Shifting spotlight

Published : Nov 04, 2011 00:00 IST

March 2009, New Delhi: External Affairs Minister Pranab Mukherjee, Communications Minister A. Raja, Home Minister P. Chidambaram and Power Minister Sushil Kumar Shinde. - RAJEEV BHATT

March 2009, New Delhi: External Affairs Minister Pranab Mukherjee, Communications Minister A. Raja, Home Minister P. Chidambaram and Power Minister Sushil Kumar Shinde. - RAJEEV BHATT

P. Chidambaram's role in the pricing of 2G spectrum when he was Finance Minister in 2008 comes under scrutiny in the Supreme Court.

ON October 10, the Supreme Court Bench of Justices G.S. Singhvi and Asok Kumar Ganguly, which is monitoring the Central Bureau of Investigation's probe into the irregularities in the allocation of 2G spectrum and grant of licences, reserved its orders on the plea for a probe into the role of Home Minister P. Chidambaram in the issue. The CBI did not name Chidambaram in its charge sheet filed before the Special Judge, O.P. Saini, in the trial court. It sought to charge 17 of the accused with criminal breach of trust, and the Special Judge is close to framing the charges against them after hearing defence counsel at length.

The Bench heard two applications seeking a probe against Chidambaram, who was the Union Finance Minister in 2007-08. The Centre for Public Interest Litigation (CPIL), represented by senior advocate Prashant Bhushan, and Janata Party leader Subramanian Swamy had filed the applications. Both alleged a conspiracy between Chidambaram and A. Raja, the then Telecom Minister, before the Letters of Intent (LoI) and the licences were issued to ineligible firms in January 2008. The crucial question is whether Chidambaram knew beforehand of Raja's design to issue 122 LoIs without following the policy of auction. Raja's action, on January 10, 2008, allegedly caused a huge loss to the exchequer.

Subramanian Swamy had filed with his application an Office Memorandum (O.M.), issued by the Finance Ministry on March 25, 2011. This note, procured from the Prime Minister's Office (PMO) by an activist using the Right to Information (RTI) Act, was signed by Dr P.G.S. Rao, Deputy Director, Infrastructure and Investment Division, and sent to Ms. Vini Mahajan, Joint Secretary, PMO. The O.M. carried a copy of the basic facts on the allocation and pricing of 2G spectrum with a specific noting that it had been seen by Finance Minister Pranab Mukherjee. The O.M. caused acute embarrassment to the Congress and led to a retraction from Mukherjee that he had not endorsed the inferences in it in an attempt to remove the perception of a rift between him and Chidambaram.

The O.M. became the basis for a fresh plea in the Supreme Court for a probe against Chidambaram.

The facts stated in the O.M. (without taking into account the inferences) reveal that Finance Ministry officials had pointed out repeatedly that spectrum allocation could not be determined on the basis of the entry fee of 2001 and that it should be done through a market-discovered price.

Another issue was whether Chidambaram was correct in sending a secret note to the Prime Minister on January 15, 2008, wherein he recommended an auction-based mechanism for future allocation of spectrum, while treating the past allocations made by Raja as a closed chapter. Chidambaram admitted in the same note that spectrum was a scarce resource and the price should be determined on scarcity value and efficiency of usage. He further concluded that the most transparent method of allocating spectrum would be through auction and that the method of auction would face least legal challenge.

The CPIL's submissions in the Supreme Court stated: Despite Chidambaram recognising the above facts, he did not stand by his own Finance Secretary and Additional Secretary who had fought a valiant battle all the way till January 9, 2008. He chose to raise his voice only five days after the scam had been perpetrated.

The memorandum

The O.M. reveals that the then Finance Secretary D. Subbarao (now Governor, Reserve Bank of India) had suggested to go for auction for initial spectrum of 4.4 MHz in early February 2008. But the Department of Telecommunications (DoT) was not keen to do so because, it said, that would disturb the level playing field and that the then LoI holders, who had already paid the entry fee, were likely to go to court.

The O.M. points out that there was a way out by invoking Clause 5.1 of the UAS (Unified Access Service) licence, which, inter alia, provides for modification of the terms and conditions of the licence at any time if in the opinion of the licensor it is necessary and expedient to do so in the public interest or in the interest of the security of state or for the proper conduct of the telegraphs. The O.M. said the DoT could have invoked this clause to cancel the licences in case the Finance Ministry had stuck to the stand of auctioning 4.4 MHz spectrum. Perhaps some litigations would have arisen as a consequence, as the O.M. put it.

The O.M. also mentions that while the UAS licences were signed between February 27 and March 7, 2008, spectrum allocation started only in April 2008, almost four months after the LoIs were issued. However, these were not charged (beyond the normal spectrum usage charges) since there was consensus at the levels of the Ministers concerned that spectrum beyond the start-up levels only should be charged.

For 2G scam-trackers, the O.M. has to be read in two ways. One is to read it literally, and accept the facts therein as incontrovertible. The resultant political crisis in the ruling Congress was tentatively resolved with Pranab Mukherjee issuing a statement to suggest that he did not suspect that Chidambaram could have stopped the scam from unravelling. Mukherjee said the O.M. was based on facts and was made after inter-ministerial consultations. It was an inter-ministerial background paper that was sent to the PMO. Apart from the factual background, the paper contains certain inferences and interpretations which do not reflect my views, Mukherjee stated, seemingly satisfying Chidambaram, in order to achieve a truce of sorts.

The other way of reading the O.M. is to identify the real participants and understand their omissions and commissions in the context of what has been revealed by other contemporaneous documents. The CPIL's rejoinder submissions on October 10, made in response to the CBI's reply in the Supreme Court, argued that since the Finance Ministry cannot be overruled by a line Ministry (in this case, the Telecom Ministry), it was impossible for Raja to move ahead without the concurrence of the then Finance Minister, Chidambaram.

On January 9, 2008, Additional Secretary (Economic Affairs) Sindushree Khullar put up a comprehensive concept paper on telecom policy to Chidambaram, in which she referred to the exchange of letters between the Finance Ministry and the DoT on November 22 and November 29, 2007. It specifically recommended multiple options for pricing spectrum through a market-based determination even in the absence of an auction. Chidambaram did not enforce this methodology, which could have met the condition of market valuation and still complied with the government's claim of following a first-come, first-served (FCFS) policy, the CPIL claimed.

The CPIL interpreted Paragraph 13 of the O.M. as follows: On April 21, 2008, Chidambaram sent a non-paper to Raja conveying the in-principle decision on the agreement that spectrum can be priced only beyond 4.4 MHz. The pricing of spectrum beyond contracted amount was also a part of the same recommendations by the TRAI [Telecom Regulatory Authority of India]. He found it okay to go against the TRAI recommendations beyond contracted amount, but not up to contracted amount (which is what the Finance Secretary wanted to do). The TRAI's recommendations, dated August 28, 2007, did not distinguish between 2G spectrum till and beyond contracted amount.

It cannot be Mr. Chidambaram's case that he was forced to follow TRAI's recommendations on DoT's advice till 4.4 MHz. If Chidambaram could have taken this stance for auctioning spectrum beyond contracted amount, then he could have taken this exact same stance (consistent with his Ministry officials) till the contracted amount and prevented the scam.

The CPIL claims to have exposed another inconsistency. The non-paper was dated April 21, 2008. On April 24, 2008, the Finance Ministry abandoned the 4.4 MHz mark and instead agreed to price spectrum beyond 6.2 MHz. The implication is that the additional 1.8 MHz of spectrum when multiplied by 279 UASL/CMTS (cellular mobile telephone service) licences equals 502 MHz of 2G spectrum. At 3G rates, the Comptroller and Auditor General (CAG) estimated the value of this spectrum at approximately Rs.63,000 crore. Chidambaram agreed to change his stance from 4.4 MHz to 6.2 MHz within three days and forced an additional loss on the exchequer, argues the CPIL.

The O.M. also reveals that as Finance Secretary, Subbarao had opined to the DoT that auctioning was legally possible for initial allotment of spectrum beyond 4.4 MHz. The DoT opposed this view. Despite the fact that F.S. had taken such a strong view, which had been recorded in the DoT's approach paper (dated February 8, 2008), Mr. Chidambaram chose to side with Mr. Raja on the issue of pricing, the CPIL said.

Chidambaram met Raja on January 30, 2008 20 days after the issue of the LoIs, but before the licences or spectrum had been allocated. The minutes of this meeting have been filed by Subramanian Swamy in his application. Chidambaram forecast the scam accurately in that meeting, suggests the CPIL. In this meeting, in which both the Finance Secretary and the Telecom Secretary were present, Chidambaram emphasised that the allotment of licences and allocation of spectrum must be based on solid, legal grounds. Both Chidambaram and Raja agreed that consolidation of the number of operators per circle should happen in a healthy way without any rent-seeking.

Raja announced modified M&A (Mergers and Acquisitions) guidelines on April 22, 2008, even before the spectrum allocation began. This was seen to be in violation of the TRAI Act. He modified the TRAI recommendation of August 28, 2007, that any proposal for mergers and acquisitions should not be entertained until rollout obligations were met. The CPIL alleged that by virtue of this illegal action, Raja violated the decision he reached with Chidambaram to ensure safeguards against rent-seeking through spectrum-trading owing to M&A. Chidambaram, it alleged, did not raise any objection to the modification of the TRAI recommendation and the violation of the minutes of the January 30, 2008, meeting.

The CPIL claimed that it was on record that Chidambaram had approved the deals between Swan and Etisalat and between Unitech and Telenor. If Chidambaram had enforced the agreement he had reached with Raja with regard to the rent accrued to the government and the premium from such spectrum trading, then even at this late stage, the scam could have been partially prevented by ensuring that windfall gains were accrued to the public exchequer and not to companies such as Swan and Unitech, etc. Chidambaram did no such thing and ignored what he had already forecast. Instead, he ignored the illegally modified M&A guidelines of April 22, 2008, and later approved the Swan and Unitech equity infusions, which, according to the CAG, indicate a massive loss to the exchequer, the CPIL alleged.

The CAG concluded in its report dated November 16, 2010, that the high value paid by Telenor was primarily for spectrum and not for other inputs claimed to have been infused by Unitech. Such large equity infusion by investors was a price they paid for 2G spectrum which was allocated to Unitech, a company with no experience in telecommunications sector, at a throwaway price by DoT. The value which should have accrued to the public exchequer went as a favour to the new licensees in form of huge capital infusion for enriching their business, the CAG noted.

Both the issue of spectrum pricing and sale of licence were part of the CBI's first information report. Therefore, the CPIL argued, the CBI had given a clean chit to Chidambaram, ignoring the overwhelming evidence without even investigating the same.

On October 10, during the hearing of the 2G case before the Supreme Court, both the CBI and the government opposed the CPIL's and Subramanian Swamy's pleas for a probe into Chidambaram's omissions and commissions. Their reasons were that the facts cited by the CPIL and Swamy were incomplete and investigation on the basis of such facts might destabilise the system. The government criticised the Supreme Court's so-called power to continue monitoring the case as it is the Special Judge who has to examine the evidence against a person not named as an accused in the final charge sheet (in this case Chidambaram). The CBI also opposed the CPIL's plea to appoint two independent persons to assist the court to monitor the CBI investigation. The Bench's final orders will show how the court resolves the seemingly intractable positions of the parties before it.

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