A corruption charge against Air Asia’s CEO could mean trouble for the Tatas, too

In hot water.
In hot water.
Image: AP Photo/Tsering Topgyal
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Air Asia CEO Tony Fernandes has been booked for alleged bribery and corruption by India’s premier probe agency, the Central Bureau of Investigation (CBI).

The CEO of the Malaysia-based low-cost airline, which operates in a joint venture with the Tata group in India, has been accused of trying to secure government approvals reportedly through “non-transparent means.” The Tata group nominee on the board of Air Asia India, R Venkataraman, has also been named in the first information report (FIR).

The charges

The allegations date back to actions in 2014 when airlines in India were not allowed to fly overseas without meeting at least one of two requirements: five years of domestic operations or a fleet size of 20. The rules were proposed to be changed by the then Congress-led United Progressive Alliance government at the behest of Air Asia India. However, the move was stalled by the announcement of election dates, a CBI official reportedly said.

In India, the government is not allowed to make policy changes once the election dates are declared. While the rules were amended in 2016 by the Narendra Modi regime, Air Asia is yet to bag the licence for international flights as the airline does not have the required minimum fleet.

The CBI FIR will strengthen an ongoing case against Air Asia India in the Delhi high court filed by Subramanian Swamy, a member of parliament from Modi’s Bharatiya Janata Party (BJP). Swamy’s petition, filed in 2016, sought to cancel the airline’s licence in India on the grounds that it was allegedly obtained by fraud.

India’s foreign direct investment (FDI) policy allows international firms to own only a 49% stake in domestic airlines, with the Indian partner holding a 51% stake as well as “effective management control.” According to the CBI report, as well as Swamy’s petition, the norm was flouted as the effective control under a “brand licensing agreement” went to the Malaysian company and not India’s Tata group.

“It is further revealed that the shareholders and Indian partners in the joint venture, including the board members, were not only aware of these intentions, but also consciously ensured violation of existing FIPB (foreign investment promotion board) norms, hence violation of FDI norms were prima-facie found by giving effective management control to a foreign entity,” the CBI’s FIR reportedly said.

Swamy had also written twice to prime minister Narendra Modi seeking a probe by the special investigation team against former Tata Sons chairman Ratan Tata for alleged criminal offences in relation to operations of the group’s two airline businesses, Air Asia India and Vistara.

Besides the flouting of FDI norms, the CBI has alleged that the company also paid bribes for favours and named Rajender Dubey, director of Singapore-based HNR Trading, Sunil Kapur, chairman of Mumbai-based Total Food Services, and Deepak Talwar, founder of New Delhi-based DTA consulting, as alleged lobbyists.

The Malaysian airline, however, has denied all charges.

“AirAsia India Limited refutes any wrongdoing and is co-operating with all regulators and agencies to present the correct facts. In November 2016, AAIL had initiated criminal charges against its ex-CEO and had also commenced civil proceedings for such irregularities. We hope to bring early resolution to all such issues,” Shuva Mandal, Director, AirAsia India, said in a statement.

This is not the first time that charges of financial misconduct have surfaced at Air Asia India. In October 2016, Cyrus Mistry, the ousted chairman of Tata group, had alleged that fraudulent transactions worth Rs22 crore ($3.2 million) had been carried out in the Indian joint venture. The case is under trial at the National Company Law Tribunal.