Karti Chidambaram, son of former Union Finance Minister P Chidambaram, has been issued a show-cause notice by the Enforcement Directorate (ED) for alleged violations of the Foreign Exchange Management Act (FEMA) laws to the tune of Rs 45 crore. A firm allegedly linked to Karti has also been issued a show-cause notice.
After more than two years of investigation, another Chennai-based firm called the M/s Vasan Health Care Private Limited has also been issued a similar notice by the ED for alleged foreign exchange rules violations to the tune of Rs 2,262 crore. The notices have also been served to foreign investors, seek their responses to the allegations of multiple Foreign Exchange Management Act (FEMA) contraventions.
"The total amount of contravention identified on different counts and found to have been committed by M/s Advantage Strategic Consulting Private Limited in the sale transaction of shares of Vasan (Chennai firm) to overseas investors is around Rs 45 crore," the ED said in its notice.
"Show-cause notice has been issued to M/s Advantage Strategic Consulting Private Limited, its directors and also to Karti P Chidambaram who appears to be the controller and ultimate beneficiary in these transactions," the agency added.
The show-cause notice issued pertains to the ongoing ED investigation into foreign investments in Vasan Health Care, both in the primary and secondary market. The company had received investments from Sequoia — one of the largest venture capital firms — and Mauritius-based West Bridge and also through GIC-Singapore, a senior official of the ED told the Hindu.
"The overseas investors acquired Vasan's compulsorily convertible preference shares directly from the company, against the investment of Rs 432 crore in different phases from February 2009 to November 2014. The shares were acquired at the face value of Rs 100 each," the official said.
The ED has accused the investors of acquiring equity shares from existing shareholders instead of having got it directly from the company. The existing shareholders include Vasan promoter AM Arun, his father-in-law Dwarakanathan and his partnership firm AMA Associates, and Advantage Strategic Consulting. The ED has alleged that Karti controlled the business activities of the Advantage Strategic Consulting.
"During the first round, shares were sold at Rs 7,500 per unit in 2010-end. In the next round, March-May 2012, shares were sold at Rs 5,242 per unit. The total amount spent by the overseas investors, which ultimately benefited the then share holders, is Rs 357.72 crore," the official was quoted by the Hindu as saying.
The ED also discovered that the Sequoia Group, which had invested in the preference shares of Vasan Health Care in February 2009, sold its stake worth Rs 25 crore in March 2012 to GIC-Singapore for Rs 177.40 crore, thereby getting a return of over seven times its investment. The ED, after checking the share transfers, found out how Advantage Strategic had got the Vasan shares.
"Vasan promoter, Ms Arun, who had been allotted Rs 100 face-value shares on Rs 100 premium, transferred 3 lakh shares to her father, Mr Dwarakanathan, without receiving any consideration. Her husband Dr Arun then immediately got 1.5 lakh shares transferred from Mr Dwarakanathan's account to Advantage Strategic, which was till then not linked to Vasan's operations, for just Rs 50 lakh. The amount was paid over a year after share transfers," the official said.
Advantage Strategic allegedly sold 30,000 of the 1.5 lakh shares to an investor of the Sequoia Group for Rs 22.50 crore following which Rs 1 crore was given to Dwarakanathan on receipt of payment. The ED has also accused Vasan Health Care of not having followed the FEMA provisions or having informed the Reserve Bank of India (RBI) about the share transfers to the overseas investors.
"Besides, Vasan transferred 6.8 million dollars to Singapore supposedly for setting up a wholly owned subsidiary there, without receiving the mandatory share certificates for investments abroad. The funds were further transferred to Dubai and Sri Lanka, for forming step-down subsidiaries without keeping the regulatory bodies in the loop. This led to contraventions involving Rs.162 crore," the official told the daily.
The ED has said that the amount of the alleged contravention by Advantage Strategic in the sale of the shares of Vasan Health Care is around Rs 45 crore. Show-cause notices have, therefore, been issued to the company, its directors and Karti, who the ED says "appears to be the controller and ultimate beneficiary in these transactions."
