The government and the Reserve Bank of India (RBI) want to strengthen the FDI policy framework so that the enforcement agencies are able to scrutinise the sources of foreign funds more effectively. The move comes in the backdrop of the RBI?s ongoing probe into the allegation that ?dubious funds? have been routed through US-based marquee hedge fund DE Shaw ?s Mauritius subsidiary to various Indian entities, including Amar Ujala Group.
DE Shaw has affirmative voting rights in Amar Ujala which are tantamount to breach of sectoral cap of 26% in media sector, it is felt.
According to sources, the RBI feels that the extant FDI policy is not fully equipped to capture any additional details on source of funding by non-residents apart from regular reporting norms like identification and overseas account particulars, which is used for balance of payments (BoP) statistics. The central bank and the finance ministry have directed the Enforcement Directorate to suggest ways to frame a policy that allows a closer vigil on the funding sources as well as the end use of funds.
In its reply to the government, DE Shaw has dragged big media companies like Jagran Prakashan, DB Corp (Dainik Bhaskar) and HT Media into the muck saying these Indian companies had also given such rights to foreign funds before coming out with respective IPOs. It argued that there is nothing unusual or special about these rights. These rights are commonly provided to private equity and financial investors, the hedge fund has said in a written communique to the government.
Now, the RBI has directed ED to run an investigation into the proposed funding by DE Shaw into Indian company and also help framing new FDI rules incorporating various ways of scrutiny on source of foreign funds. ?The issue may require a thorough investigation by the ED,? the RBI has observed.
?The suspicious transactions are reported by the banks to the RBI and finance ministry. Only thing that can be done is to enforce better know your customers norms and anti-money laundering rules. There are provisions in the law for KYC and AML norms of the foreign investors,? Ernst and Young partner Hiresh Wadhwani said.
Amar Ujala in its plea claimed that the agreement was entered into fraudulently between the erstwhile management of Amar Ujala Publications and DE Shaw on the basis of false representations made by the global fund house. The deal was approved by FIPB way back in 2007, but Amar Ujala earlier this year complained that the deal was illegal and in violation of foreign investment rules.
Amar Ujala also claimed that DE Shaw misled the FIPB by not informing them about certain conditions of the deal. Subsequently, FIPB had sought clarifications from DE Shaw on whether the deal was in conformity with all the terms and conditions specified in its approval. Both Amar Ujala and DE Shaw have filed petitions against each other in the High Court. The case is coming up for hearing on Wednesday.