Author: Ashish Khetan
Publication: Tehelka
Date: August 6, 2011
URL: http://tehelka.com/story_main50.asp?filename=Ne060811Fall.asp
In court, the former telecom minister has
trained his guns on his Cabinet colleagues. Ashish Khetan assesses his arguments
THE TELECOM scam, now infamously known as
the 2G scam, is not only extremely complex and multi-layered, it also involves
a spectrum of dimensions-ethical, governmental, political, technical and what
will eventually matter in the court, the legal and evidentiary dimensions.
More often than not, the discourse on the 2G scam-as debated in the media,
in political circles and in coffee houses-is a mish-mash of all of the above,
leaving the man on the street angrier and more confused.
Both the BJP and CAG have claimed that the
2G spectrum should have been auctioned and had it been done so, the exchequer
could have been richer by Rs 1.76 lakh crore. The incumbent telecom minister
Kapil Sibal has, on the contrary, asserted that there had been zero loss from
the allocation of 2G spectrum done during the UPA regimes.
This week the disgraced former telecom minister
and lynchpin of the scam, A Raja, gave yet another dimension to the ongoing
2G case by dragging in the prime minister, finance minister and the attorney
general in the telecom muck, claiming that the scandalous telecom policy had
consensus within the government and he is just the fall-guy. Raja called the
Comptroller and Auditor General (CAG) Vinod Rai, who had sensationally pegged
the scam at the mindboggling figure of Rs 1.76 lakh crore, as a legal illiterate.
He accused the CBI of being selective and vindictive.
He also suggested that companies like Tata
and S-Tel, which also made windfall gains from the spectrum allocation done
by his ministry, have been spared.
As the 2G narrative gets more muddled, what
is the unadulterated truth? Is there any merit in Raja's arguments? Is he
being made the fall guy? Has the CBI been selective in collecting and interpreting
the evidence, adopting a policy of pick and choose while arraigning the accused,
nailing the expendables and covering up for the powerful?
Or is Raja obfuscating the facts?
The moot question before the nation today
is whether Manmohan Singh and Chidambaram should also be made co-accused with
Raja? After all, as the Opposition has argued, the 2G scam happened right
under the nose of the PM and the buck stops with his office. Also, should
Attorney General Goolam E Vahanvati be arraigned as hinted by Raja? And should
companies like Tata be booked for making staggering profits by way of dilution
of equity at astonishing prices to foreign telecom players, just like Swan
and Unitech?
As always, the devil lies in the details.
What's the evidence, if any, against Manmohan
Singh and Chidambaram?
In the chain of letters exchanged between Manmohan Singh and Raja in November
and December 2007, just around the time when Raja was giving final touches
to the alleged scam, Raja had repeatedly assured the prime minister that all
his decisions were completely transparent and there was not a single deviation
or departure from the established procedures.
From the exchange between Singh and Raja,
it becomes clear that the PMwas concerned about the policies and procedures
with regard to new licences. He listed a host of telecom-related issues and
asked Raja to ensure fairness and transparency in dealing with them. Two issues
in particular were emphasised by the PM: How to process a large number of
applications against the backdrop of inadequate spectrum? And, how to determine
the correct price of the 2G spectrum while keeping in mind the interest of
the common man?
Singh, in his letter dated 2 November 2007,
wrote, 'In order that spectrum use efficiently gets directly linked with correct
pricing of spectrum, consider introduction of a transparent methodology of
auction, wherever legally and technically feasible, and (ii) revision of entry
fee, which is currently benchmarked on old spectrum auction figures.' The
same day, Raja wrote back that auction of the 2G spectrum would be 'unfair,
discriminatory, arbitrary and capricious' as it will not give new players
a 'level playing field.'
Since everything that Raja did is now viewed
with suspicion, the final choice he made of not going for open bidding and
instead opting for a first-come-first-served (FCFS) policy has been dubbed
a scam.
The question is: was Raja's decision of FCFS
grounded in sound reasoning and justifiable facts?
The licensing and spectrum allocation policy
has been guided by the National Telecom Policy of 1999, which was approved
by the Union Cabinet during NDA's tenure. One of the key features of this
policy was that the Telecom Regulatory Authority of India (TRAI) was empowered
to determine the entry fee and the basis of selection of additional operators.
When this policy was formulated in 1999 there
were only two players in each telecom circle (the country is divided into
22 such circles). The new policy opened the doors for new players.
The licence fee was divided into two components-one
was entry fee and the other was annual licence fee and spectrum usage fee
which was a fixed percentage of adjusted gross revenue (AGR) earned by each
player. As per this policy, existing players migrated to what came to be called
as revenue sharing regime. Government PSUs MTNL and BSNL were made the third
operator in each circle.
For the entry of the fourth operator in each
circle, bidding was carried out in 2001 for determining the upfront entry
fee. The annual licence fee and spectrum usage charge were to be determined
separately, based upon AGR.
Since the telecom sector was still in nascent
stage in India, in a few circles like Bihar, Odisha, West Bengal, and Assam,
no bidders came forward or very few did. After the auction, Rs 1,658 crore
emerged as the entry fee for a pan-India licence.
From then till March 2007, the DoT continued
to issue new mobile phone licences at the 2001 prices on the FCFS basis. The
total number of licences issued between 2003 and 2007 were 51 as against the
122 licences that Raja granted in 2008 in one fell swoop (Raja had processed
332 applications, out of which 110 were rejected while 122 were approved).
In 2007, there was an avalanche of new applications;
basically spurred by the realisation in the industry that spectrum was a scarce
resource and soon there would be no spectrum up for grabs.
On 28 August 2007, the TRAI recommended auction
as the route for allocating 3G spectrum but in the 2G bands (800, 900 and
1800 MHz), it said, 'the allocation through auction may not be possible as
the (existing) service providers were allocated spectrum at different times
of their licence and auctioning might raise the issue of level-playing field.'
In the view of this clear TRAI recommendation,
the CAG's calculation, pegging the scam at Rs 1.76 lakh crore, becomes deeply
problematic. CAG's calculation was primarily based on the revenues earned
by the government from 3G auction. The DoT has time and again argued that
the CAG had no locus standi to object to the government's stated policy of
not auctioning the 2G spectrum, which was devised to enhance competition among
telecom companies so that, consequently, call tariff could be drastically
reduced.
That's the single biggest reason why CAG'S
calculation of the staggering notional loss arising out of the 2G scam has
been discarded by the CBI.
While rejecting the proposed auctioning of
2G spectrum, the TRAI, however, had recommended revision of the existing entry
fee which at the time was based on 2001 auction price.
Between 2001 and 2007, the adjusted gross
revenue of telecom companies had increased by 3.5 times. The CBI in its chargesheet
has noted: 'The telecom sector had undergone tremendous growth and parameters
like teledensity and AGR had undergone phenomenal rise since 2001.'
The CBI has thus charged Raja with not revising
the entry fee and thus causing a loss to the exchequer to the tune of Rs 30,984
crore.
The PM in his letter dated 2 November 2007
had clearly asked for revision of entry fee to be considered as an alternative
to auction. So, why did the PM later did not press Raja for revising the entry
fee? What did Chidambaram in his capacity as finance minister do to stop the
scam? Clearly, the licence and spectrum pricing involved wider financial implications
and as per the Government of India (transactions of business) rules, the matter
came under the purview of the finance ministry.
Actually, the finance ministry under Chidambaram
sent Raja's ministry a strongly worded letter dated 22 November 2007 asking
for an immediate review of the entry fee. Moreover, Member (Finance) working
within the telecom ministry, also endorsed the finance ministry's contention.
But Raja obstinately overlooked all these suggestions and went ahead with
his scheme of things.
Even in his written replies to the PM, Raja,
while ruling out the auction route remained suspiciously quiet on the PM's
alternative suggestion that entry fee should be revised.
Does the act of PM and FM of not prevailing
upon Raja to revise the entry fee make them criminally culpable?
The prime minister has the power to call for
any file from any department and set up an EGoM, as Raja has correctly argued
in court. But eventually, as the PM has said in his defence, he reposed his
faith in Raja's good conscience. The CBI has blamed Raja for misleading the
PM and breaching his trust.
Certainly, both Singh and Chidambaram were
acutely conscious of the wider financial implications involved in the matter
and should have done more to prevail upon Raja to revise the entry fee.
While one could make a case of moral responsibility
against the duo, the investigation so far has not thrown up any evidence which
would suggest that they, by any act of omission or commission, facilitated
the scam.
Legal experts will tell you that most crimes
have two cornerstones - mens rea (criminal intent) and actus reus (criminal
action). That is, the evidence of both criminal intent and criminal action
are required to prove a person guilty of a crime.
THE CBI in its chargesheet has documented
a body of evidence against Raja to establish that his actions were motivated
by a criminal intent, which was to provide wrongful and illegal gains to Swan
and Unitech (till date only these two mobile companies have been charged while
the investigation against other players is still on) and thus willfully and
illegally made such decisions which benefitted these companies and therefore
his actions become criminal actions.
According to the case built by CBI, Raja manipulated
the priority list of new applicants and cut-off dates in a way that Swan and
Unitech could jump the queue and get licences and spectrum ahead of others.
As part of the conspiracy, Swan and Unitech had already been alerted about
the new priority criterion (which was in principle made public only on 10
January 2008) and had accordingly kept the demand drafts ready. Swan had got
the draft made in early November 2007, while Unitech had kept it ready since
October 2007.
To prove its point, the CBI has recorded statements
of several key DoT officials who have testified that Raja and his Personal
Secretary RK Chandolia took unwarranted interest in the applications of Swan
and Unitech and passed illegal oral and written orders to favour them.
Raja even defied the then Law Minister HR
Bhardwaj's suggestion dated 1 November 2007 which is duly recorded on file,
to refer the issue of new telecom licences and cut-off date to an empowered
group of ministers. He instead brushed aside Bhardwaj's suggestion, calling
it as being 'totally out of context.'
Also, Raja violated several key TRAI recommendations,
including not capping the number of new telecom players. Besides, the applications
of Swan and Unitech were in violation of several UASL guidelines and ought
to have been rejected but Raja deliberately blinked.
Based on a body of direct and circumstantial
evidence, the CBI has built a strong case of criminal intent and criminal
action against Raja, Swan and Unitech. Several key DoT officials, in written
statements to the CBI, have condemned Raja. Reams of DoT files, which now
form the bulk of material evidence in the case, have Raja's notings and signatures.
All go to show that it was Raja who was in the driving seat of decision-making
and implementation. What further strengthens the CBI case is the money trail
of Rs 200 crore which Shahid Balwa's companies routed to DMK-promoted media
company Kalaignar TV. The money, the CBI claims, was a kickback given to DMK
in the guise of a business loan.
The question which now arises is: can a similar
case also be made against Manmohan and Chidambaram? Could it be argued that
Manmohan and Chidambaram were also in league with private telecom players?
Or could it be proved that in the very least, Manmohan and Chidambaram had
acted in conjunction with Raja as facilitators in the conspiracy? Is there
a money trail between the telecom players and Manmohan and Chidambaram or
for that matter the Congress Party? So far, the answer is clearly no. As much
as the moral and final responsibility rests with the PM, the two basic elements
of a criminal conspiracy-criminal intent and criminal action-are absent in
Singh's case and as well as that of Chidambaram.
Does dilution of equity by new entrants to
foreign players constitute a crime?
Swan, Unitech and many other new players raised fresh capital by diluting
their respective equities to foreign players. Swan raised around Rs 3,600
crore by offloading 49 percent equity to Dubai-based Etisalat Telecom. Similarly,
Unitech offloaded 67 percent equity in favour of Norway-based telecom major
Telenor and raised an investment of Rs 6,120 crore. The Prime Minister had
once remarked that new entrants needed fresh equity infusion to expand their
businesses.
The media has often dubbed this FDI as 'windfall
gains' made by new telecom players. However, the facts of the case tell a
different story.
The new players made windfall gains by not
paying the requisite and justifiable entry fee. The dilution of equity is
a common business practice followed globally by businesses in need of investments
required for expansion.
In fact, the issue of dilution of equity doesn't
figure among the list of criminal offences laid out by the CBI against Swan
and Unitech.
So, as far as Chidambaram approving the issue
of fresh equity raised by Swan and Unitech is concerned, the same doesn't
fall under the purview of any conceivable offence.
But the CAG bracketed the FDI as windfall
gains. Businesses are driven by the objective of maximising profits. It's
the illegality in any profit-making deal that would qualify as an offence,
not merely the fact that a company's net worth was enhanced by virtue of spectrum
allocation.
So while it's true that Swan and Unitech could
attract foreign investment only on the strength of licences and spectrum allocated
to them and as a result their net worth went up, it didn't involve any criminal
offence.
Thus, the criminal conspiracy was not about
raising fresh equity, which every commercial venture needs to expand its business;
it was about not raising the entry fee and fraudulently allocating the licences
and spectrum to a chosen few.
Swan was allocated spectrum in cashrich circles
like Delhi by distorting the existing procedures and shortchanging the eligible
telecom companies. Unitech too got spectrum ahead of other qualifying companies.
It's this fraudlent spectrum allocation that lies at the core of the conspiracy.
Was the attorney general Vahanvati working
in conjunction with Raja?
The role played by the then solicitor general GE Vahanvati's reeks of suspicion
and malicious intent, as senior Supreme Court advocate Prashant Bhushan has
argued before the apex court.
The press release prepared by Raja, which
Vahanvati approved, had three main elements: putting a cap on the number of
entrants (which was a violation of TRAI guideline); arbitrarily advancing
the cutoff date from 1 October 2007 to 25 September 2007 and; changing the
FCFS basis. Raja made a small amendment in the press release approved by Vahanvati
but all the intrinsic elements were retained. The fuss made by the CBI around
this change seems more a stratagem to clear Vahanvati than to make a substantial
charge against Raja.
The essence of the press release was retained.
Raja deleted just two lines and then signed and stamped it himself. For the
CBI to say that Raja forged the press release and hoodwinked Vahanvati sounds
specious. No wonder Raja is exploiting the lacunae in the CBI investigation
as far the role of Vahanvati is concerned. In court, Raja raised a seemingly
credible question: What stopped Vahanvati over the last three years from objecting
to the minor change made by Raja? It was in the public domain. In fact, the
evidence suggests that Vahnavati had full access to DoT files.
The fact of the matter is that Vahanvati had
approved all the major decisions of the DoT under Raja, as Bhushan has claimed
in the affidavit to the Supreme Court. The complete file (File No.20- 100/2007-AS-I)
relating to allocation of 2G licences was sent to Vahanvati for his approval
on different occasions. Vahanvati in his statement to the CBI has admitted
as much. Bhushan has argued, 'From the said file it is clear that Vahanvati
was clearly aware that a reference for law officer's opinion was sent by Raja
to Law Ministry, and the fact that Ministry had rejected the reference and
instead asked that matter be referred to EGoM.'
Vahanvati was also aware that the very basis
of FCFS had been changed and was made in compliance with LoI conditions. Also
Vahanvati must have been aware that while the DoT had proposed to put no cap
on the number of new telecom players, it had simultaneously decided to fix
a cutoff date.
Despite knowing all this, Vahanvati went out
of his way to write on the file on 7 January 2008 that what was proposed was
'fair and reasonable' and cleared the press release as it 'makes for transparency'.
What raises further stink on Vahanvati is
the fact that he gave a clean chit to Swan. He had noted on the file related
to Swan that he had examined the matter and there was no violation of clause
8 of UASL guidelines by Reliance, and thus Swan was eligible. He had also
stated that there is no need to refer the matter to the Ministry of Corporate
Affairs.
The Supreme Court is now seized of the application
moved by Bhushan against Vahanvati. Its outcome may answer the question of
CBI's selectiveness in its investigation, at least in the case of the top
law officer of the government.
- Ashish Khetan is Editor, Investigations
with Tehelka. ashish.khetan@tehelka.com
