Mumbai, Feb. 4: The Enforcement Directorate has given IPL franchisee Rajasthan Royals 45 days to cough up around Rs 100 crore in fines for foreign exchange violations or face legal action.
This is the first big fine imposed on an IPL team but the Royals said it intended to "launch a full appeal" against the order.
Enforcement sources said penalties on more IPL franchisees were expected to follow. As many as 24 notices have been issued to IPL franchisees and the Board of Control for Cricket in India (BCCI) on foreign exchange violations.
Enforcement Directorate officials spoke on the condition of anonymity since they are not authorised to speak to the media. Neither Shilpa Shetty nor her husband Raj Kundra was available for comment. Other persons referred to by the enforcement officials also could not be contacted for their version.
"We are discussing the contents of the order with our lawyers and intend to launch a full appeal against the order," the Royals said in a statement. "We will not be making any further statement on this matter at this time," it added.
An official claimed the findings had also put under a cloud the stakes of Raj in the franchise.
According to rules laid down by the Foreign Investment Promotion Board (FIPB), if an individual or company wants to invest foreign funds in India, they must seek the RBI's permission.
"A UK-based company, Emerging Media IPL, owned by Britain-based Indian businessman Manoj Badale, was floated four months before the bid. The initial payment to take part in the bidding was made by Badale from his personal account to the BCCI on behalf of Emerging Media. The agreement with the BCCI was signed by a new entity ' Jaipur IPL Pvt Ltd (JIPL) in April 2008," said an enforcement investigator.
JIPL had only two stakeholders at the time of the signing of the agreement with the BCCI ' Fraser Castellino and Ranjit Barthakur.
"So, though the bid was given by and paid for by A, the agreement was signed by B who had nothing to do with the bid," said the enforcement official.
Income tax and enforcement officials said the deposits made by Badale fall in the category of foreign direct investments (FDIs).
The Foreign Exchange Management Act (Fema) stipulates that a non-resident Indian can remit money to a company against shares only through normal banking channels. But Badale had allegedly transferred the money to the BCCI directly though Emerging Media did not have an Indian company associated with the bid and transaction at that point of time.
This was the first violation, said an enforcement official.
The second payment made by the Royals to the BCCI was in May 2008. This time, a Mauritius-based company ' EM Sporting Holdings Ltd ' paid the balance deposit to BCCI-IPL. Emerging Media was now one of the stakeholders of EM Sporting.
In July 2009, JIPL approached the FIPB, the body which clears FDI proposals in India, to allow the company to issue shares to Emerging Media and EM Sporting Holdings in lieu of the deposits made by them to BCCI-IPL.
The FIPB rejected the proposal in November 2009 as Jaipur IPL did not have documents to prove how it received the foreign exchange.
"They could not provide any proof because both Badale and EM Sporting Holdings had transferred money directly to BCCI-IPL," the enforcement official said.
The officials said the money received by JIPL was neither remitted through normal banking channels nor by debit to the Non-Resident External/Foreign Currency Non-Resident rupee account.
"The transaction trail reveals that the money was received by the JIPL shareholders even before their company was formed," claimed an enforcement official.
JIPL approached the RBI over the matter but was redirected to the FIPB.
While the dispute was on, Castellino and Barthakur sold their stakes in JIPL to Emerging Media and EM Sporting Holdings.
"But their shares could still not be transferred as they were under FIPB and RBI scanner over its foreign exchange transactions," said an enforcement official.
Badale soon became a director for Emerging Media, which then evolved into an investors' consortium based in the UK.
The consortium sold some shares to then IPL chairman Lalit Modi's brother-in-law Suresh Chellaram.
In February 2009, Emerging Media sold nearly 12 per cent stake in the Royals to a company called Kuki Investments in which Shilpa and Raj's family had some stake. The deal was cut at $15.4 million, which valued the Rajasthan franchise around $140 million, a significant increase on the $67 million dollars it was bought for in March 2008.
But with no RBI or FIPB approval for transfer of shares from Jaipur, the validity of the shares held by Raj and Chellaram remains doubtful. JIPL has still not been able to transfer its shares to Emerging Media ' a foreign company ' "because of forex violations", according to an enforcement official.
The Enforcement Directorate has now slapped a Rs 50-crore penalty on JIPL and its directors and owners of the Rajasthan Royals, while a Rs 34-crore notice for evasion of foreign exchange duties has been issued against EM Sporting Holdings and its directors apart from a Rs 14.5 crore penalty against another UK-based investor.