2g scam project

St. Gonsalo Garcia College Subject: Business ethics Presentation on:

2g scam Presented to: Mrs. Swiddle d’cunha Presented by: Group no. 7 1

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DECLARATION WE, THE STUDENTS OF ST. GONSALO GARCIA COLLEGE, VASAI (W) – 401201 STUDYING IN T.Y.B.M.S. HEREBY DECLARE

THAT

WE

HAVE

COMPLETED

THE

GIVEN

PRESENTATION ON “2G SPECTRUM SCAM” ON THE GIVEN DATE 07-07-2011. THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF OUR KNOWLEDGE.

DATE: 07-07-2011

PLACE: VASAI

GROUP - 07

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ACKNOWLEDGEMENT The few people we have worked with to complete this presentation, definitely needs a valuable mention. Our deepest gratitude acknowledged to our PROF: SWIDDLE D’CUNHA, for all her help, suggestions

and

support

through

the

completion

of

this

presentation. We owe a big thank you to our friends, for being our moral support. Lastly we thank each other for making this presentation successful.

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Index Sr. no

topics

Page No.

01

Introduction

07

02

People involved

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03

Cooperates involved & petitioners

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04

Media’s role

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05

Arrests till date

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06

Effect on FDI & stock market

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07

Developments in the Case

remarks

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Introduction What is 2G spectrum? 2G is short for second generation wireless telephone technology. Three main benefits of 2G over their predecessors are: 1. Phone conservations are digitally encrypted 2. 2G systems are far more efficient on the spectrum allowing for greater mobile phone penetration levels; 3. 2G introduces data services for mobiles.

Where was the alleged scam? In 2008, the country issued 122 new telecom licenses and the secondgeneration (2G) radio spectrum bundled with it to several domestic companies that had little or no experience in the telecom sector, and at a price set in 2001. The state auditor said that the allocation process did not reflect the correct value of radio spectrum as there was no auction and the entire process was flawed, benefiting selected companies. The auditor said that the telecoms ministry did not do the requisite due diligence, granting 85 out of the 122 licenses to ineligible applicants. The auditor also said the ministry did not follow its own guidelines, changed the cut-off date for applications, which gave "unfair advantage" to some companies over others. It said that the entire process "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner". The auditor said that several companies deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means to get licenses and thereby access to spectrum. The scam involved allegations regarding: the under pricing of the 2G spectrum by the Department Telecommunications which resulted in a heavy loss to the exchequer, and 

of

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the illegal manipulation of the spectrum allocation process to favor select companies 

Police say that millions of dollars were paid in bribes to ensure favors for certain firms in 2007-08 when India issued 122 new licenses to offer mobile phone services in the world’s fastest growing telecom market. It is being estimated that, India may have lost up to $39 billion in revenue -equivalent to the defense budget due to violations during the allocation process. This scam is one of the largest scams in India. The money included in the scam is up to 1750 lakhs crores or even more. The main cause of the scam was bribery. This issue came into light through the media intervene. Media has played a major role is putting the scam into lime light and putting in front of the people. The telecom market had to survive huge losses due to the scam because the share prices were affected very badly. Arrests and court proceedings are still going on with respect to this scam.

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Politicians, involved:

ministers,

parliamentarians

Dayanidhi Maran: Union Cabinet Minister for Textiles : The main allegation revealed by Tehelka magazine and followed up in several other reports, is that Maran forced Sivasankaran, owner of Aircel, to sell the telecom company to Maran's friend Ananda Krishnan in 2006. The reports allege that Maran deliberately delayed issuing spectrum licenses to Aircel's, Dishnet Wireless, when it was owned by Sivasankaran. He issued the licenses soon after it changed hands to Ananda Krishnan who owns Maxis. P. Chidambaram: Union Cabinet Minister for Home Affairs : Subramaniam Swamy states that when the 2g Spectrum rate was finalised, P.Chidambaram was the finance minister of India and he had a major role in deciding the spectrum price with .Raja. Subramaniam alleges that Chidambaram had received kickbacks and undervalued the spectrum cost. Andimuthu Raja: Union Cabinet Minister for Communications and Information Technology: The Comptroller and Auditor General holds Raja personally responsible for the sale of 2G spectrum at 2001 rates in 2008, resulting in the previously mentioned loss of up to Rs. 1.76 lakh crores (US$40 billion) to the national exchequer. In August, 2010, evidence was submitted by the Comptroller and Auditor General (CAG) showing that Raja had personally signed and approved the majority of the questionable allocations. Kanimozhi Aravindhan: Member of Rajya Sabha: On April 25, 2011 Kanimozhi was named as a co-conspirator in the supplementary chargesheet filed by the Central Bureau of Investigation (CBI) in connection with the 2G spectrum case. The chargesheet submitted before the Supreme Court establishes how Rs 200 crore connected with the scam traveled from a partnership firm of businessman Shahid Balwa of Swan Telecom to the Karunanidhi family-owned Kalaignar TV. She has been charged with section 7 and 11 of the Prevention of Corruption Act.

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Media: Nira Radia: a former airline entrepreneur turned corporate lobbyist whose conversations with politicians and corporate entities were recorded by the government authorities. The contents were later leaked by unknown parties creating the Nira Radia tapes controversy.

Bureaucrats involved: Siddhartha Behura: Civil Servant (IAS officer of 1973 batch UP cadre) : He was the Telecom secretary who served in the DOT at the time of the 2G allocation. Pradip Baijal: Civil Servant (IAS officer of 1966 batch MP cadre) : He is alleged to have recommended policies that favored certain Telecom companies when he was heading the TRAI. R K Chandolia: Civil Servant (IES officer of 1984 batch cadre) : He was private secretary of Raja during UPA-I when the licences were awarded. When Raja became the Telecom Minister once again in UPA-II, Chandolia had been promoted to the Joint Secretary rank. Raja re-designated him Economic Adviser, that gave him the charge of all important policy-related work. Chandolia interacted with all the licensees

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Co-operates and petitioners involved CORPORATIONS INVOLVED 

Allianz Infra



Aircel



Dishnet Wireless



Loop Mobile



Sistema Shyam Mobile (MTS) – Sistema Mobile Russia



Reliance Communications



S Tel



Swan Telecom



Tata Tele Services



Unitech Group



Videocon Telecommunications Limited



Vodafone Essar



Virgin Mobile India

CORPORATE PERSONALITIES INVOLVED 

Anil Ambani - Reliance Group (ADAG)



Ratan Tata



Shahid Balwa - DB Realty and Etisalat DB Telecom(formerly Swan Telecom)



Vinod Goenka - Dynamix Group



Venugopal Dhoot - Videocon Group



Prashant Ruia - Essar Group

All of them have either been questioned by the CBI or are prospective suspects in the scam

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Petitioners to 2g scam Subramaniam Swamy, activist lawyer and politician, whose letters to the Prime Minister demanding action and affidavits and cases in the Supreme Court brought the issue into the public limelight. Paranjoy Guha Thakurta, a journalist who was one among the very first to write on the irregularities in the awarding of 2G spectrum allocation by the Telecom Ministry. He is also one of the petitioners in the 2G PIL currently being heard in the Supreme Court. Anil Kumar, on behalf of the civil society organization Telecom Watchdog Others: Several eminent people like former chief election commissioners J.M. Lyngdoh, T.S. Krishnamurthy and N. Gopalswami and former central vigilance commissioner (CVC) P. Shankar are also petitioners in the suits filed by civil society groups.

Loss to Exchequer The Controller and Auditor General of India used three different methods to assess the presumptive loss to the exchequer resulting from not auctioning 2G spectrum. The first method was based on the fact that S Tel, one of the licensees, explicitly offered to pay significantly higher license fees for the spectrum. Based on the fees offered by S Tel, the CAG estimated the loss to the exchequer at 67,364 crore (US$15.02 billion) The second method was based on the price recovered by the 3G auction in 2010. The CAG reasoned that since 2G is really 2.75G (EDGE), its price should be comparable to that of 3G licenses. Based on this method, the CAG estimated the loss to the exchequer to be 176,000 crore (US$39.25 billion) The third method was based on the fact that some of the licensees received FDI in the form of equity, shortly after the spectrum allocation. The CAG reasoned that this equity infusion was entirely due to the value of 11

the allocated spectrum; this can be construed as re-sale of the spectrum by the licensee, and hence was a valid basis for assessing loss to the exchequer. Based on this method, the CAG estimated the loss to the exchequer to be anywhere between 57,666 crore (US$12.86 billion) (based on Etisalat's investment in Swan Telecom) and 69,626 crore (US$15.53 billion) (based on Telenor's investment in Unitech). For its part, the Congress-party led government has publicly defended itself on this count and Kapil Sibal, who replaced A. Raja as the communication minister, has refuted the CAG reasoning. He has also justified his government's decision not to auction 2G spectrum as being in line with the policy guidelines laid down by the 10th Five-Year Plan.

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Media’s role Indian media is now running for cover. The 2G spectrum scam, which has snowballed into a major controversy involving Indian politicians and businessmen has now become hotter for journalists to handle as it allegedly involves two of their senior members. Two Indian magazines put the audio tapes and transcripts of conversations between corporate lobbyist Nira Radia of Vaishnavi Communications and her media friends on their websites. Other Indian media houses have hushed it up. Nira Radia, a former airline entrepreneur turned corporate lobbyist whose conversations with politicians and corporate entities were recorded by the government authorities. Vir Sanghvi, editorial director of Indian national daily Hindustan Times and India’s television news channel NDTV’s group editor Barkha Dutt are apparently featured in the transcripts. They are heard promising to fix things for Radia, who is known to be close to the sacked minister A Raja, and her clients besides her political cronies. While Sanghvi allegedly took notes from Radia on what he could point out in his weekly Sunday column of Hindustan Times even as Radia asked him to write against Reliance Group's Anil Ambani and the high court decision on the gas pricing issue. Barkha Dutt had allegedly assured Radia of getting ruling Congress party’s general secretary Ghulam Nabi Azad to talk to the supreme of his party’s chief ally in the government M Karunanidhi to fix portfolios for the ally according to wishes of Karunanidhi’s daughter Kanimozhi. The transcripts of conversations between Radia and journalists suggests that they expect return of favours, which come in different forms from free trips abroad to free stays at suites in plush 5-star hotels. With the tapes out, Indian media is now running for cover, in the name of professional exigencies. Paranjoy Guha Thakurta, a journalist who was one among the very first to write on the irregularities in the awarding of 2G spectrum allocation by the Telecom Ministry. He is also one of the petitioners in the 2G PIL currently being heard in the Supreme Court. 13

RELATIONSHIP BETWEEN MEDIA AND GOVERNMENT Media sources such as OPEN and Outlook reported that Barkha Dutt and Vir Sanghvi knew that corporate lobbyist Nira Radia was influencing the decisions of A. Raja. The critics alleged that Dutt and Sanghvi knew about corruption between the government and the media industry, supported this corrupt activity, and suppressed news reporting the discovery of the corruption. In mid November the controller Vinod Rai issued show-cause notices to Unites, S Tel, Loop Mobile, Datacom (Videocon), and Etisalat to respond to his assertion that all of the 85 licenses granted to these companies did not have the up-front capital required at the time of the application and were in other ways illegal. Some media sources have speculated that these companies will receive large fines but not have their licenses revoked, as they are currently providing some consumer service.

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Arrests and Chargesheets On February 2, 2011, the Central Bureau of Investigation arrested former Telecommunications Union Minister Andimuthu Raja. The CBI also arrested R.K. Chandolia, Raja's personal aide, and Siddharth Behura, the former Telecom Secretary. Both Raja and Chandolia are heard in conversation with Niira Radia in the released Radia tapes. On February 8, 2011, the CBI arrested Mumbai based Dynamix Balwas (DB) group managing director Shahid Usman Balwa in connection with the 2G spectrum allocation scam. The CBI has evidence from the Income Tax department that Shahid Usman Balwa, considered close to Raja, was instrumental in channelling the kickbacks allegedly received by the former telecom minister. On March 29, 2011, in Delhi, the CBI arrested Asif Balwa (younger brother of the arrested former Managing Director of DB-Etisalat Group,Shahid Balwa) and Rajeev Agarwal for their alleged involvement in money transfer to the Dravida Munnetra Kazhagam's (DMK) Kalaignar TVchannel. On April 2, 2011, the CBI filed its first 80,000 page chargesheet in the 2G spectrum scam before a Special Court in Delhi naming nine individuals and three companies. It said the wrongful acts of the accused deprived the government exchequer of possible revenues amounting to INR Rs 30,985 crore (USD $ 6,983,322,233). The accused include the following individuals: •

Andimuthu Raja, former Telecom minister

•

Siddharth Behura, former Telecom Secretary

•

R.K. Choda, Raja's former personal secretary

• DB)

Shahid Usman Balwa, former Director of Swan Telecom (now Etisalat

•

Sanjay Chandra, Managing Director of Unitech Ltd and Unitech Wireless

•

Gautam Doshi, Group MD, Reliance Anil Dhirubhai Ambani Group

•

Hari Nair, Senior Vice-President, Reliance Anil Dhirubhai Ambani Group

• Surendra Pipara, Senior Vice-President, Reliance Anil Dhirubhai Ambani Group and Reliance Telecom Ltd

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• Vinod Goenka, Director, Swan Telecom and Managing Director of DB Realty

The three companies named are: •

Swan Telecom

•

Unitech Wireless

•

Reliance Telecom

In the first chargesheet, the CBI had named lobbyist Niira Radia and 124 others as witnesses. On 25 April 2011, in its second chargesheet in the scam, the Central Bureau of Investigation (CBI) named five more accused individuals: • Kanimozhi - Rajya Sabha Member of Parliament (DMK) and daughter of Tamil Nadu ex-Chief Minister M Karunanidhi •

Sharad Kumar of Kalaignar TV

•

Karim Morani of Cineyug Films

•

Asif Balwa of Kusegaon Realty

•

Rajiv B Agarwal of Kusegaon Realty

On 20 May, 2011, Special CBI Judge O P Saini of the Delhi court ordered the arrest of DMK Member of Parliament Kanimozhi and Kalaignar TV Managing Director Sharad Kumar after rejecting their bail pleas in the 2G spectrum case.

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Effect on stock market and FDI WILL THIS AFFECT FDI INTO INDIA? The country's mobile phone market is the world's fastest-growing and its nearly 700 million users trail only China, making it a must-invest market for any major global operator. But regulatory uncertainties have been a concern for some and could make foreign companies start to look more carefully where to invest. Any penalty or adverse regulatory action could also weigh on companies such as Telenor and Etisalat, which were not part of their respective domestic ventures when the licenses were distributed. Also, the controversy would make future investors more careful before they decide to invest in the market. Vodafone, the single-biggest foreign investor of the nation, is fighting a $2.5 billion tax bill over its acquisition of a mobile firm in the country and has signaled frustration with the regulations.

WHAT DOES THIS MEAN FOR INVESTMENT IN INDIA? Regulatory uncertainty is worrying investors, as so many business deals are being investigated and there is the possibility that some may be scrapped. This concern has hit the stock market, which ended the March quarter as the world’s worst performer. If the telecom ministry does decide to cancel some or all of the 85 licenses it is scrutinizing, questions will be raised over whether foreign investors can trust Indian government contracts. It is early to say whether licenses will be cancelled, but pressure will be on the government not to do so because operators have invested millions of dollars in rolling out networks and cancelling them will inconvenience subscribers.

IMPACT ON STOCK MARKET The first casualty in Stock Markets once Raja was arrested was DB Realty. 20% fall in the stock prices of DB Realty. Sun TV had its shares fall by 10%.Sun TV COO refused the allegations. Swan Telecom Chief Balwa was arrested on Feb 8 and this led to rumors of links with Anil Ambani's Reliance 17

ADAG and it led to 20% fall of his stocks. It’s reported that nearly 2 Billion USD was eroded from his stocks. Spicejet stocks went down after reports of investigation on Maran's recent takeover of Spicejet .

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Current Developments 2G spectrum scam: SC rejects bail pleas of Kanimozhi & Sharad Kumar DMK MP Kanimozhi will have to remain in Tihar Jail till the framing of the charges in the 2G spectrum allocations scam case, as the Supreme Court dismissed her bail plea along with that of co-accused Sharad Kumar, Managing Director of Kalaignar TV. "In our view, the reasons assigned by the Special Judge and the Single Judge of the High Court for refusing to entertain the petitioners' prayer for bail do not suffer from any legal infirmity. The special leave petitions are accordingly dismissed," said a bench comprising Justice GS Singhvi and Justice BS Chauhan in its order on Monday. The bench, however, granted permission to the petitioners - Kanimozhi and Kumar - to approach the trial court for bail after framing of the charges in the case.

2G scam: CBI gives clean chit to Tata The anti-corruption branch of the Central Bureau Investigation has given a clean chit to Tata Group chairman Ratan Tata in the 2G spectrum scam. This is the first time the agency has gone on record on the complaint filed against Tata Teleservices. The CBI's standing counsel told the Delhi court now hearing the 2G spectrum scam. A petition filed by Dharmendra Pandey, a lawyer, had pleaded that Ratan Tata be made an accused in the 2G scam case for 'benefiting from the scam, along with Niira Radia, as his company had benefited immensely when A Raja was the Union telecom minister'. The CBI counsel, however, told the Delhi court that investigations show that Tata Telecom did not benefit in any way from the scam that saw companies getting telecom licenses and spectrum at throwaway prices in 2008. "We've examined the issue in detail. There was no irregularity in the issuance of 19

licenses to Tata Telecom," stated the CBI. The investigation in the 2G scam is being conducted by the CBI, under the supervision of a special court in Delhi. The former telecom minister A Raja is currently lodged in Tihar jail, along with executives of some of India's biggest telecom companies, for their alleged involvement in the huge scam that caused the national exchequer immense losses. The accused had allegedly conspired to get out-of-turn allotments for spectrum and licenses. Reported to be India's largest scam ever, the 2G swindle is a political hot potato and has made the UPA government a target for 'allowing rampant corruption'. DMK chief M Karunanidhi's daughter and Rajya Sabha member Kanimozhi too is in jail for her alleged involvement in the scandal. DMK is a major alliance partner in the UPA government at the Centre. Lobbyist Niira Radia is a witness for the CBI. Her phone was tapped in 2008 and 2009 in connection with an income tax investigation. Her conversations with Kanimozhi, Raja and others blew the lid off the 2G scam.

TRAI examining recommendation to cancel 17 licenses, says Sibal NEW DELHI: The Telecom Regulatory Authority of India (TRAI) is looking at the telecom department's recommendation to cancel only 17 licenses instead of the 69 recommended by the regulator earlier and is yet to send its response, Communications Minister Kapil Sibal said Thursday. "We have recommended cancellation of 17 licenses. TRAI is looking at it. Comments from TRAI have not come back," said Sibal here. TRAI last year recommended cancellation of 69 licences of the telecom operators for not meeting roll-out obligation on time while the DoT reduced the list to only 17 licences. Of the 69 licences, 20 were issued to Loop Telecom, 15 to Etisalat DB, 11 to Sistema-Shyam, 10 to Videocon , eight to Uninor and five to Aircel. These licenses were issued during the regime of the then Communications Minister A Raja in 2007-08 who was arrested Feb 2 for his alleged involvement in the 2G spectrum allocation scandal, which caused huge losses to the national exchequer.

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SC Judges express unhappiness over CBI filing a supplementary chargesheet against Kanimozhi and Sharad Kumar without zeroing in on transactions In the course of the bail hearing for Kanimozhi & Sharad Kumar, accused in the 2g scam case, the vacation bench, comprising Justice BS Chauhan and Justice Swatanter Kumar, asked CBI to explain about the status of Rs 200 crore which was allegedly paid to Kalaignar TV as part of what is known as the 2G scam money. The SC asked CBI to explain where exactly this amount was within a week. Justice Chauhan bracketed corruption cases with human rights violations. This was when counsels Ahmed and Kumar said that both the accused were not recipient of the scam money. The judges expressed unhappiness over CBI filing a supplementary chargesheet against Kanimozhi and Kalaignar TV MD Sharad Kumar without zeroing in on such transactions. CBI chargesheet has alleged that Kanimozhi has made Rs 200 crore through Kalaignar TV, as bribe money. However, according to Kalaignar TV, it had received Rs 214 crore as unsecured loan from Karim Morani’s controlled Cineyug Media and Entertainment. The Rs 200 crore had allegedly come through a circuitous route of Sahid Balwa promoted DB Realty , according to CBI. Kanimozhi and Kumar both have 20% stake each in Kalaignar TV. The judges asked the agency why the accused were not interrogated in the case. They directed CBI to explain to it about two other things besides the physical status of Rs 200 crore. The bench wanted to know the quantum of loss caused to the exchequer in the process of grant of Unified Access Licences for 2G spectrum during the tenure of A Raja as telecom minister and the status of the trial in the case before the special court presided over by judge OP Saini. CBI counsel Sonia Mathur informed the bench that the trial court will resume its day-to-day hearing in the case from July 4. She also told that the charges were yet to be framed in 2G case by the special court. The SC bench directed CBI to file its reply and would hear the bail plea on June 20. The HC had dismissed the bail pleas of Kanimozhi and Kumar, saying they have strong political connections and the possibility of them influencing witnesses could not be ruled out. Kanimozhi and Kumar, named as accused in the second chargesheet for allegedly taking bribe of Rs 200 crore, were arrested on May 20 after the special trial court dismissed their bail pleas in the 2G scam case. 21

Maran, Raja among the 85 witnesses to face JPC. Further Details of 85 witnesses received. The joint parliamentary committee (JPC) has summoned 85 witnesses -all former Telecom Ministers since 1998, including Maran, Raja, Arun Shourie and Yashwant Sinha, Telecom Regulatory Authority of India (TRAI) chairman JS Sarma, Attorney General Goolam Vahanvati, CBI director AP Singh, all the former chairmen of TRAI, former secretaries of the department of telecom, former finance secretary, BSNL chairman between 1997-98, top industrialists of 11 firms which benefited in 2008, and top industrialists of 22 private companies which got advantage due to the 1999 telecom migration policy. Chacko said the JPC has also finalised a list of 85 witnesses who would be asked to be present for recording of evidence in connection with the telecom policies. Secretaries of the departments of telecom, law, finance, revenue corporate affairs will be asked to appear before the JPC, he said. Chacko said the CBI was also probing the alleged delay of two years in granting telecom licences to Aircel between 2004 and 2006. Textiles minister Dayanidhi Maran was heading the telecom ministry then.

Chidambaram has signed at least 10 papers, relating to the clearances in the 2G spectrum, which shows he got money," Gadkari says. Subramanian Swamy has also alleged that Chidambaram should be indicted as a co-accused in the 2G scam case. BJP chief Nitin Gadkari says Home Minister P Chidambaram is also a beneficiary of the 2G scam. In an interview Gadkari claimed to have proof that could embarrass Chidambaram. “Chidambaramji's palms have been greased in order to get the 2G spectrum nod" Gadkari told the reporter, adding, the BJP MPs will soon provide the CBI evidence against him, seeking a probe. 22

Gadkari alleged former telecom minister A. Raja and other corporate honchos currently in jail are not the sole beneficiaries of the 2G scam. Chidambaram too has a stake in it, the BJP chief says. "Chidambaram has signed at least 10 papers, relating to the clearances in the 2G spectrum, which shows he got money," Gadkari says. Ironically, the allegation coincides with the Reliance Industries Limited or RIL's apology for an employee's remark against Chidambaram. Chidambaram had dismissed the allegations regarding the 2g spectrum scam. The Home minister is facing heat from all corners. Earlier this week, Tamil Nadu Chief Minister J. Jayalalithaa demanded his resignation on charges that he won his 2009 parliamentary election by fraudulent means and now the BJP is dragging him into the 2G spectrum scam.

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Bibliography The data presented is collected from the web as well as from newspapers. Following are the links from which the data has been collected: http://www.ndtv.com/article/india/2g-scam-how-raja-allegedly-robbedindia-66769 • http://www.livemint.com/2011/04/13131440/What-is-the-2G-scam-allabout.html • http://en.wikipedia.org/wiki/2G_spectrum_scam • http://articles.timesofindia.indiatimes.com/2010-1208/india/28234064_1_spectrum-case-2g-dual-technology •

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