The Enforcement Directorate (ED) has issued show cause notice to Vasan Health Care and its promoters, the Advantage Strategic Consulting, and its directors, besides Karti Chidambaram, in connection with alleged foreign exchange rule violations involving about Rs. 2,100 crore.
Notice was also served on the foreign investors, seeking their response to allegations of multiple Foreign Exchange Management Act (FERA) contraventions, according to the Directorate.
The ED is probing into foreign investments in the Chennai based Vasan Health Care, both in the primary and secondary market. It had got investments from one of the largest venture capital firms, Sequoia, and West Bridge, based in Mauritius, and also through the investment arms of global firm GIC-Singapore, said a senior ED official.
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“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,” said the official.
Under the Prevention of Money Laundering Act, the ED is also probing the FIPB approval given to Aircel-Maxis deal by the then Finance Minister P. Chidambaram. It is alleged that the approval for Rs.3,500 crore inflow of funds from abroad, the Cabinet Committee on Economic Affairs was the only competent authority. The then Finance Minister was authorised to approve inflows till Rs.600 crore.
However, the ED alleges, instead of getting equity shares from the company directly, the investors acquired them from existing shareholders, including Vasan promoter A.M. Arun, his father-in-law Dwarakanathan’s partnership firm AMA Associates and the Advantage Strategic Consulting. The ED alleges that Advantage Strategic’s business activities were controlled by Mr. Karti Chidambaram.
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“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,” said the official.
The ED found that the Sequoia Group, which had invested in Vasan’s preference shares in February 2009, sold its stake worth Rs.25 crore in March 2012 to GIC-Singapore for Rs.177.40 crore, getting a return of more than seven times its investment.
Trailing the share transfers, the ED found out how exactly Advantage Strategic had got the Vasan shares.
“Ms. Arun, who was 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,” said the official.
It is alleged that from the 1.5 lakh shares, Advantage Strategic sold off 30,000 shares to a Sequoia Group investor for Rs.22.50 crore and on receipt of payment, Rs.1 crore was given to Mr. Dwarakanathan.
The ED also alleges that Vasan Health Care neither followed FEMA provisions nor informed the Reserve Bank of India for 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,” said the official.
According to the ED, the amount relating to alleged contravention by Advantage Strategic in the sale of Vasan shares is about Rs.45 crore. Therefore, show-cause notices have been issued to the company, its directors and Mr. Karti, who “appears to be the controller and ultimate beneficiary in these transactions”.