What Could Be the Issues in the 2G Appeals?

The High Court of Delhi will hear the appeals in the 2G Spectrum cases from 21 March onwards. The CBI and ED had both filed their appeals on the Trial Court Judgement by 20 March. The Trial Court had acquitted all the accused based on their oral testimony while disregarding the documentary evidence that was submitted. Apart from this the Trial Court had also disregarded jurisprudential practices that had been developed in Common Law to prevent the very mischief committed. The Special Public Prosecutor, Anand Grover had recused himself from continuing the prosecution of the cases. The Additional Solicitor General, Tushar Mehta has been appointed for the appeals. The issues on which the appeal is likely to be fought are; the documentary evidence, the chain of events, and ‘lifting the corporate veil’.

The documentary evidence submitted clearly showed a departure from procedure in the Unified Access Services License Guidelines, 2005 (UASL Guidelines). While this may not have been a cause for concern, switching from the first to apply to the first to comply at the last minute unfairly favoured the private entities involved in the ‘scam’. The previous system allocated licenses on the basis of first-come first-served. The tweak Raja made allocated licenses on the basis that the first to pay the license fee would be granted a license. The evidence also showed that shell companies were set up to apply for licenses, one such example was where Reliance Anil Dhirubhai Ambani Group –  now Reliance Group – had set up a series of companies named after several animals in a complex holding system. The system did not allow one to easily determine which was the actual parent company. This allowed Reliance Group to gain more licenses than was statutorily permissible. Shares in these shell companies were sold to other companies at a profit exponentially higher than the cost of the license which was their only asset. The money trail which caught Kanimozhi as well as Raja was a Rs. 200 crores payment which was transferred as ‘investment paymenSts’ from Dynamix Realty to Kalaignar TV. As soon as the ‘scam’ caught the public’s attention, the entire amount was transferred back.

This then brings one to view these developments not as individual occurrences, but rather a chain of events. The links in the chain are; setting up shell companies and applying for licenses, change of date, change of procedure, payment of Rs. 200 crores ‘investment payments’, transfer of the Rs. 200 crores back to the point of origin. The Trial Court had not considered this to constitute a chain of events and hence accepted the accused’s explanations for each part. The transfer of Rs. 200 crores was said to be a series of investment payments. The change of procedure was dismissed since the Trial Court felt that there was no definite procedure hence there was no change. The change of date was explained by the accused as arising out of the vast number of applications received. The shell companies were not even considered shell companies as the Trial Court refused to lift the corporate veil.

Lifting the corporate veil is an established procedure in Common Law where a Court disregards the personality of the company and considers only who has actual control over its corporate functioning. In the present case, companies that were created in Mauritius though controlled by an existing licensee were allowed to apply for licenses. This was a departure from the UASL Guidelines which barred a licensee from holding more than one license for a given service area. The companies were also ‘sold’ to others who did not possess licenses. The licenses of these shell companies were their only asset. This was how the exchequer was defrauded of Rs. 1,76,000 crores.