2G Scam

2 G scam is amongst one of the biggest scams in Indian history which was also ranked as second in the list of “top 10 abuse of power”, by Times magazine in 2011. The scam caused a loss of more than 1.75 lakhs crore to Indian Government. Here, we will explain you how was the scam of this size happened.

This scam is linked to telecom sector and for understanding the scam, it is necessary to understand few techniques and terms used in this sector.

What is spectrum and what is its use in telecom?

All types of telecommunication system requires certain amount of electromagnetic bandwidth to operate. Bandwidth is the range of frequencies that make up a signal that transmits communication such as voice, picture, data etc. These electromagnetic bandwidths are also called as Spectrum. Each geographical region in the world has electromagnetic bandwidths available as a natural resource, and they are limited in number. Since these spectrum are the basic resource upon which entire telecom system works, acquiring of sufficient units of spectrum is a necessity for telecom companies to provide its services.

What is 2G? 2G, which basically stands for 2^nd generation telecommunication network uses different bandwidth of spectrum, which enable the system to provide additional communication medium such as SMS and quality of communication compared to 1G earlier. Thus for each type of telecommunication service separate band of electromagnetic signals are required.

How is spectrum allocated and regulated in India? Since spectrum is a natural resource, like many other country, in India, all spectrum is owned by the Government. Government then decide to provide these spectrum to relevant companies who can use it for provide telecom facilities to its population.

Department of Telecommunications (DoT) in India usually conducts auctions of spectrum in India. Those buying the spectrum are given license for using it for telecommunication services. These licenses are called Unified Access Services (UAS) licenses and company getting these license can use spectrum to provide all kinds of telecommunication services such as phone calls, sms, TV, internet etc.

India is divided into 23 service areas for providing UAS. A company obtaining license for UAS in any area is free to provide services within their area only.

After understanding the relevant basics of telecommunication system in India, let us now understand what happened in 2G scam.

What happened in 2G scam?

The basic scam was that, in year 2007, department of Telecom under Government of India, allocated the 2G spectrum to companies at much lower prices which resulted in an estimated loss of 1.76 lakhs crore to Indian Government.

In 2007 122 new 2G – UAS licenses were issued to telecom companies at the price that was fixed in year 2001. The criteria used were first come first serve. Reasons given by the department was that giving spectrum at cheaper price would result in cheaper mobile services for the population. Also, cheaper spectrum coupled with first come first serve will enable new and upcoming companies to compete in this market, which eventually will drive up the quality and reduce the price.

However, several companies that acquired spectrum at lower prices used it to raise the price of their shares multiple times and then sold their shares to bigger players in telecom. Thus indirectly, the spectrum was obtained by bigger companies at much higher price (in ways of shares), than was initially allocated by DoT. This defeated both the purposes of DoT, i.e. cheaper mobile services to population and increasing competition in telecom market.

Who benefitted? From above brief of scam it is obvious that loss was incurred by government (indirectly by people of India), as, if they had allocated the spectrum at higher prices, they could have made much more money. But instead, middle companies who acquired spectrum and then sold their shares to bigger companies made all the money from spectrum allocation.

But there are lots of individuals also who are alleged to have made money in this case by means of bribe. Investigation found several flaws in the entire process of spectrum allocation and it indicates that people in power deliberately did this to benefit some companies and they in-turn may have received kickbacks. Most important people who were alleged are

1.       A. Raja: He was union minister for communication and information technology from 2007 to 2009. He has been alleged to have taken Rs. 3000 crore as bribe to facilitate this scandal. He chose to ignore several recommendations from TRAI, Finance ministry, law ministry and even from prime minister and instead of auctioning, ordered for allocation of 2G spectrum at 2001 price. He also moved the deadline for application by companies from 1 October, 2007 to 25 September, 2007, without putting a transparent notice so that some selected companies only can be allocated the spectrum.

2.       Shahid Balwa: He through his company called SWAN, which has no experience in telecom, obtained 2G spectrum license. It later sold its shares at much higher rates to a middle east company Etisalat.

3.       Kanimozhi: She is an MP of DMK and daughter of Karunnanidhi. She worked with A. Raja to get Shahid Balwa (Promoter of Swan telecom) to invest Rs. 200 crore in her TV channel called “Kalaignagar TV”. Balwa had done this as he has received favour from A. Raja in obtaining the spectrum

4.       Neera Radia: There are suspicions that Neera Radia mediated between corporate world and Congress party to put A.Raja as minister for telecom. The money was paid by companies to Neera Radia for doing this job, who efficiently got this done. A.Raja was then supposed to return the favour to these companies who helped him in getting this post.

Besides these several bureaucrats and executives were also involved in this scandal.

What is the current status of the case?

License of all companies who were allocated 2G spectrum has been cancelled by supreme court. A.Raja was arrested in February 2011 but obtained bail in May, 2012. After that his trial is under way in special CBI court. Kanimozhi was also arrested and later obtained bail. Her case is also underway. Neera Radia was not arrested but was only questioned. Most of the other executives also who were arrested are on bail.

National Herald Scam

Plenty of news has been generated on ‘National Herald Scam’, while many of us might not have a clear understanding about what exactly is this case, what wrongdoings has been done and how. This article in a very simple language explain you the case so that you can understand its complexity better.

What is the case? Let’s start by stating the case. The National Herald case is a court case filed against mainly, Sonia Gandhi and Rahul Gandhi and few other top congress leaders.  In this, they have primarily been accused to siphon off Rs. 90 crore money that belonged to Congress party, through fraudulent means. They are also being suspected to have acquired thousands of crores worth of property that belongs to a public limited company, called ‘Associated Journals Ltd.’. This company in past used to publish the popular newspaper called ‘National Herald’. Hence this case has acquired the name in media as national Herald Case.

The case has been filed by a BJP leader from Tamil Nadu, Subramaniam Swamy in 2012. He is an economist and has been a cabinet minister.

What did they do? As per allegations, Sonia/Rahul Gandhi and other top congress leaders, did following business transactions, which are now being considered as a fraud.

1.       In past, Congress party have been giving loans to the company ‘Associated Journals Ltd. (AJL)’, for reviving their business situations. These loan amounts accumulated to Rs. 90 crore by 2010.

2.       In November, 2010, Sonia/Rahul Gandhi along with few other congressmen, opened a new company called ‘Young Indian’, with initial capital of mere Rs. 5 lacs. Sonia and Rahul Gandhi had 70% shares in total in this new company.

3.       Just after a month of launching this new company, a transaction happened between ‘Young Indian’ and ‘AJL’, in which ‘AJL’ sold 99% of its shares to ‘Young Indian’ at just Rs. 50 lacs. Also, the responsibility of paying back Rs. 90 crore to congress was taken up by ‘Young Indian’

So what is wrong in above transactions: Following wrongdoings are being suspected in the above transactions?

1.       Young Indian took the responsibility of paying back Rs. 90 crore to Congress party. Now, since the main owners of ‘Young Indian’ i.e. Sonia/Rahul Gandhi are also the top leaders of the Congress party, it is doubted that the loan amount will never be paid back. It is also suspected that Congress had written off the loan amount paid to AJL as bad debt and non-recoverable. This is similar to saying that Congress leaders obtained loan for themselves from Congress party and then put it into the category of non-recoverable, so that the loan will never be required to be paid back.

2.       Second wrongdoing being suspected is that, the property available with AJL for running its newspaper business is estimated to be worth in thousands of crores of rupees which Congress leaders, through their company Young Indians acquired at meagre Rs. 50 lacs.

  

Why did AJL sold their shares at such a low price? – Reading above transactions, it immediately comes to mind that what was the interest of AJL in above transactions. To understand this, you need to take a look at the history and structure of this company.

Associated Journals Ltd (AJI): The company was established by Pandit Jawaharlal Nehru in the year 1937 and had mostly congress leaders as its shareholders. Since its inception, most of the shareholders have died but their share ownerships were not transferred to their legal heirs. The company’s structure was mostly kept secret and till recently most took it for a government company. Few directors of the company used to take major company decision and it might be possible that they may be using the proxy votes of directors who are already dead to their benefit. In short, business decisions of a public limited company was taken by few people that were linked to Congress.

With this background of the company, it was expected to be running under control of Congress people. Hence, it is alleged that Sonia/Rahul Gandhi may have used their power to influence the decision of AJL governing board.

If AJL was under control of Congress, why did they have to purchase shares through Young Indian? Another question that comes to mind is why did they need to acquire AJL shares through Young Indian, if the company was already under influence of Congress. The reason is simple. AJL was established as not for profit organization, which means any profit arising out of using AJL property cannot be taken by shareholders. Secondly, Sonia/Rahul Gandhi did not had any direct stake in this company. Thirdly, the property of AJL was assigned only for the purpose of running newspaper. Hence, thy cannot use its property for any other profitable ventures.

If congress would have used AJL property directly, or had forgotten the loan amount given to them, it would have attracted lot of media attention. Hence, by transferring its shares to another company (Young Indian), on the cover of reason, that the company is not in a situation to repay loan, they must have tried to create some complexity in understanding the reasons of business transactions.

What are the allegations? Amongst several allegations on Gandhis and other congressmen (Motilal Vora and Oscar Fernandes) following are the important ones

1.       Loan given by Congress party to AJL, was not repaid, which lead to monetary loss of party. Here, it is important to understand that a political parties fund is made up primarily from donations and are exempted from income tax, and thus it is the loss of several donors who gave their money to Congress party for national cause.

2.       Political party giving loan for commercial purpose itself is not allowed. Hence, Congress should explain how did they gave loan to AJL.

3.       AJL property, at the time of incorporation, is allowed to be used only for News Paper business. Hence, even if Young Indian acquired 99% of the company, still they cannot use its property for anything other than News Paper publishing. But, the reports are that the acquired property is being used for other business as well like running a passport office and through it lacs of rupees of profit is being made

4.       Decision of selling 99% stake of AJL to Young Indian at just 50 lacs rupees is alleged to be influenced by congress leaders. This is a loss to the actual shareholders of the company, whose consent may not have been taken for this important decision.

What does Sonia/Rahul Gandhi say? The congress leaders has refuted all allegations on them and said that the case has been registered for wrong political reasons. As per them,

1.       There is no malafied intentions in transactions between Young Indian and AJL

2.       The loan was given to AJL by congress to only help them revive out their business situation, as the objectives of AJL matches with objectives and values of Congress party

3.       Acquisition of AJL by Young Indian has no intentions of misappropriations of money.

The case is in court and legal proceedings is going on. I hope you now have a clear background understanding of the case and next time when you read news related to ‘National Herald Case’, it would make more sense.