FEMA violation

co in which I was never a shareholder or director, Ummmm.”

The ED alleged that the FEMA violations were made while infusing foreign investment in the Vasan eye care chain through venture capital firms such as Sequoia Capital and Westbridge Capital. The ED called into question investments made by these companies into Vasan on the ground that shares were not boughtdirectlyfromthecompanybutthrough its promoter A M Arun.

“Show cause notice has been issued to M/s Vasanhealthcareprivatelimited,itspromoter director Shri Arun, Smt Arun, Shri Dwarakanathan and also to the overseas investors for the alleged contraventions... Show causenoticehasbeenissuedtom/sadvantage Strategic Consulting Pvt Ltd, its directors and alsotoshrikartipchidambaramwhoappears to be the controller and ultimate beneficiary in these transactions,” an ED statement said.

Injanuary,kartichidambaram,inanemail response to a query from The Indian Express, had said: “Sequoia and Westbridge are to my knowledgewellacclaimedglobalpe/vcfunds. I have had no business transactions with either of them. The ED is on a fishing and roving exercise to harass and defame me. All this is an unfortunate fallout of this toxic game.”

The ED said it was also probing P Chidambaram for granting FIPB (Foreign Investment Promotion Board)approval in the Aircel-maxis case. “Further investigations under PMLA are going on in respect of FIPB approval given to Aircel-maxis by the then Finance Minister wherein foreign inflow was Rs 3,500 crore (appx.) whereas as per government policy and FIPB guidelines, competent authority was CCEA (Cabinet Committee of Economic Affairs) for any inflow above Rs 600 crore,” the ED said.

In a statement earlier this month, Chidambaram said: “In the Aircel-maxis case, taking into account the face value of the foreign investment, the FIPB submitted the case to the Finance Minister and sought approval. Asfm,igrantedapprovalinthenormalcourse of business.”

Theedsaiditconductedinvestigationsinto foreign investments received by Vasan Health Carepvtlimitedonthebasisofinputsreceived by them about suspected contraventions underfema.“preliminaryinvestigationrevealed that the said company had received investments from the funds of Sequoia and Westbridge, based at Mauritius, and also through investment arms of M/s GIC, Singapore,” the ED statement said.

According to the ED notice, overseas investors acquired shares of Vasan Healthcare by acquiring Compulsorily Convertible Preference Shares (CCPS) directly from the company by investing a totalamountofrs432croreindifferent rounds of investment from February 2009 to November 2014. The shares were acquired by the overseas investors at the face value of Rs 100 each, the ED stated.

“In addition, the overseas investors, instead of acquiring equity shares from the company directly, which would have added more liquidity to the company, chose to acquire the same in the secondary market viz., from the existing shareholders of the company including its promoter Shri A M Arun, M/s AMA Associates (a partnership firm belonging to the promoter Shri A M Arun and his father-in-law Shri Dwarakanathan) and M/s Advantage Strategic Consulting P Limited, a company whose activities are found to be in the control of Shri Karti P Chidambaram,” the ED said.

According to ED, the first tranche of sale tookplaceintheendof2010whenshareswere sold at Rs 7,500 per share. The second tranche ofsaletookplaceinmarchandmay2012when shares were sold at Rs 5,242 per share. The total amount invested by the overseas investors, which ultimately benefited the above mentionedexistingshareholders,isrs357.72crore, the ED said.

Oneoftheoverseasinvestorsofthesequoia groupwhoinvestedintheccpsofvasaninthe first round of investment in February 2009, sold stake worth around Rs 25 crore in March 2012, to one of the investment arms of GIC Singapore for Rs 177.40 crore, getting a return of more than seven times of their investment, the ED said.

“Mrs Arun, promoter of M/s Vasan who was allotted equity shares of face value of Rs 100 each on payment of premium of Rs 100, transferred300,000equitysharestoherfather Shri Dwarakanathan without receiving any consideration. Shri Arun immediately organised the transfer of 150,000 shares from Dwarakanathan to M/s Advantage Strategic Consulting P Limited, who were never connected to the activities of the company till that date. Although the shares had a total face value of Rs 1.50 crore and was acquired by the original allottee for Rs 3 crore, which included a premium of Rs 1.50 crore, M/s Advantage Strategic Consulting P Limited, paid to transferorshridwarakanathanrs50lakhonly,and that too after a period of more than one year from the date of transfer of shares,” the ED statement said.

According to ED, Dr Arun, while negotiating with the overseas investors in selling his stake, facilitated and ensured that shares held by Advantage are also sold. Of the 150,000 shares,advantagesold30,000sharestooneof the investors from the Sequoia group and received consideration of around Rs 22.50 crore, the ED said. “It was only after the receipt of the consideration, they transferred the remaining amount of Rs 1 crore to Dwarakanathan,” the ED statement said.

“During the investigation it was revealed that various agreements were entered from time to time between the company, promoters,investors,sellerofsharesetc.theccpswere issued to the overseas investors wherein the price/conversionformulahavenotbeendetermined upfront at the time of issuance of the shares... overseas investors were given assuranceofreturns...suchassuranceofreturnsand non-determinationoftheprice/conversionformulaupfrontarenotpermittedandareincontravention of FEMA,” it said.

Theedallegedthatvasanhadnotfollowed statutoryobligationsasenvisagedunderfema, 1999 in their reporting mechanism to RBI and failureontheirpartalsoresultedincontravention of FEMA. “The total amount of contravention identified to have been committed by M/s Vasan Health Care Private Limited and its overseas investors on different counts in the investments received from overseas investors is around Rs 2,100 crore,” the ED said.