The Anil Ambani-promoted Reliance Infrastructure (Rel Infra) violated overseas borrowing and foreign exchange rules by investing funds raised abroad in the domestic capital market, Minister of State for Finance Pawan Kumar Bansal said in Parliament today.
In a written response, Bansal said the Enforcement Directorate (ED) was now examining the violation for necessary action.
Bansal said the violation related to overseas borrowings of around $360 million by Rel Infra (then Reliance Energy) in July 2006. The company in April 2007 brought $300 million into India and invested it in debt mutual funds. It then remitted $500 million, including the “proceeds of the $300 million brought into India” in March 2008 to invest in an overseas subsidiary.
In addition, Rel Infra had availed of $150 million through the approval route and the amount was brought into India in November 2006. Here, too, the government said the company was using a portion of the proceeds in fixed deposits and debt mutual funds.
A Rel Infra spokesperson said, “As legally advised, there’s no Fema violation.” The company also said it had not received any notice from any agency so far on the issue.
The minister said the external commercial borrowing rules in force at that time required funds raised overseas to be kept outside India until they were actually needed and these couldn’t be used to invest in the capital market.
In August 2008 the Reserve Bank of India had imposed a penalty of Rs 125 crore on the company as compounding fees for parking its foreign loan proceeds in the country. However, the company in its third quarter report said its application "for compounding had been deemed by RBI as never to have been made, subsequent to withdrawal of the compounding application. Accordingly, there is no liability in respect of the compounding fee of Rs 125 crore specified by RBI."
The government today informed Parliament that Rel Infra did not pay the penalty and submitted a revised application in August 2008, seeking "compounding of the contraventions involved in both the ECBs of $360 million and $150 million".
The compounding application was found to be not in order and was returned to Rel Infra on September 30, 2008.
The ADAG company was, thereafter, given an option to make separate applications for compounding the contraventions, for which it did not approach RBI, said Bansal in his reply . Subsequently, the central bank referred the case to the Directorate of Enforcement on November 7, 2008.
