n a draft report, the Comptroller and Auditor General of India has said that three alleged front companies bid for spectrum during the 4G Broadband Wireless Access auctions conducted in 2010, while the Telecom Regulatory Authority of India remained a "passive observer".

The CAG has expressed doubt in this draft report — which was circulated in the Department of Telecom in June 2014 — that at least three alleged front companies, including Infotel Broadband, bid for spectrum during the said auctions. Apart from Infotel Broadband, whose shares were acquired by Reliance later, and which changed the name of the company to Reliance Jio, the other two companies that CAG has flagged are Augere (Mauritius) Ltd., a new entrant foreign company and Spice Internet Service Provider Pvt. Ltd. While Augere (Mauritius) Ltd won the rights to spectrum in one circle, Spice ISP won in none of the 44 circles auctioned.

Eleven companies bid for the spectrum during the 4G auctions. Infotel Broadband with a paid up capital of Rs 2.51 crore and net worth of Rs 2.49 crore made an Earnest Money Deposit of Rs 252.50 crore. It won in 22 circles (one pan Indian slot) with the payable auction amount of Rs 12,847.77.

Augere (Mauritius) Ltd had a paid up capital of Rs 0.037 crores, with a net worth of Rs -0.076 crore. It made an Earnest Money Deposit of Rs 67.50 crore and won the rights to one circle, the combined territory of Madhya Pradesh and Chhattisgarh, with the payable auction amount of Rs 124.66 crore. Spice ISP Private Ltd had the paid up capital of Rs 0.01 crore, with the net worth of Rs 0.01 crore and it paid an Earnest Money Deposit of Rs 42.50 crore. Spice ISP Pvt Ltd, a subsidiary of Spice Digital Ltd, was floated just a week before applications for the auction were to conclude, the CAG draft report has revealed.

The CAG has said in the draft report that the Application Screening Committee (ASC) and IMC (Inter Ministerial Committee) did not call for any additional information from these firms. "It was thus not clear as to how the members of the ASC satisfied themselves about financial capabilities of these firms to ensure that they would be able to pay the auction bid amount particularly when the reserve price itself was several hundred times of their net worth. Though the NIA (Notice Inviting Applications) had permitted the DoT to call for any additional information from the applicants, if required, neither ASC nor IMC solicited any further information from these three bidders to satisfy themselves about the financial capabilities of these firms," the CAG has said.

Augere Holdings, the UK based company whose subsidiary company was Augere (Mauritius) Ltd, did not respond to a questionnaire sent in this regard. Upon calling the London office, this newspaper was told that the company did not entertain media enquiries over telephone and the mail will be duly answered. However, no response to the mail sent on Thursday morning was received till the story went to press.

Augere Ltd closed operations in India in 2012 due to regulatory uncertainty. The company runs broadband service in neighbouring Pakistan and Bangladesh under the brand name Qubee. Augere Mauritius Ltd had announced that it would launch services in Madhya Pradesh and Chhattisgarh with Ericsson as its network vendor under the brand name Zoosh. It was backed by private equity firms such as New Silk Route, and Vedanta Opportunity Fund. New Silk Route was backed by Rajat Gupta, disgraced Indian American tycoon who was jailed in the United States for offences related to insider trading.

An official from Spice Digital's PR team said that Spice ISP Pvt Ltd was a "dormant" company and hardly active. The official said that only the company's chairman B.K. Modi could answer specific questions about the company's bid, but since he was "travelling abroad", it was not possible to speak to him. The official did not assign any time of Modi's return.

Spice Global is headquartered in Singapore. Its chairman B.K. Modi is one of Singapore's 50 richest men.

Reliance Jio has broadly rejected the charges levelled by CAG. Regarding Infotel Broadband being an alleged dummy company, an official spokesperson of the RIL emailed to this correspondent, "The NIA conditions including net-worth criteria were made in a fair, open and transparent manner. The eligibility criteria and other conditions of NIA were also shown to CAG and CVC by the DOT. IBSPL fulfilled all the NIA conditions, participated in the auction and acquired the spectrum in a fair and transparent manner. In an auction process, non serious players are not likely to participate because no gain can be made by purchasing spectrum at full market price. No bidder who has paid the market price would afford to wait to sell the spectrum so obtained at a premium. Substantial EMD amounts and subsequent rigorous rollout obligations itself are enough deterrents for so-called non serious entities from participating in auction."

The CAG has also said in its draft report that the participation of these firms should have been examined from the "angle of Foreign Exchange Management Act and Prevention of Money Laundering Act."

"Records indicated that applications for participation in the auction were scrutinized by the ASC under the chairmanship of Wireless Adviser and the IMC under the chairmanship of Member (Finance) of the DoT (Department of Telecom) meticulously and all minor errors like typographical mistakes, signature of authorized signatories/company secretaries at various places etc. were insisted upon. But none of these committees observed the major and substantive red flags i.e. participation by three small bidders having no prior experience of provision of telecom services/BWA spectrum network etc.," said the CAG report.

The secretary, DoT, was unavailable for comments. CAG spokesperson B.S. Chauhan said that since the draft report had not been finalised and presented to Parliament, no comments could be made by the organisation on its findings yet. He therefore left open the possibility that the conclusions reached in the draft report could be altered or modified before finalisation.