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Scandals in India

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    www.time4education.comTriumphant Institute of

    Management Education P Ltd

    Nyayapati Gautam

    2G & Coalgate

    & JBT &Granite & So

    On

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    Background

    In 1994 there were three incumbents inthe fixed service sector i.e., DoT, MTNLand VSNL.

    DoT operated all over the country exceptDelhi and Mumbai.

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    MTNL had operations in Delhiand Mumbai and VSNLprovided internationaltelephony.

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    In1994 telephone density inIndia was 0.8 per 100 personsas against world average of 10per 100 persons.

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    NTP - 1994

    National Telecom Policy 1994

    Affording telecommunication for all andensuring the availability of telephone ondemand.

    Providing certain basic telecom services

    at affordable prices to all people &covering all villages.

    Giving world standard telecom services;

    Creating a major manufacturing base andmajor export of telecom equipment

    Protecting the defence and securityinterest of the country.

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    NTP - 1994

    Additional resources required to achievethe revised targets was over Rs.23,250Crores.

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    Private investment andassociation of the privatesector was necessary in a bigway to bridge the resource gapin order to achieve the revisedtargets set in NTP 1994.

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    Objectives: NTP - 1999

    Objectives of NTP 1999:

    to make available affordable and effectivecommunications for the citizens.

    To provide universal service to alluncovered areas including the rural areasand also provide high level servicescapable of meeting the needs of thecountrys economy by striking a balance

    between the two.

    To encourage development oftelecommunication in remote, hilly andtribal

    areas of the country.

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    Objectives

    To convert PCOs wherever justified intoPublic Teleinfo centres havingmultimedia capability

    To transform in a time bound manner,the telecommunications sector in bothurban and rural areas into a greatercompetitive environment

    Providing equal opportunities and level

    playing field for all players.

    To strengthen R&D efforts in the countryand provide an impetus to build worldclass manufacturing capabilities.

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    To achieve efficiency andtransparency in spectrummanagement..

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    pec rummanagement under

    NTP 1999 Growing demand - essentialthat the spectrum is utilizedefficiently, economically,rationally and optimally.

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    There is a need for atransparent process ofallocation of frequencyspectrum

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    Adequate spectrum is to bemade available to meet thegrowing need of

    telecommunication services.

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    SpectrumManagement

    There is a need to have a transparentprocess of allocation of frequencyspectrum:

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    Spectrum usage fee shall becharged;

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    An Inter-Ministerial Group:

    Wireless Planning CoordinationCommittee as a part of the

    Ministry of Communications

    for periodical review of spectrumavailability and broad allocation

    policy should be set up.

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    TRAI

    An independent regulatorybody set up in 1997 with aview to assure investors that

    the sector would be regulatedin a balanced, fair andcompetitive manner.

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    The Government proposed toset up an independentTelecom Regulatory Authority.

    It also decided to give statutorystatus.

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    TRAIPowers &Functions

    Need and timing forintroduction of new serviceprovider; (Mandatory for Govt

    to seek recommendation)

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    TRAI

    Terms and conditions oflicence to a service provider;(same as above)

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    Revocation of licence for non-compliance of terms andconditions of licence;

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    Efficient management ofavailable spectrum.

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    3rdOperator

    Entry of 3rd Cellular Operator Public Sector Units viz. MTNL and

    BSNL were to be given CMTS

    licences in the year 1999-2000 as 3rdCMTS operators.

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    4thCMTS Licence in2001

    In terms of NTP 1999, if new operatorsare to be introduced, the same is to bebased on the recommendations by TRAI.

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    The recommendations were:Level of Entry Fee:

    DoT/MTNL as third operator as also the fourthoperator to be introduced will be required to

    pay licence fee by way of share in theirrevenue at the same rate / percentage asrecommended by TRAI for existing CMSPswho were allowed to migrate to new revenuesharing arrangement in accordance with NTP

    1999.

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    Fourth operator will also pay an entry fee whichwill be fixed through a process of bidding.

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    4thCMTS Licence in2001

    Basis of selection of new operators:

    All new operators barring DoT/MTNL beselected through a competitive process bymulti stage bidding process preceded by apre-qualification round.

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    Prospective operators will be required to meetpre-determined criteria in order to qualify tobid for the licence like financial strength andexperience as Telecom Service Provider,minimum roll out obligation, technical plan,

    business plan, payment terms and othercommercial conditions.

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    Prospective bidders meeting threshold criteria willbe short listed for bidding for entry fee in nextstage and no weightage be attached to pre-qualification criteria.

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    4thCMTS Licence in2001

    Entry of fourth operator

    DoT/MTNL, the incumbent in basic services,are to enter the field of cellular mobileservices as the third operator in terms of NTP1999 with the existing availability of spectrum.

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    Market considerations indicate that in mostcircles there is a fair case for entry of thefourth operator.

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    However, more than market the determiningfactor has to be availability of spectrum and itsoptimal utilization.

    Should it be utilized to augment the number ofservice providers or for improving the qualityand coverage of already available services.

    th

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    4thCMTS Licence in2001

    Entry of fourth operator

    A fair balance between the two objectives ofincreasing competition on one hand andimproving the quality, coverage and priceefficiency of the service on the other will haveto be struck so that the larger objective ofproviding quality services at affordable pricesis not jeopardized.

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    A view can be taken in the matter only aftergetting a full report from DoT on quantum ofspectrum being made available for CMSPs,existing as well as proposed new entrants and itslocation.

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    Unified Access ServiceLicence: 2004-2007

    TRAI recommendations: Within six months Unified Licensing regime

    should be initiated for all services covering allgeographical areas using any technology.

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    Existing operators be given option to continueunder present licensing regime or migrate tonew Unified Access Licensing regime in theexisting circles.

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    UASL

    Chairman TRAI by his letter dated14.11.2003 communicated to Secretary,DoT that entry fee for new UnifiedLicensee would be the entry fee paid by

    4th Cellular Operator and in serviceareas where there is no 4th Operator,entry fee paid by the existing BSO fixedby Government.

    This was accepted by DOT. It was alsoapproved that such new licences in thecategory of UASL would be issued onFCFS basis on the basis of applications.

    No guidelines regarding procedure for

    UASL d i 2008

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    UASLs during 2008-2009:

    The recommendations of TRAI dated28.8.2007, received by DoT on29.8.2007, were examined by an internalCommittee of DoT which was constituted

    on 21.9.2007. Pending consideration of the said

    recommendations of TRAI, on 24.9.2007the Minister took a decision to fix a cut-off

    date for the receipt of applications forUASL as 1.10.2007.

    On the same day a Press Release cameto be issued notifying cut off date.

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    Procedures vs Policy

    DoT was required to seekrecommendations of TRAI as to the needand timing for introduction of a serviceprovider. It did not and DoT, on

    17.11.2003, approved formulation ofprocedure for accepting the applicationsfor grant of UASLs. (procedure similar toBSL)

    Further, on 24.11.2003, the Ministerapproved the formulation of procedure forgrant of UASLs on the basis of First

    Come First Served as against through

    Multi Stage bidding process.

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    Procedures vs Policy

    TRAI had specifically stated that grant ofUASL had to be through multi-stagedbidding process, as followed in the caseof 4thCellular operators.

    DoT contrary to the saidrecommendations formulated theprocedure on 24.11.2003 to collect entryfee from new operators at the rate paid

    by 4th operators thus deviating from thepolicy framework of NTP 1999.

    To be referred back to TRAI if notacceptable.

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    Procedures vs Policy

    That new licences in the UASL regimewould be issued licences on the FCFSbasis, was not made known to the public.No new guidelines were issued.

    Entry fee not to be revised - since thematter had financial bearing, concurrenceof Ministry of Finance ought to have beentaken.

    Relating to important Governmentcontracts Ministry of Law and Justice isrequired to be consulted. DOT ignoredthe opinion of Ministry of Law and

    Justice.

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    Procedures vs Policy

    Procedure formulated whereby theprocessing of applications for grant ofUASLs was restricted to only suchapplications which were received up to

    25.9.2007 when the last date forreceiving an application was 1.10.2007,is patently unfair.

    FCFS as adopted by the DoT was not

    consistent with the NTP 1999,recommendations of TRAI and theCabinet decision.

    The FCFS procedure was adopted and

    applied, that too without consistency.

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    C i t

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    Consistency vsDeviation

    Time was extended for rectifyingdiscrepancies in application of IdeaCellular Ltd. dated 4.8.2005 for grant ofUASL for Mumbai service area for over a

    year for Idea Cellular Ltd. and LoI wasissued only on 20.11.2006.

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    Consistency vs

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    Consistency vsDeviation

    While priority of Idea for Mumbai areawas retained from date of its application,subsequent transfer of equity by TataIndustries Ltd. was treated as compliance

    with eligibility requirement. This amounted to violation of laid down

    procedure where in an applicant couldretain seniority though on the date of

    application was ineligible and acquiredeligibility only later.

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    Fair and Transparent?

    At the time of decision taken in the year2003 to consider the applications forgrant of UASL on first come first servebasis, applications from two operators,

    namely, Bharati Airtel Ltd. and TataTelecom Services Ltd., were alreadypending.

    As such FCFS as the basis for grant of

    UASL could have been unfair to otherintending applicants.

    There was no provision for extension ofperiod of compliance. Extension of time

    for compliance with terms of LoI was

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    Fair and Transparent?

    After the decision to grant of UASLs to allapplicants who had applied up to25.9.2007 and to reiterate priority fromthe date of compliance with LoI, was

    made, the first Press Note dated10.1.2008 was issued at about 1.47 P.M.notifying the same.

    It was further notified that DoT has been

    implementing FCFS basis for grant ofUASLs under which initially anapplication, which is received first will beprocessed first and thereafter, if found,eligible applicant will be granted LoI.

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    Fair and Transparent?

    This was never a practice in the past.

    Further, the first Press Note dated10.1.2008 was published on the websitesof DoT and PIB only.

    The first Press Note dated 10.1.2008contained critical information as to drasticchange in procedure followed by DoT.

    The priority already acquired by

    applicants by virtue of date of submissionof applications was to change.

    It was published on the websites withoutpublications in newspapers and without

    individual communications to all the

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    Fair and Transparent?

    On the same day a second press releasewas issued by DoT at about 2.45 p.m.requiring the representatives ofapplicants to collect LoIs on the same

    day between 3.30 p.m. and 4.30 p.m. The second press release requiring the

    applicants to collect LoIs simultaneouslyin effect took away the priority acquired

    by applicants who had applied earlier. This release was very significant as it

    was only after collecting the LoI that anapplicant could comply and the applicant

    complying earlier was to get priority.

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    Fair and Transparent?

    This press release was again publishedon the websites of DoT and PIB.

    No record of individual communicationsto all applicants having been sent is

    available.

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    Fair and Transparent?

    The LoI for grant of UASL issued on0.1.2008 stipulated fifteen days as theperiod within which the terms of LoI hadto be complied with by an applicant.

    Having stipulated the period forcompliance, there was no justification ingranting priority to an applicant, whocomplied with LoI before the fifteen day

    period and/or earlier than otherapplicants.

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    Fair and Transparent?

    Some of the applicants collected the LOIsand also submitted compliance on thesame day.

    Their DD was dated before Jan 10.

    In case Unitech Infra, Volga PropertiesPvt. Ltd., Azka Projects Ltd., AzareProperties Ltd, Unitech Builders &Estates Pvt. Ltd., Adonis Projects Pvt.

    Ltd., Hudson Properties Ltd. while theLoIs were issued on 10.1.2008 andcompliance was submitted on the sameday, the demand drafts for payment of

    entry fee was dated 24.12.2007.

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    Fair and Transparent?

    In case of Idea Cellular Ltd., while LoIwas issued on 10.1.2008 and thecompliance was submitted on the sameday, the demand draft for payment of

    entry fee is dated 8.1.2008. For the first time the procedure for

    according priority to those applicants,who complied with the terms of LoI first,

    was mentioned in the letter of MoCIT tothe Prime Minister dated 26.12.2007.

    The decision in the files of DoT is takenonly on 7.1.2008.

    The decision was made public through

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    The companies

    affectedUnitech Wireless - 22 licences Norways Telenor currently owns

    67.3% of the venture.

    It paid $1.10 billion for the majoritystake

    Unitech holds the remainder.

    Videocon Telecommunications - 21 licences

    Videocon Telecommunications,formerly Datacom Solutions, is part ofIndias Videocon group.

    The companies

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    The companiesaffected

    Etisalat Db Telecom Private Ltd -- 15licences Formerly Swan Telecom, the company later

    merged with itself another firm that had won 2

    licences. Abu Dhabis Etisalat (in late 2008) bought

    about 45% of the company that was thenrenamed Etisalat DB Telecom.

    S Tel Ltd -- 6 licences Bahrain Telecommunications Co owns a stake

    in S Tel.

    Other major shareholder is Indias Siva Group.

    Tata Teleservices -- 3 licences

    In 2008, Japans NTT DoCoMo bought 26% of

    The companies

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    The companiesaffected

    Sistema Shyam Teleservices -- 21 licences Sistema Shyam is a joint venture between

    Russian conglomerate Sistema and Indias

    Shyam Group.

    Sistema owns majority stake of the company,while the Russian government also has astake in Sistema Shyam.

    Idea Cellular -- 13 licences Idea Cellular is Indias No. 4 mobile operator

    by subscribers. It now owns Spice, which was also given 4

    licences in 2008.

    Idea said it is using seven of the 13 licencesto be revoked.

    Loo Telecom Private Ltd -- 21 licences

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    TIMELINE

    2 February 2012: TheSupreme Court verdict cancels122 telecom licences allocated

    to nine companies. Court alsosays first-come-first servedcannot be used to allocate

    natural resources.

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    12 April 2012: The governmentmoves reference signed byPresident Pratibha Patil with

    eight questions. These includejudicial interference in policymatters and whether auction

    as the only method that can beused to allocate naturalresources.

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    10 July 2012: The SupremeCourt starts hearing onpresidential reference by five-

    judge constitution benchheaded by chief justice S.H.Kapadia.

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    Sept 2012: SC on PresidentialReference

    The apex court said auction

    cannot be the only method ofallocating natural resources,maintaining that it should be

    considered on a case-by-casebasis.

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    On the issue of judicialoverreach, a point raised in thepresidential reference, the

    court said all decisions andactions of the governmentwere open to being questioned

    by the court for theirconstitutional validity.

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    Auctions

    Nearly half the spectrumseeing no bids

    The government winning

    revenues of only Rs. 9,407.64crore, instead of the Rs.40,000 crore revenue target.

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    No pan-India bidders forspectrum, which was peggedat Rs. 14,000 crore by the

    Cabinet.

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    Delhi, Mumbai, Karnataka andRajasthan did not receive anybids at all.

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    COALGATE

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    From 2004 to 2009, 85 coalblocks were allocated to 137private companie

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    Allocation process for coalblocks:

    Coal ministry places

    advertisements in newspapersseeking applications from thoseinterested in coal blocks.

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    Companies apply stating theend-use purpose for the coal,along with recommendations by

    state governments.

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    IMGCancellation of theAllocation of Coal Blocks.

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    A far more criticalconsideration is the policyobjective.

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    A critical takeaway from theCAG report in the coal blockallocation relates to the flawed

    process of allocating the coalblocks, and the unjustenrichment that the allottees

    derived

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    CAG report

    Only 28 of the 86 captive coalblocks that were to have begun

    mining operations by 2011-12did in fact begin mining.

    The rest were just squatting on

    their allocations.

    Balance Sheet

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    Balance SheetStrength

    NBFCs played a crucial role bylending their net worth to thesmall time coal block

    applicants for augmenting theirown.

    This was for a fee.

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    Later, these NBFCs exited theconsortium.

    According to Inside

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    gSources

    NBFCs give certificates, sign

    MoUs and charge money togive credentials. There is no

    intent or commitment toinvest,

    SPVEligibility of Pvt

    ProducersNBFC exits

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    Two types of allottees wereable to secure captive coalblocks.

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    Essar Power, Jindal Steel andPower Ltd and GMR EnergyLtd

    along with lesser-known firmssuch as Pawanjay Steel andPower Ltd

    For the blocks that were givenfor free.

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    Big CosSecure Fuelsupplies

    OthersMonetising assets

    Without building the projects theblocks were allocated for.

    NO prohibition on change in

    Equity

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    The investigation agency hasnow included in the probeambit the formation of joint

    ventures of private andgovernment companies to getblocks reserved for

    government entities.

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    Central Bureau of Investigationis set to book atleast 40 privatecompanies soon for allegedly

    misrepresenting the facts andjoint venture group companiesfor securing the captive blocks.

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    In its enquiry against theseprivate firms, the agency hasfound that they had

    misrepresented their net worthand joint venture groupcompanies to secure coal

    blocks in states like Jharkhand,Odisha, Maharashtra and fewothers.

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    Besides private companies,sources say that some officialsof coal, power and steel

    ministry are also under thescanner

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    Many secretaries and jointsecretaries in these ministrieshave been questioned over

    past few weeks.

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    The agency is also planning tocall Congress MP Vijay Dardaand former minister Santosh

    Bagrodia for questioning. Darda and his brother and son

    have already been booked byagency and there wereallegations that his company wasfavoured by government officials.

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    Thank You

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    mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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