.
Even as DoT officials defended the decisions, saying the matter has been dragging on too long, the actions have surprised industry watchers as the Delhi High Court is hearing a petition on the issue. The next hearing on a case filed by PCIL against DoT over the separation of EGTL is set for February 11.
According to documents filed by JT Mobiles before the telecom commission, EGTL has placed convertible debentures worth Rs 98 crore with Essar Telecom. P Rajamohan Rao, director and CEO of JT Mobiles, has given an undertaking that the conversion of debentures into equity will be only with the permission of DoT, but Essar Telecom is yet to send the department a confirmation.
Essar executives had told Business Standard in October 1996 that the group was picking up 76 per cent in EGTL. Essar Commvision holds the basic telecom licence in Punjab and acquisition of the Punjab cellular licence results in operational and financial synergies. JT Mobiles later denied placement of EGTL equity with Essar Telecom, saying it only had an intent to do so and not the deal had not been concluded.
The DoT decisions, taken on January 27, overrule the recommendations of a special four-member committee it had set up. The committee had rejected the contention of JT Mobiles that it did not violate any tender conditions by transferring 20 per cent equity held by RK Associates to UTL and served a showcause notice threatening licence cancellation.
In April 1997, the JT Mobiles board of directors transferred the disputed 20 per cent to UTL. When questioned by DoT on this transfer of equity, the company claimed that the 20 per cent had never been issued to either R K Associates or PCIL and, therefore, the question of violating tender conditions did not arise.
The DoT committee said the equity transfer violated Clause 17 of the cellular licence agreement. Under the clause, ... The equity of the Indian promoter(s) of the licensee shall not fall below 10 per cent of the total aggregate or the equity held at the time of bidding whichever is lower for a period of three years from the effective date.
On January 27, however, DoT changed its stance and granted JT Mobiles ex-posto-facto approval for change of ownership of 20 per cent equity from R K Associates to UTL. It also agreed in-principle to the spinning off of EGTL to operate the Punjab cellular licence.
DoTs flip-flop over JT Mobiles
Dec 1995 JTM signs cellular licence agreement with DoT for Andhra Pradesh, Karnataka and Punjab
March 1996 R K Kataria, London-based NRI, claims ownership of the 20% equity held by PCIL, saying the latter was only fronting for him
April 1996 DoT under Sukh Ram allows the 20% stake to be transferred to RK Associates. JT Mobile is permitted to spin off the Punjab cellular licence as a separate company, Evergrowth Telecom (EGTL) Ltd.
June 1996 RK Associates moves Delhi High Court, while PCIL appeals to the Bangalore High Court
Oct 1996 76% in EGTL sought to be placed with Essar Telecom
Early 1997 The disputed 20% stake is transferred to United Telecom (UTL). JTM claims Essars involvement was only an intent of sale
June 1997 DoT serves notice on JTM asking it to explain the reported sale of EGTL to Essar and transfer of 20% stake to UTL
July 1997 Delhi HC rejects PCIL case; Bangalore HC rules in its favour
Dec 1997 After rejecting JTMs stand on the transfer of RK Associates 20% stake to UTL, DoT threatens to terminate its licences
Jan 23, 1998 JTM claims EGTL has placed convertible debentures worth Rs 98 crore with Essar Telecom and this is a debt transaction
Jan 27, 1998 DoT under Beni Prasad Verma reverses its stance and allows the transfer of the disputed 20% stake to UTL and the sale of EGTL to Essar