Firm collecting Rs. 578 crore as share premium from foreign investors appears unusual

The January 2005 agreement that Devas Multimedia Private Ltd. entered into with Antrix, marketing wing of the Indian Space Research Organisation, by which it was given a lifetime lease of 90 per cent capacity of S-Band Transponders for two satellites to be built by ISRO, was a windfall for the private company and its shareholders.

Even though the agreement was annulled in February 2011, the value of Devas' shares had already multiplied exponentially, thanks to a contract “heavily loaded in favour of Devas,” according to the report of the Pratyush Sinha-led high level team, which was submitted to the government in September 2011.

According to the report, Devas was established by Forge Advisors-U.S.A. (FA-USA) in December 2004 with a share capital of a mere Rs. 1,00,000, and just two shareholders, Venugopal D., a former ISRO scientist who held 9000 shares, and Umesh M., who held 1000 shares (indicating a value of Rs. 10 per share).

With the Antrix agreement in January 2005, the ordinary share capital increased to over Rs. 5 lakh, with 12 shareholders in December 2005, including three of the FA-U.S.A. team, who held 60 per cent of the ordinary share value, says the report. In addition, two Mauritius entities, Columbia Capital Devas (Mauritius) Ltd and Telecom Devas (Mauritius) Ltd came on board, each holding one ordinary share and 50 per cent of the preferential shares.

By March 2010, the report states, Devas had 17 shareholders with Deutsche Telekom holding 20 per cent of the shares, the two Mauritius companies 17 per cent each, and the former ISRO scientist, M.G. Chandrasekhar, 19 per cent.

But that was not all. The premium paid by foreign investors for allotment of shares in Devas exploded between 2007-08 and 2009-10 — from Rs. 25,505 to Rs. 1,26,821 per share.

Venugopal D. and the FA-U.S.A. team divested a part of their shareholdings to the Mauritius-based entities in 2007-08 based on the premium per share of Rs. 25,505. “They stood to earn a profit ranging from over Rs. 2 crore to Rs. 7.4 crore each on the share divested,” the report says.

“For Devas, an internet service provider with a share capital of Rs. 1 lakh…with no asset base and no IPR or patent in the relevant technology, and which has been making losses since inception, to collect Rs. 578 crore as share premium from foreign investors appears to be unusual and can only be attributed to the agreement it had with Antrix,” the report states. It concludes that there were not only procedural lapses but also “the suggestion of collusive behaviour on the part of certain individuals.”

The committee has recommended that the Department of Revenue and the Ministry of Corporate Affairs initiate an investigation, specifically into Devas' changing ownership pattern, the economic interests of various individuals in the company and the role played by the Mauritius-based firms.

Thus, the agreement terms were “heavily loaded in favour of Devas,” the report says. If the satellite failed, the Department of Space would bear the risk, whereas if it succeeded, that too would put substantial burden of expenditure on the DoS.

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