Case Studies in Business Ethics and Corporate Governance

106 Case Studies in Business Ethics and Corporate Governance

The allocation was not in accordance to the market price of the spectrum. The license issued didn’t have

a market in India and hence was sold on a fi rst-come basis. The underpricing was because the base price

taken was of the year 2001 instead of 2007. According to the investigations made by the Central Bureau

of Investigation (CBI), the fi rms obtained the spectrum at a low price and further sold their stake to

foreign telecom companies and made a profi t on the difference. Companies like Unitech, Tataand Anil

Dhirubhai Ambani Group came under the radar of CBI.

The CBI’s chargesheet alleged that Reliance Telecom Limited structured Swan Telecom as its front

company to obtain the 2G spectrum, which was against the UAS guidelines. RTL, under the then exist-

ing telecom policy, was not granted license as DoT had barred the CDMA player to enter into the GSM

telephony sector.

According to the UAS, the guidelines mentioned that for a substantial equity in a company, the per-

centage stake should be 10%. This percentage, according to fi ndings by CBI, was reported to be 10.71%

in Swan Telecom. This percentage enabled RTL to front Swan Telecom. However, statements made by

the Reliance Telecom Limited are that their equity holding in Swan Telecom was 9.9% and at the time

that license was granted to Swan Telecom, RTL had no stake in the same.

Exclusion from Sensex (R-Infra and R-Com)

R-Infra and R-Com were removed from the Sensex on 8 August 2011, and were replaced by Coal India

and Sun Pharmaceutical Industries.

Such decisions involve looking at many aspects. Some of them include market capitalization,

listing history, an acceptable track record and decisions on segment representations in the main

index.

On one hand, R-Com is under $7billion in net debt and the last seven quarters reported a straight

decline in profi ts. The company has been unsuccessful in cutting down its debt. R-Com has also come

under the scanner of the CAG regarding the 2G scam. R-Infra, on the other hand, is facing delays in its

metro project in Mumbai which would possibly be functional by 2012 end.

R-Infra and R-Com were the index’s worst performing stocks that had fallen 32% and 35%, respec-

tively, while the index had fallen 12% (see Exhibits II to V).

CONCLUSION

The World Bank defi nes that corporate governance is about promoting corporate fairness, transpar-

ency and accountability.

ADAG has ventured into several areas such as infrastructure, telecom, capital, entertainment and power.

However, it has been vulnerable to delays of big projects and covered under great debt (see Exhibits

I to V). The group’s reckless entry into areas in which the group had little or no experience, lack of an

effi cient management team and no strict adherence to corporate governance measures has affected the

future of ADAG.

With the company looking to venturing into new areas like banking, credibility is a factor that would

outweigh all other conditions. With the accusations and controversies, the path would become diffi cult

to sustain the group. For example, Crisil has rated a negative outlook for R-Infra in term of long-term

debt. The group must concentrate on its company stakeholders.

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