ICAI Board Clears CA of Misconduct Charges in Swan Telecom Case

The Institute of Chartered Accountants of India’s (ICAI) Board of Discipline has cleared CA Hari Sethumadhavan Nair of professional misconduct charges related to the Swan Telecom case. The charges stemmed from allegations that Nair, in collusion with others, structured companies and facilitated the transfer of funds to Swan Telecom and Tiger Traders Pvt. Ltd. He was also accused of submitting false information to the Department of Telecommunications (DoT) regarding shareholding, thereby concealing material facts relevant to Swan Telecom’s eligibility for UAS licenses.

The case against Nair originated from Central Bureau of Investigation (CBI) press releases and news reports in 2011. The allegations mirrored those in a CBI chargesheet where Nair was named as Accused No. 11, and CA Gautam Doshi, whose case was heard concurrently, was Accused No. 9. Nair maintained his innocence, arguing that he acted on instructions as an employee of Reliance ADA Group, always adhering to professional standards. He also pointed out that the matter was sub-judice, pending before a special court, and cited a Supreme Court judgment (SBI vs. Neelam Nag) suggesting disciplinary proceedings should be paused in such situations to uphold the presumption of innocence.

The Board of Discipline, however, proceeded with an ex-parte hearing, noting the similarity of charges against Nair and Doshi. Crucially, the Special CBI Court had already acquitted Doshi. The Board’s review of the trial court’s observations revealed that while Swan Telecom’s ownership had indeed transferred to the DB Group before the license applications, the court found no evidence of illegal funding by Reliance ADA Group, deeming it within permissible limits. The trial court also dismissed the prosecution’s claims of conspiracy and found no merit in the allegation that Swan Telecom applied for licenses to secure GSM spectrum for Reliance Group companies.

The Board of Discipline highlighted the Special Court’s concluding remarks, which stated that the CBI’s chargesheet was based on misreading and selective interpretation of official records, lacking concrete evidence. The Special Court had acquitted all accused, including Nair. Based on this, the Board of Discipline concluded that Nair had successfully defended himself against the charges of structuring and funding related to Swan Telecom and other companies. The Board unanimously found Nair not guilty of professional misconduct and ordered the closure of the case.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF IN-DIA
(Set up by an Act of Parliament)

Confidential
PPR/8A/W/2011-DD/4A/W/INF/2011-BOD/317/2017

BOARD OF DISCIPLINE

(Constituted under Section 21A of the Chartered Accountants Act 1949)

Findings under Rule 14 (9) read with Rule 15 (2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007

CORAM (PRESENT IN PERSON):

CA. Rajendra Kumar P, Presiding Officer
Smt. Dolly Chakrabarty, IAAS (Retd), Government Nominee
CA. Priti Savla, Member

IN THE MATTER OF:

CA. Hari Sethumadhavan Nair (M. No. 049747) in Re.
Flat No. B-202, Burlington-B Wing
Raheja Reflections
Mumbai (Maharashtra)………………………………………………………………………………. Respondent

Date of Final Hearing :18th January 2025

Place of Final Hearing: ICAI Bhawan, Mumbai

FINDINGS:

BACKGROUND OF THE CASE:

1. An attention has been invited to the press release(s) by the Central Bureau of Investigation (CBI) dated 2nd April 2011 and 25th April 2011 and news items under different headings published in The Times of India’ dated 3^rd April 2011, 21st April 2011, 10th May 2011 and 24th May 2011 containing allegations against CA. Hari S. Nair (hereinafter referred to as the Respond-ent). Based on these press release(s) and news items and on an overall examination of allega-tions, the matter has been treated as information within the meaning of Rule 7 of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.

2. As per the information letter dated 25th May 2011 read with chargesheet filed, press release/(s) and news items, the allegations, in brief, are that the Respondent in collusion with CA. Gautam Doshi (the Respondent in case no. PPR / 8 / W / 2011 / DD / 4 / W / INF /2011/B0D/316/2017) and others, structured different companies. Further, he has been instrumental in transferring funds of Rs. 95.51 crores and Rs. 3 crores to M/s Tiger Traders Ltd. (hereinafter referred to as “TTPL”) and M/s Swan Telecom Pvt. Ltd. (hereinafter referred to as “STPL”) respectively. Besides, being Com-pany Secretary of STPL, he was also on the Board to various companies and was also the author-ized bank signatory. He, in league with CA. Gautam Doshi and others, dishonestly and fraudulently submitted false information to DoT under the signatures regarding his shareholding by different companies thereby concealing the material facts, which could lead DoT to consider the company eligible for getting UAS license.

CHARGES ALLEGED:

3. The Respondent, in collusion with CA. Gautam Doshi (the Respondent in case no. PPR/8/W/2011/DD/4/W/INF/2011/BOD/316/2017) and others, structured different companies. He has been instrumental in transferring funds of Rs. 95.51 crores and Rs. 3 crores to M/s Tiger Trad-ers Pvt. Ltd. (hereinafter referred to as “TTPL”) and M/s Swan Telecom Pvt. Ltd. (hereinafter re-ferred to as “STPL”) respectively. Besides being Company Secretary of STPL, he was also on the Board of various companies and was also the authorized bank signatory. He, in league with CA. Gautam Doshi and others, dishonestly and fraudulently submitted false information to DoT under the signatures regarding his shareholding by different companies thereby concealing the material facts, which could lead DoT to consider the company eligible for getting UAS license.

BRIEF OF PROCEEDINGS:

4. The details of the hearings fixed and held in the matter, are given as under:

BRIEF SUBMISSIONS OF THE RESPONDENT

5. The Respondent submitted that the matter was pending before the Special Court who conducts the proceedings on a day-to-day basis. He has stated that he was an employee of Reliance ADA Group and always acted to the best of abilities, diligence and keeping the highest professional standards as required under the Chartered Accountants Act, 1949 and always followed instruc-tions given to him after consulting other professionals and advisors. He pleaded innocence and stated that he has not committed any act that amounts to professional misconduct.

6. The Respondent also submitted that the charge-sheet alone cannot be the basis to treat the matter as information under Rule 7 (1) and the proceedings cannot be said to be initiated as per the provisions of Rule 8 (1) of the Rules and hence, there is no call for the formal declaration and verification under Rule 8 (2) of the Rules and requested to hold back the matter as the matter is sub-judice.

7. The Respondent also submitted that such allegation is identical to the charge sheet filed by the CBI in the Trial Court. The said allegations, as levelled by the CBI, have been argued and contest-ed vehemently, including from the stage of the arguments of charges before the Trial Court till re-cording of his statement under Section 313 of the Code of Criminal Procedure, 1973. At no point in time, he has failed to contest the allegation before the Trial Court. The Respondent also drawn attention of a judgement passed by the Hon’ble Supreme Court in the matter of SBI Vs. Neelam Nag [2016 (9) SCC 491J which states that it would be inappropriate for disciplinary proceedings to continue in such circumstances and any adjudication on the merits/truth of the allegation prior to the judgement of the Trial Court would undermine the ‘presumption of inno-cence”.

OBSERVATIONS OF THE BOARD:

8. At the outset, the Board noted that there is another matter of CA. Gautam Doshi in Re. under file no. PPR/8/W/2011-DD/4/W/INF/2011-BOD/316/2017 which was also listed for hearing before the Board and the charges in both the cases are similar. Because of the similarity of the charges, the Board decided to hear the extant matter ex-parte along with the case of CA. Gautam Doshi.

9. The Board further noted that in the Trial Court, the Respondent was named as Accused No. 11 in the charge-sheet whereas CA. Gautam Doshi was named as Accused No. 9. Therefore, keeping in view the similarity of charges, common Order passed by the Trial Court, grounds of the charg-es, the Board, while considering the common documents decided to hear the instant matter ex-parte.

10. While hearing the matter of CA. Gautam Doshi, the Board noted that he has been acquitted by the Special CBI Court. While going through the submissions made by the Respondent, the Board observed that as far as the Respondent is concerned, the Trial Court has observed that there is enough evidence on record to believe that STPL was under the ownership, management and con-trol of the D B Group by 3rd March 2007 as it is clear from the Examination-in-Chief as well as Cross-Examination of various witnesses in the matter. It has also been observed that STPL al-ready stood transferred from Reliance ADA Group to Shri Nilesh Doshi and Shri Sunil Doshi firstly and from them to Shri Anand Bhatt and Shri Ashok Wadhwa secondly and from them finally to D B Group on 2^nd March 2007, the date when the applications were filed. On that day, it was D B Group Company and RTL held only a minority shareholding in this company, limited to 9.9% only and, as such, the company was fully eligible to apply for fresh licences. Accordingly, the Board observed that the Trial Court has rightly held that the STPL stood transferred to D B Group by 03rd March 2007.

11. As regards the funding of STPL by Reliance ADA Group is concerned, the Board observed that based on large number of fund transfer documents like cheques, RTGS receipts, invoices, etc. Tri-al Court has rightly stated that when Mr. Sethuraman has deposed that except crossholding by way of equity shares, there is no bar on other type of funding by instruments like preference shares, debentures, etc. The investments are only in one category is prohibited which is beyond 10% or more i.e. equity capital. Categorization and segregation of investment into various instru-ments must have been in the knowledge of the policy makers. However, they put restrictions only on equity investment and not on investment by means of debt instruments. Be that as it may be, Clause 8 mentions only equity investment by one licensee company into another licensee com-pany and no other investment by means of other financial instruments like debt instruments, preference shares, etc and the policy maker is expected to have known all these nuances when these guidelines were framed. The Board, therefore, observed that the Trial Court has rightly came to finding that the funding of STPL by Reliance was within permissible limits and as the clause 8 stands at that moment, there can be no violation of it by way of debt funding.

12. The Board further noted that the Trial Court did not find any merit in the submission of the prosecution that Shri Siddharth Behura declared STPL eligible as he was in conspiracy with other accused. Further, as regards the application filed by STPL for UAS licences, the issue was whether there was any evidence on record in support of the case of the prosecution that the applications were filed in thirteen service areas by STPL just to secure GSM Spectrum for Reliance Group companies, i.e. RCL? The Board noted the observation of the Trial Court that there is no evidence in support of the prosecution version and the submission is purely speculative and conjectural and considering the material on record, the Trial Court do not find any merit in the version of the prosecution that the company was activated by Reliance ADA Group to secure GSM Spectrum in thirteen services where it was operating on CDMA standard.

13. The Board after perusal of the said Order passed in the Court of Hon’ble Shri 0. P. Saini, Spl. Judge, CBI (04) (2G Spectrum Cases), New Delhi in CC No. 01/11, dated 21st December 2017, ob-served that while concluding the matter, the said Court recorded as under:

“x x x

1817. There is no evidence on the record produced before the Court indicating any criminality in the acts allegedly committed by the accused persons relat-ing to fixation of cut-off date, manipulation of first-come-first-served policy, allocation of spec-trum to dual technology applicants, ignoring ineligibility of STPL and Unitech group companies, non-revision of entry fee and transfer of Rs. 200 crores to Kalaignar TV (P) Limited as illegal gratifi-cation. The charge-sheet of the instant case is based mainly on misreading, selective reading, non-reading and out of context reading of the official record. Further, it is based on some oral statements made by the witnesses during investigation, which the witnesses have not owned up in the witness-box. Lastly, if statements were made orally by the witnesses, the same were con-trary to the official record and thus, not acceptable in law.

1818. I may add that many facts recorded in the charge-sheet are factually incorrect, Finance Secretary strongly recommending revision of entry fees, deletion of a clause of draft LOI by 5h. A. Raja, Recommendation of TRAI for revision of entry fee, etc.

The end result of the above discussion is that I have abso-lutely no hesitation in holding that the prosecution has miserably failed to prove any charge against any of the accused, made in its well-choreographed charge-sheet.

1819. Accordingly, all accused are entitled to be acquitted and are acquitted.”

14. The Board observed that the above observations of the Special Court, clearly indicates that there is lack of evidence, inter alia, against the Respondent. The Board further noted that the charge-sheet as produced by the CBI in the Court is mainly based on misreading, selec-tive reading, non-reading and out of context reading of the official records and the same was not accepted by the said Court. Accordingly, the Board noted that the conclusion as arrived at by the Special Court saying “…… I have no hesitation in holding that the prosecution has miserably failed to prove any charge against any of the accused…”. Therefore, the Board noted that the Special Court has acquitted all the accused (including the Respondent) in the matter.

15. Thus, on a detailed perusal of the submissions and documents on record, the Board noted that the primary evidence which the Respondent has brought on record for the charges alleged against him, the copy of the Order of the Special CBI Court, the documents on record and the observa-tions of the Trial Court, the Respondent has substantially proved his defense on the charge that he has played an active role in structuring and funding of M/s Swan Telecom Pvt. Ltd., M/s Tiger Trad-ers Pvt. Ltd. and other companies in such a fashion so as to show that these were eligible to apply for UAS Licenses. In view of the same, the Board, after considering all relevant facts and docu-ments on record, has decided to hold the Respondent Not Guilty in respect of the charge alleged.

CONCLUSION:

16. Thus, keeping in view the facts and circumstances of the matter and the submissions made and documents on record, the Board is of the unanimous view that the Respondent is Not Guilty of Other Misconduct falling within the meaning of Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22 of the said Act. Accordingly, the Board passed an Order for closure of the instant case in terms of the provisions of Rule 15 (2) of the Chartered Accountants (Procedure of Investigations of Professional and Oth-er Misconduct and Conduct of Cases) Rules, 2007.

Date: 10-02-2025