Ominous clouds have gathered over the IPL pitch, with several entities and persons linked to the sporting jamboree coming under the government scanner. Official sources told FE that the ministries of finance and corporate affairs are planning a comprehensive probe into the affairs of the Board for Control of Cricket in India, the Indian Premier League (IPL) and its multiple franchisees.

IPL, a money-spinner in Indian cricket, is buffeted by allegations of violating the Companies Act and the Income Tax Act. The government has already launched an investigation into the funding sources of Rajasthan Royals, a highly-placed source said.

The finance ministry is taking a detailed look at the I-T department report, compiled after visiting IPL franchisee offices and the premises of IPL commissioner Lalit Modi. The department is trying to ascertain the franchisees? sources of funds.

?We have already sent a report to the finance minister. We are in the process of gathering further information,? a senior I-T official told FE. The department would share the information with the Enforcement Directorate as well, he added. The department is also studying the IPL bidding process.

Sunday was a hectic day for IPL, with Dubai-based businesswoman Sunanda Pushkar surrendering her nearly-19% ?sweat equity? worth Rs 70 crore in Rendezvous Sports World, the consortium that owns IPL Kochi. On the same day, IPL commissioner Lalit Modi, who has levelled allegations against the Kochi IPL franchise met the new chairman of the Kochi team in Dubai, and exuded confidence that the issue will soon be sorted out.

When contacted, corporate affairs minister Salman Khurshid told FE: ?In the wake of media reports (about Companies Act violations in the offer of sweat equity to Pushkar), we are looking into the whole issue, based on whatever information is available with MCA-21.? MCA-21 is an e-governance portal where companies can file information online.

A senior official at the ministry said that prima facie, there seems to be a clear breach of the Companies Act. The Act allows an unlisted company to issue sweat equity only up to 15% of the total paid-up capital in a year or shares worth Rs 5 crore, whichever is higher. If the allotment is above this ceiling in a year — which appears to be the case in the Pushkar case — it will not be treated as sweat equity, unless government approval is taken in advance.

According to the joint venture agreement between the Kochi team?s shareholders, the 25% sweat equity shared by Pushkar and others of Rendezvous Sports World was ?undilutable in perpetuity? and in return for management services rendered to the team. Experts say that if the media reports are true, a case of Companies Act violation is involved. Since IPL franchisees are private limited companies, they are bound by Companies Act, and their income is liable to be taxed as corporate income.

However, some corporate law experts FE spoke to surmise that Rendezvous may have issued equity at par to Pushkar, and not sweat equity as she claimed. If that was the case, there would be little the corporate affairs ministry would need to do, as no company law violations could be involved.

According to Sangram Patnaik, managing partner at New Delhi-based corporate law firm Patnaik & Associates, sweat equity can be given only to someone in lieu of his knowhow or intellectual property or for some other sort of value addition. ?Pushkar needs to justify what her contribution to the company really is. Even the board is answerable as to why she was given the sweat equity,? he said.

Any company in existence for more than a year can issue sweat equity. But to get around this, ?promoters can also subscribe to equity at different prices, without needing to comply with sweat equity norms. This route will allow some promoters to get what can loosely be called free equity,? said Vivek Gupta, Partner at BMR Advisors. It may be recalled that Rendezvous Sports World was formed only in March. Soumya Ray Chowdhury, a Calcutta High Court lawyer said that since sweat equity can be issued only after the company has been operational for at least one year, ?in Pushkar?s case, there seems to be a violation of sub-section 1 and sub-clause C of section 79A of the Act.?

And it?s not just the Kochi franchise which is facing the heat. The government is also on the trail of Rajasthan Royals, another IPL franchise. Last year, Jaipur IPL Cricket Pvt Ltd (JIPL), the promoters of Rajasthan Royals had approached the Foreign Investment Promotion Board (FIPB) for permission to bring in foreign equity worth over $5.82 million by ?issue of shares for consideration other than cash inflow.? FIPB had rejected the proposal on the recommendations of the revenue department, which had questioned the consortium?s source of funding. JIIPL moved FIPB yet again this year, which made the government take note.

JIPL is a wholly owned subsidiary of EM Sports Holding Ltd, Mauritius (MHC) which in turn, is a JV between Emerging Media IPL, Tresco International Ltd, Blue Water Estate Ltd (representing Lachlan Murdoch and based in Hong Kong) and Kuki Investments Ltd (promoted by UK-based businessman Raj Kundra and incorporated in the Bahamas).

Pushkar?s lawyer Ashish Mehta, told news channels that her client?s decision to give up the sweat equity had nothing to do with Tharoor. Mehta said Pushkar has informed Rendezvous Sports World of the Kochi consortium of her decision.

The Director General of Income Tax (Intelligence) is coordinating with all other directors-general for gathering more information on the IPL. The department is collecting information under section 133(6) and 133 A of I-T Act. While 133(6) empowers the tax department to seek any information, 133 A empowers them to enter the premises of the assessee without any notice.

The department will also share the information with the Enforcement Directorate, which will screen the documents relating to the bidding and award of contracts collected by the I-T department from the office of Lalit Modi and other IPL premises. The ED will probe deals involving foreign investors based in tax havens.

IPL erupted into a full-blown controversy after Lalit Modi tweeted about the shareholding of the Kochi franchise. Minister of state for external affairs Shashi Tharoor has come under heavy fire over his friendship with Sunanda Pushkar, who was a stakeholder in Rendezvous. Opposition parties have demanded the dismissal of Shashi Tharoor from the Cabinet, and his explanations of innocence in the whole affair have not convinced them.

(With inputs from Tanu Pandey)