The role of independent directors is back in focus. The corporate affairs ministry might soon be looking into how boards of listed entities came to ratify decisions to apply for 2G spectrum, amid a swirl of allegations that scarce radio frequency was offered at extremely cheap rates, robbing the government of precious revenue.
The Registrar of Companies (RoC) would examine the Articles of Association of each company that got the new licenses, to ascertain whether these firms had submitted incorrect paid-up capital, revenue and profit figures at the time of applying for licenses.
“Independent directors have to ensure that business activities of a company are done as per legal requirements, though they are not responsible for any executive or day-to-day functions,” Manoj Kumar, legal expert and managing partner, Hammurabi and Solomon told Hindustan Times.
The corporate affairs ministry will look into the shareholding details of these companies to find out whether they were promoted by entities that were listed on stock exchanges. The role of independent directors on the boards of these companies would be critically examined to find out whether the boards had been kept fully informed about violations of conditions while applying for licences.
Salman Khurshid, Union minister for corporate affairs, said earlier that his ministry will not play “a proactive role” in the investigation process, and would plunge into action only if directed by any of the enforcement agencies.
In its recent report, the Comptroller and Auditor General (CAG) has observed that at least 12 entities which had applied for licenses did not have the requisite paid-up capital, nor was telecom-related business incorporated in their Memoranda of Association.
Two of these entities—Unitech and Videocon (promoters of Datacom) — are listed on stock exchanges. Another entity, Swan Telecom (now known as Etisalat DB), had Reliance Communications as a significant stake-holder.
As many as 85 licenses to 12 companies, out of the 122 new licenses issued in January 2008, were granted to firms that did not satisfy the eligibility conditions prescribed by DoT. Seventy-two licenses were given to companies that did not have the stipulated paid-up capital at the time of application. Twenty-seven licenses were issued to companies that failed stipulations on their Memoranda of Association and share holding patterns.
“Our group had no shareholding in Swan Telecom Ltd at the time of grant of license to them or any time thereafter, and that issue is accordingly not relevant to our company,” a Reliance Communications spokesperson said.
“Reliance Communications has always been in full compliance with all applicable laws, rules and regulations, and there has been no violation of our licence conditions at any stage on account of cross-holdings in excess of 10%,” he said.