Vodafone MD gets ED notice over money laundering

Marten Pieters, Vodafone India MD
Vodafone India has been asked to defend itself from a money laundering charge by the government, even as another court battle is on with the finance ministry over its $11.2-billion acquisition of Hutchison's stake in Hutch-Essar in 2007.

The Enforcement Directorate (ED) has served a notice on the company's India managing director Marten Pieters under the provisions of the Prevention of Money Laundering Act, 2002, to either appear in person or through an authorised representative on Tuesday. The notice has been sent under Section 50 of the Act that gives the ED the powers to act as a court. It was sent to the company on March 27, signed by assistant director Satyendra Singh.

When contacted, a Vodafone spokesperson declined to comment on the matter. The company has earlier been asked to pay up R12,000 crore as tax dues. The company won the case in the Supreme Court but the finance ministry has since introduced a retrospective change in the tax rules in Budget 2012-13 to make the demand stick.

The notice does not explain the nature of the charges, but it is likely that it relates to the grant of spectrum to the company beyond 6.2 MHz in 2001-02. This becomes apparent because the set of documents the company has been asked to produce includes details of spectrum granted to it between 2001-02.

Vodafone, along with Bharti Airtel, was raided by the Central Bureau of Investigation on November 19 in connection with the excess spectrum issue and cases registered against them. The investigation is currently on in the matter.

The company has been asked to appear with a set of documents detailed by the ED. These include, names and addresses of the directors of the company since incorporation till date; names and addresses of persons/legal entities holding more than a 1% share of the company since incorporation; details of bank accounts between January 2001 and December 2002 in and outside India; copies of annual reports of the company for the financial years 2000-01, 2002-03 and 2010-11; names and addresses of the associate companies/joint ventures of the company in and outside India since incorporation; details of inter-corporate deposits given/taken by the company; and details of spectrum allotted to the company by the department of telecommunications between January 2001 and December 2002.

The notice says that every proceeding under subsection (2) and subsection (3) of Section 50 of the Prevention of Money Laundering Act shall be deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code. It also states that if the company fails to give evidence as mentioned in the schedule, it will be liable to penal proceedings under the Prevention of Money Laundering Act.

The ED notice comes at a time when the company is embroiled in a major taxation tiff with the government over its 2007 acquisition of Hutchison's stake. The issue is payment of capital gains tax, which Vodafone did not pay as the deal was between two overseas entities. However, the tax department demanded the same. After a nearly five-year legal battle, the Supreme Court ruled in the company's favour in January. The government in March in its Budget amended the Income Tax Act, 1961, empowering itself to tax all cross-border deals where the underlying assets are in India. Since the amendment is retrospective in nature, it is widely seen as the government planning to demand the tax from the company.

Vodafone has said that it is exploring all options to contest this. It is likely that that the company would seek damages from the government under the India-Netherlands bilateral investment treaty in the event the tax notice is served since it has invested in India through its subsidiary in the Netherlands.

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