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BW Businessworld

Preventive Measures

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It feels like collateral damage. In its investigations of the 2G spectrum scandal, the Central Bureau of Investigation (CBI) alleges that the Ruias of Essar have violated regulations that prevent a telecom company from owning more than 10 per cent in another.

In papers submitted to the Supreme Court, the CBI says Essar held more than the stipulated amount in Loop Telecom, a much smaller player (Vodafone has since bought out Essar from their jointly owned firm). The Ruias claim their share was, and is only 2.15 per cent.

Ravi Ruia, hitherto chairman on Essar Energy that owns the group's refining and power assets and is listed on the London Stock Exchange (but not in India), stepped down from the company's board, as did Anshuman Ruia, son of older sibling Shashi Ruia. (Kiran Khaitan, who is co-promoter of Loop Telecom, is married to their sister.)

Why did Ravi step down from the helm of an unrelated firm? The UK's Financial Services Authority has a ‘fit and proper' test for people who hold executive positions in firms listed in the UK (Essar Energy, in this case): it defines standards of honesty, integrity and reputation. According to FSA rules, any company official who "has been notified of any potential proceedings or any investigation leading to those proceedings" by any government may have to step down if the reputation of the firm is threatened.

Think of Ravi Ruia's stepping down as reputational risk management; following Essar Energy's successful £1.3 billion listing, the group plans to list their infrastructure assets for about £460 million soon. So far, the FSA hasn't said anything; but pre-emption is better than cure.

(This story was published in Businessworld Issue Dated 02-01-2012)

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