2G trial: Why Chidambaram got away

Special Judge OP Saini of the CBI-designated court conducting the 2G trials dismissed Subramanian Swamy’s petition to make former Finance Minister P Chidambaram a co-accused in the scam.

This decision is similar to the Supreme Court judgment on Thursday cancelling 122 telecom licences issued by Andimuthu Raja, where both the Prime Minister and Chidambaram did not find adverse mention.

In a packed courtroom at Patiala House, Judge Saini spoke just one sentence: “The petition is dismissed.” He apparently did not find any prima facie evidence against Chidambaram to consider making him a co-accused.

The order is understandable since the evidence against Chidambaram relates only to his alleged sin of omission in allowing Raja to continue with his flawed licensing policy.

In a 15 January 2008 note to the Prime Minister, Chidambaram seemed to accept Raja’s issue of licences as a done deed, and recommended that the government should bury the past and treat the chapter of giving spectrum without auctions as “closed”.

Chidambaram’s letter said: **“**This leaves the question about licensees who already hold spectrum over and above the start-up spectrum. In such cases, the past may be treated as a closed chapter and the payments made in the past for additional spectrum (over and above the startup spectrum) may be treated as the charges for spectrum for that period.”

However, in the same letter, Chidambaram backed auction of spectrum in future. “Spectrum is a scarce resource. The price for spectrum should be based on its scarcity value and efficiency of usage. The most transparent method of allocating spectrum would be through auction. The method of auction will face the least legal challenge. If government is able to provide sufficient information on availability of spectrum, that would minimise the risks and, consequently, fetch better prices at the auction. The design of the auction should include a reserve price.”

Earlier this week, the Supreme Court judgement announcing the cancellation of 122 licences said: “In view of the approval by the council of ministers of the recommendations made by the group of ministers, the DoT (Department of Telecom) had to discuss the issue of spectrum pricing with the ministry of finance.  Therefore, the DoT was bound to involve the ministry of finance before any decision could be taken…  However, as the minister of C&IT (A Raja) was very much conscious of the fact that the secretary, finance, had objected to the allocation of 2G spectrum at the rates fixed in 2001, he did not consult the finance minister (P Chidambaram) or the officers of the finance ministry.’’

Thus it was Raja who evaded Chidambaram while allocating 122 telecom licences to several companies on 10 January 2008. He did not “consult or involve then Finance Minister P Chidambaram’’ in the decision-making process, said the SC judgment.

“This has been established from the pleadings and the records produced before this court that, after issue of licences, three applicants (Unitech, Swan and Tata Teleservices) transferred their equities for a total sum of Rs 24,493 crore in favour of foreign companies. In such matter, it was absolutely necessary for the DoT to take the opinion of the finance ministry as per the requirement of the government of India (Transaction of Business) Rules, 1961,’’ the SC order reads.

Janata Party chief and petitioner Subramanian Swamy had stated that under foreign direct investment (FDI) rules, it was the then finance minister and not Raja who cleared the transfer of equity shares. And in this case, Chidambaram had cleared files for Norway-based company Telenor to acquire a 66 percent stake in Unitech Wireless.

The Telenor deal had been endorsed and signed by Chidambaram and not Raja, Swamy had argued. Telenor had bought shares worth Rs 6,200 crore even before Unitech rolled out its services. The CBI has mentioned this in its charge-sheet too. And it’s a matter of record that Chidambaram was the final authority to clear the Unitech file for equity dilution. Thus, it is clear that he allowed equity dilution in companies even before they rolled out services. This, his detractors said, meant he was party to the scam.

“There is a bar on selling a telecom licence for at least three years after a telecom company is allocated spectrum. A CBI file shows ingenious and crooked ideas and methods that Chidambaram adopted for share/equity dilutions in telecom companies. He allowed dilution of shares/equity to an extent that it was as good as selling stakes of the company,” Swamy had earlier told Firstpost.

Saini’s order on Saturday suggests that this does not amount to the breaking of any rule.  FDI rules allowed foreign investment to the extent of 74 percent in a telecom company. Any telecom company can seek up to 49 percent under the “automatic route” but for raising the stake to 74 percent, it requires the finance ministry’s clearance.

The point of contention here is that the Shahid Balwa-promoted Swan Telecom was allotted Unified Access Service Licence (UASL) for 13 circles at a price of Rs 1,537 crore and it offloaded 45 percent of its shares before the rollout to UAE-based Etisalat for Rs 4,200 crore. And Unitech Wireless offloaded 66 percent of its shares to Norway-based Telenor for Rs 6,200 crore.

Swan-Etisalat deal did not require any approval because it diluted equity only upto 45 percent. But the Unitech-Telenor file went to Chidambaram, and he duly cleared it.

Swamy has argued that this “equity dilution” amounts to selling – which prima facie is true. Any shareholder with 66 percent would normally be considered the owner of a company. Moreover, since the lock-in period for selling telecom licences is three years, Chidambaram was as much responsible for the sale as Unitech is.

Chidambaram, however, gets the benefit of doubt because until 2008, when the equity was diluted in Unitech, no telecom law disallowed or banned the dilution of equity or shares.

Besides, in the Unitech case, Chidambaram was empowered to give permission upto 74 percent under FDI norms. The CBI saw no issues in allowing equity dilution in favour of foreign players. That is why the CBI said there was no criminality in Chidambaran’s act.

Another fact that probably helped Chidambaram was that during the lock-in period, Unitech did not sell its shares. It had only diluted its shareholding in favour of Telenor.

In fact, clarity on the lock-in period rule came on 23 July 2009, when the government issued a letter spelling out the law.

The letter, which is part of the CBI file, reads: “There shall be a lock-in period for sale of equity of a person whose share capital is 10 percent or more in the UAS licencee’s company on the effective date of UAS licence and whose net worth has been taken into consideration of three years from the effective date of the UAS license or till fulfilment of all the rollout obligation under Clause 34, whichever is earlier.’’

The letter further says: “Issue of additional equity share capital by the UAS licensee company by way of private placement/public issues is permitted. However, such a person shall not transfer in any manner such as sale, assignment, etc, his share capital directly or indirectly to any other person during lock-in period.’’

Chidambaram had cleared the Unitech file much before this new law was introduced which specifically allows the Unitech kind of dilution. But the FDI norms, which allow equity dilution, gave him a good footing — at least in the legal sense.