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CAG: Most 2G licences given illegal
September, 27th 2010

Adding a new twist to the 2G spectrum scam, the Comptroller and Auditor General (CAG) has in its latest communication told the department of telecom (DoT) that a vast majority of the 126 licences controversially issued by the government in 2008 are illegal.

The sensational audit finding will further complicate the situation for the UPA government as Supreme Court begins to monitor investigations into the allocation of 2G spectrum under the stewardship of telecom minister A Raja in January 2008.

According to sources, CAG wrote to DoT in the second week of September that more than 75 licences issued in the 2G spectrum allocations have violated several of the guidelines for granting Unified Access Services Licence in a Service Area. These guidelines were issued on December 14, 2005 by DoT.

The CAG's communication to DoT says these licences were awarded to companies that did not meet several of the basic criteria laid down under the licence conditions. The finding comes over and above CAG's draft report that has indicted Raja for personally approving many of the important decisions that finally resulted in nine companies -- five of them with no experience in the telecom sector -- pocketing precious spectrum at throwaway prices.

CAG has listed a host of violations of DoT guidelines by the five new entrants and their several newly-floated companies. Among those indicted by CAG in its latest communication are Unitech, Loop, Swan, Datacom and Allianz Infra. Through various companies floated by them, together they hold over 75 of the total 126 licences given by the government without an auction. Some estimates have calculated the loss to the exchequer because of this sale in the region of Rs 60,000 crore.

CAG has also found some cases of forgery. In many of the licences, the Memorandum of Association of the applicant companies did not specify that they were being set up for telecom business, many of them were for construction business. So to overcome the need to have new MoAs approved by the registrar of corporate affairs, some of them put up unsigned MoAs in their applications. Many companies did not have adequate paid-up capital, and in some cases, they had violated cross-holding rules in telecom sector.

In the case of eight companies of Unitech, all of them held the annual general meetings just a day or two before the application was to be submitted. Officially, the AGMs were all held over two days within hours of notices being given, showing the farcical nature of the entire exercise.

The CAG findings now go beyond the issue of auction, and highlight the fact that DoT did not ensure that the companies adhered to its own guidelines. Raja had recently managed a law ministry opinion that CAG cannot question government's policy decisions, but the latest findings show that his department did not even carry out basic due diligence.

The findings add further complications to the 2G spectrum scam. Earlier, in its draft report, CAG had pointed out that Raja personally approved the issue of the now infamous press release of January 10, 2008, insisting on first-come-first-serve basis for allocation of licences, and giving operators just an hour's window to deposit demand drafts. The press release also advanced the cutoff date for submission of applications to September 25, 2007.

Raja had approved and signed the approval notings for the allocation of 2G spectrum to all the nine companies. Raja personally decided on the various cut-off dates in 2007, and later in January 2008, which favoured select companies, CAG found. First-come-first-serve was never DoT policy for granting licences, contrary to Raja's claims. It had been the policy only for release of spectrum after licences were granted, the CAG draft report said.

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