The Enforcement Directorate (ED) on Friday issued show cause notices to Knight Riders Sports Pvt. Ltd (KRSPL) and its directors Shah Rukh Khan, his wife Gauri and Juhi Chawla, among others, in connection with alleged undervaluation of shares.
“This issue has been going on since 2009. We have not received any notice yet. Should we receive anything, we will comment after that,” said Venky Mysore, CEO of Kolkata Knight Riders and Red Chillies Entertainments Pvt Ltd.
The show cause notices were issued under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal Rules), 2000. “In 2008, M/s. Red Chillies Enterprises Pvt. Ltd. formed a special purpose vehicle – KRSPL – for the purpose of acquiring IPL franchise rights of the Kolkata Knight Riders cricket team. Initially, the entire shareholding of the KRSPL used to be with Red Chillies and Gauri Khan,” said an ED officer.
“After the success of IPL, about two crore additional shares were issued by KRSPL – of which 50 lakh were issued to The Sea Island Investment Ltd (TSIIL) in Mauritius, and 40 lakh shares were issued to Juhi Chawla. These shares were allotted at a par value of Rs 10, whereas the actual value of these shares was much higher,” he added.
According to the ED, Chawla subsequently sold her 40 lakh shares to TSIIL at par value of Rs 10. Thus, the foreign company was issued 90 lakh shares at par value while the actual cost of share at the time of issue/sale ranged between Rs 86 and Rs 99 a share.
This has resulted in a loss of foreign exchange to the extent of Rs 73.6 crore, the ED said. The firms have been given 15 days’ time to make their submissions to the notices.