Enforcement Directorate summons AirAsia India on alleged FEMA violation

MUMBAI: The Enforcement Directorate has summoned executives of AirAsia India as part of a preliminary investigation to examine issues of whether its management is controlled by its Malaysian parent and also allegations of previous irregular transactions within the airline.
"A case has been registered on violation of the Foreign Exchange Management Act (FEMA) 1999," said a senior official at the Enforcement Directorate.

The FEMA was formulated to manage "foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India."

Malaysian low fare carrier AirAsia Berhad and Tata Sons own 49% each in the airline. The remaining 2% is owned by chairman S Ramadorai and Director R Venkataramanan.

"We were given information on the basis of which the preliminary investigation has started. We aren't in a position to disclose any findings yet," the official said. He added that only current and not former AirAsia executives have been called for now. The Directorate also hasn't summoned any of the airline's shareholders yet, he added.

An AirAsia India spokesperson said the airline hasn't received any official communication from the Directorate yet.

"If and when we do, the company will take appropriate steps," she added. The investigation follows a recent complaint by BJP leader Subramanian Swamy to the Directorate in which he accused the carrier of "money laundering.".

Recent findings of a forensic investigation into the airline by Deloitte have alleged irregular transactions, lobbying and vendor favouritism under the airline’s former CEO Mittu Chandilya.

ET had first reported the findings on November 5. (Read Article)

Tata Sons’ ousted chairman Cyrus Mistry had referred to the investigation in a letter to Tata Sons’ board shortly after his removal on October 24.

Among other things, the report alleged Chandilya had instructed company payments totalling about Rs 22 crore to a Singapore-based entity which did not render any service and to a ghost Indian firm with no record filed with the government about it being a legal entity in the country.

The report alleged that payments worth about Rs 12 crore were made against invoices of HNR Trading, the Singapore entity, for “government/regulatory framework”. But there is no evidence of actual services being provided.

Additionally, about Rs 10 crore of payments were shown to be made to an entity called Link Media Immigration Services Pvt Ltd, purportedly for media services rendered.

The investigation didn’t find any such firm registered with the ministry of corporate affairs. Additionally, “site visits to three addresses revealed no business establishment,” the report said.

AirAsia India is also battling court cases filed by Swamy and the Federation of Indian Airlines, a lobbying body of incumbent Indian carriers IndiGo,Jet Airways, SpiceJet and GoAir. They have appealed for the cancellation of its flying permit on charges that it misuses the government's FDI norms.

The airline was the government in 2012 relaxed FDI norms for the aviation industry, allowing foreign carriers, hitherto barred, to buy up to 49% stake in an Indian airline.

Incumbent airlines and Swamy have raised charges against AirAsia that say management control of the airline lies with AirAsia Berhad. Indian FDI laws for airlines state that management control of Indian carriers that are beneficiaries of investment from foreign carriers should remain with Indians.

AirAsia started operations in July 2014. Before that, it signed a brand license agreement with AirAsia Berhad. ET has seen a copy of the agreement.

The agreement mandates that in lieu of using the AirAsia brand, AirAsia India has to consult it for almost all operational decisions right down to promotional fares. There should be a “preference” to AirAsia group companies while outsourcing functions and that all the Malaysian carrier’s existing agreements with group companies should be upheld.

The document also says that AirAsia Berhad's global CEO Tony Fernandes “will provide input and approve annual budgets for each airline within AirAsia Group including the Licensee (AirAsia India)”.