SRK questioned for 4 hours in forex case
What's the story
The Enforcement Directorate (ED) questioned Shah Rukh Khan for 4 hours regarding a violation of the Foreign Exchange Management Act (FEMA). The case, dating back to 2008-2009, pertains to the share sale of Knight Riders Sports Pvt Ltd. (KRSPL) to the Mauritius-based company, Sea Island Investment (SIIL). The ED is investigating allegations that the 5 million shares sold to SIIL were undervalued.
Shares
Share division in KKR
At the time of incorporation in 2008, Shah Rukh Khan-owned Red Chillies Entertainment held 9,900 shares of KRSPL. In March 2009, Red Chillies sold 5 million KRSPL shares to Mauritius-based Sea Island Investment Ltd. SIIL also bought all 4 million KRSPL shares held by Juhi Chawla for Rs.4 crore. As of now, Red Chillies holds 11 million and SIIL owns 9 million KRSPL shares.
Do you know?
Sea Island Investment Limited
The Mauritius-based company, Sea Island Investment Limited (SIIL) is owned by Jay Mehta from the Mehta Group. Interestingly, Jay Mehta is the husband of actress and KKR promoter Juhi Chawla.
FEMA
The Foreign Exchange Management Act
As per Foreign Exchange Management Act (FEMA) guidelines, the price of shares issued to individuals residing outside India should not be lower than the price shown under the regulations set by stock market regulator SEBI. However, an audit of the deal by an external firm in 2014 led the ED to conclude that value of shares owned by SIIL was inconsistent with price guidelines.
Data
Valuation of the forex violation
The audit of the KRSPL share sale to SIIL, conducted in 2014, showed that the shares were 8-9 times undervalued. The resulting foreign exchange violation is estimated to be around Rs.100 crores.
Violations
Alleged violations in sale of KKR shares
The ED, in 2010, started investigating allegations that the KRSPL shares sold to SIIL in 2008 were undervalued . According to an audit report, equity shares of KRSPL were issued to SIIL at Rs.10/share, when the fair value was estimated to be Rs.73- Rs.86/share. Juhi Chawla's KRSPL shares were also transferred to SIIL at Rs.10/share, when the fair value was an estimated Rs.83- Rs.99/share.
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SRK summoned for the third time
Shah Rukh Khan had faced the Enforcement Directorate once in 2011 when investigations regarding KRSPL share sales had just begun. He was summoned again by ED in May 2015, and the latest summon marks his third session with the ED.