CBI is closer to filing its charge-sheet against Loop

There are fresh worries ahead for the Ruias of Essar, who are suspected of being key players in Loop Telecom. The Ruias-who deny this-were till recently co-promoters of Vodafone Essar. Under telecom rules, operators in any circle cannot have 10 percent or more equity in another telecom company.

The ministry of corporate affairs has now backed out of its earlier stand suggesting that the Khaitan Group, which owns Loop Telecom, is not an associate of the Essar Group.

Since the Central Bureau of Investigation (CBI) has already obtained the law ministry’s opinion on what constitutes an “associate” company, the decks are now clear for the investigative agency to file its third charge-sheet in the 2G scam against Loop and Essar.

In the law ministry’s opinion, two companies can be seen as “associates” if their directors are common and if the funding source for both the companies is the same.

In a communique issued in April 2011, the regional directorate of the ministry had stated that Essar held only 2.15 percent in Loop Telecom in September 2007, when it had applied for a pan-India mobile licence. The ministry has now shifted its stand, and says its officials had “neither investigated the case”, nor “verified authentication of facts”.

The ministry is understood to have conveyed this to the CBI. The agency informed the Supreme Court that Loop Telecom, Mumbai’s leading mobile network company, was nothing but the alter ego of Essar. The latter had financially backed Loop Telecom in all its business operations in the same circles where it held minority stakes in Vodafone.

This is the third time the corporate affairs ministry is muddying the waters over the issue. In May 2009, the ministry had written to then Communications Minister A Raja that the Essar Group had “significant control or influence” over Loop Telecom. In April 2011, it said Essar held only 2.15 percent in Loop. And now, about a fortnight ago, when the CBI asked the ministry to clarify its stand, the latter admitted that its April claim wasn’t based on any investigation or authentication of facts.

It is well established that Kiran Khaitan, sister of Shashi Ruia and Ravi Ruia of the Essar Group, and her husband IP Khaitan are the promoters of Santa Trading Pvt Ltd, which in turns has majority stakes in Loop Telecom.

The CBI contends that the Ruias invested Rs 1,592 crore in the non-convertible debentures of Santa Trading. Santa Trading, in turn, invested this amount to promote Loop Telecom Pvt Ltd. A Raja had allotted UASL (unified access service licence) to Loop Telecom in 21 circles on 10 January 2008. In other words, Essar money was invested in acquiring all these 21 licences, CBI sources allege.

Essar may formally be holding less than 10 percent in Loop, but its association with the day-to-day functioning of Loop suggests that the latter cannot exist without Essar, the CBI believes. The agency alleges that Loop is nothing but a ‘front’ or ‘associate’ of the Essar Group. It is likely to file a charge-sheet in this regard by 15 September.

CBI sources say that Loop Telecom and Essar had common directors, employees and even office premises. The Essar Group had given bank guarantees for every major business transaction of Loop Telecom, the CBI alleges. For instance, in 2008, the group gave a bank guarantee for a loan of about Rs 725 crore from a State Bank consortium to Loop Telecom.

Two Mauritius-based companies-Capital Global Ltd and Gypsy Rover Ltd-which have indirect stakes in Loop Telecom, have the same addresses as other Essar Group Companies in Mauritius.

The telecom rules (clause 8 of UASL) say that no single company, either directly or through its associates, shall have substantial equity holding in more than one licensee company in the same service area.

The Essar Group had a 33 percent stake in Vodafone through its companies registered in India and Mauritius when Loop was given its licences by Raja. Under the rules, it should not have more than 10 percent in Loop or, for that matter, any other telecom company in the same circles.

In August 2009, the additional legal advisor to the telecom ministry, Santokh Singh, held that the equity holdings of Essar in Loop were less than 10 percent and thus Loop was entitled to spectrum in 21 circles allotted in January 2008. Subsequently, ex-Telecom Secretary Sidhartha Behura endorsed Santokh Singh’s decision on the advice of Raja. All the three reportedly ignored the fact that Santa Trading was considered an associate of the Essar Group under clause 8.

The CBI charge-sheet is likely to name at least three persons-A Raja, Santokh Singh and Sidhartha Behura-and Loop Telecom promoters-IP Khaitan and Kiran Khaitan-and Vikas Saraf of the Essar Group, who was on the Loop Telecom board. CBI sources say Vikas Saraf was the common link between the Ruias and Khaitans to carry out Loop Telecom operations.

The CBI is also examining the roles of Prashant Ruia, Shashi Ruia and Ravi Ruia in the day-to-day affairs of Loop.

Raja and Behura are already in jail as co-accused in the Swan Telecom scandal.