Comptroller and Auditor General questions Infotel’s source of funds

New Delhi: A draft report of the Comptroller and Auditor General (CAG) criticised the telecom department for its failure of provide lock-in period to prevent winners cashing out of spectrum.

“Due to the provision of inadequate eligibility criterion for the participation in the auction of BWA spectrum and deficient due diligence on the part of DoT officials, the promoters of IBSPL made windfall gain of Rs 4,800 crore at the cost of public exchequer immediately after closure of BWA spectrum auction in June 2010,” the CAG’s draft report said.

The CAG said that while the DoT had barred promoters holding 10 per cent in a telecom company from selling their stake for three years after spectrum allocation, no such curbs were prescribed for the BWA auction.

“A non-participant company exploited the loophole left by the DoT officials in the eligibility criterion for obtaining BWA spectrum by acquiring a winning company without participating in the auction within hours of closure of auction process, thereby vitiating the sanctity of the auction process,” it said.

Reliance Jio refuted all charges. In response to an e-mail query, Reliance Jio said the Trai had emphasised that DoT should devise the scheme by which large and small ISP operators are permitted to deploy BWA networks.

RJio said the lock-in period was with respect to licence and not for 3G and BWA spectrum. CAG said the telecom department had neither investigated nor questioned IBSPL’s source of funds even though bank guarantees furnished by the company were disproportionate to its turnover.

IBSPL had submitted an earnest money deposit of Rs 253 crore in the form of bank guarantees to bid for the spectrum.

“The telecom department did not seek sources of funding for the earnest money of Rs 253 crore, which was 1,500 times the company’s annual turnover and 100 times its paid-up capital when the application was submitted, nor did it analyse the financial condition of the applicants,” the CAG said.

Reacting to this, RJio said this “is not seen in right spirit.” The CAG report said IBSPL changed from a private limited company to a public limited company, IBSL, on June 17, within a week of winning the spectrum, and on the same day decided to allot 94.96 per cent shares to Reliance, which led to windfall gains for the promoters of Infotel.

RJio, however, said there was no gain for Infotel’s shareholders because it subscribed to fresh equity issued by the company. Also, the spectrum was procured at an auction-determined pr-ice, not an administered price. “There was no question of any windfall gain,” RJio said.