UAE wants forex-violation notice to Etisalat dropped

Emirates Telecommunications Corporation (Etisalat) has made a representation through the UAE government to request the Enforcement Directorate to withdraw a showcause notice over alleged violations of the Foreign Exchange Management Act (FEMA), insofar as it relates to the company and its directors on the board of its Indian joint venture Etisalat-DB Ltd. The UAE (United Arab Emirates) government owns 60 per cent of the Etisalat group.

The UAE government has also requested the Indian government to support any claim made by Etisalat for compensation as a result of the cancellation of its telecom licence by the Supreme Court.

The requests have also been conveyed to the Department of Telecommunications (DoT).

Last week UAE's Foreign Minister Sheikh Abdullah Bin Zayed Al Nahyan met India's External Affairs Minister S M Krishna and had wide-ranging discussions on strengthening economic ties between the two countries. When he visited India in January this year, Nahyan was given an assurance by the Indian government that foreign investments would be protected. Etisalat has already taken an impairment charge of $827 million (around Rs 4,500 crore) in its 2011 financial statement on its Indian assets.

Etisalat holds around 44.7 per cent stake in the joint venture with its estranged partner, DB Group, controlled by Shahid Balwa and Vinod Goenka, whose names have figured in the alleged 2G spectrum scam.

In their discussions, the UAE government has asked the Indian government to support the expeditious refund of the licence fee paid by the joint venture. The company has said it forked out $422 million (around Rs 2,296 crore) up to 2011, including the initial licence fee and other payments but excluding income tax.

It is also pushing for a refund of the liquidated damages that the joint venture company paid in protest to the DoT for not meeting its roll-out obligations, saying the damages were paid under a contract later declared null and void by the Supreme Court.

The company has also asked for a refund of all the cash margins (and interest accruing in respect of the same)

securing the joint venture's performance and financial bank guarantees held by the DoT. These cash margins are currently being withheld by state-owned banks Punjab National Bank and Bank of Baroda.

The total cash margins held by the two banks are as much as $110 million (around Rs  598 crore) and the liquidated damages it has paid the DoT are to the tune of 46.65 crore. Etisalat had invested $787 million in the Indian joint venture and has announced it is closing its India operation.

The UAE government had advised the company not to initiate legal proceedings against the Indian government until government-to-government talks took place. Russia's Sistema and Norway's Telenor have already served notices on the Indian government, invoking bilateral investment treaties.

An Etisalat spokesperson, replying to an emailed questionnaire, reiterated the stand of Kamal Shehadi, senior group vice-president, regulatory affairs, who had said no decision to participate in the spectrum auction had been taken,  nor would it be taken until there was clarity on the auction rules, restitution of Etisalat-DB and compensation to the Etisalat Group.

"Etisalat Group is a company 60 per cent owned by the government of the UAE. We have been asked by the government to hold on and to give an opportunity to the government of India to define its own policy for compensation," Shehadi had said. An email to the UAE embassy in India remained unanswered.

The Enforcement Directorate had slapped a showcause notice on Etisalat-DB Ltd as well as its five directors some months ago (that included directors nominated by Etisalat) for alleged violations of FEMA. Etisalat replied, saying it adhered to the laws and regulations of India in the structuring of its investment. Also, it said there was no allegation its directors took any action that infringed the law.

The Etisalat-nominated directors were appointed on the company board subsequent to the date of their investment and had no role to play in the negotiations before the investment, it said.

The UAE company had earlier initiated proceedings in the Bombay high court against its Indian partner for alleged fraud and misrepresentation.