The Enforcement Directorate has issued showcause notices, under Foreign Exchange Management Act, to Etisalat DB Telecom and its five directors, including Shahid Usman Balwa and Vinod Goenka for alleged violations of FDI norms in the telecom sector.

Besides Balwa and Goenka, copromoters of Swan Telecom (the former name of Etisalat), among the biggest beneficiaries of the 2G spectrum allocation, ED issued notices to AS Salauddin, a Chennai-based businessman who relocated to Dubai, and two UAE nationals - Al Hadad and Julfar. The total amount involved in the show-cause notice is Rs 7,258 crore, and the charge hurled against Etisalat DB and its directors is that they violated FDI norms and concealed it from the Foreign Investment Promotion Board.

Under FDI regulations in the telecom sector, a company seeking foreign investment can only bring in FDI against 49% equity under automatic route. The upper limit is 74%, and any company planning to invite investment between the two levels (49% and 74%) had to seek the approval of FIPB. "Swan Telecom received more than 49% FDI, and yet it failed to take FIPB nod. It applied for the board's approval much later, which was rejected in 2010,'' an ED official said. Swan is alleged to have used a very ingenious way to circumvent FDI regulations.

"While 49% FDI (Rs 3,228 crore) was routed through Etisalat Mauritius, the amount invested over and above this ceiling (Rs 380 crore) was made to appear as if it was a domestic investment. This was funneled through a Chennaibased GenEx but was actually sourced from Dubai,'' the ED official said. "GenEx received that amount from Dubai a day before it was transferred from it's coffers to Swan."

Swan needed more funds after it was allocated spectrum for other circles in 2009-10. To meet this, it decided to issue three shares after pegging the value of each of them at Rs 105 crore. "Earlier, each share was allocated to Etisalat Mauritius at Rs 285. But during 2009-10, three shares were issued at Rs 105 crore per share, obviously with the aim of escaping FIPB gaze and letting it remain within the 49% limit,'' the ED official said.

The total value of three shares came toRs 315 crore, which is inexplicable. Balwa and Goenka, languishing in Tihar jail, having been chargesheeted by the Central Bureau of Investigation in the 2G scam. Salauddin is said to be close to the DMK leadership. Swan Telecom was rechristened as Etisalat DB in 2009 after the UAE-based telecom major bought 45% stake. (Economic Times)