CHENNAI, July 23: The Central Bureau of Investigation has initiated a probe into the public sector telecom giant Videsh Sanchar Nigam's deals with Elnet Technologies Ltd (ETL).

The Chennai-based ETL was promoted by Thiagaraj Chettiar, now wanted by the Tamil Nadu police for alleged financial irregularities involving ETL and Elnet Ltd when he was the managing director of both companies.

The CBI has sent two letters to BK Syngal, chairman and managing director of VSNL, seeking clarifications on certain transactions between VSNL and ETL during Chettiar's regime.

The bureau is said to be probing two agreements between VSNL and ETL, in which the former had allegedly granted certain questionable benefits to the latter.

The first of these agreements, signed in January, 1996, authorised ETL to sell and maintain GEMS 400, VSNL's e-mail product, in the country's four metros. Under this agreement, ETL was to give VSNL an upfront sum of Rs 1.50 crore and Rs 2.50 crore for the first two years respectively, besides 15 per cent of the profits for both years. However, ETL did not make any headway.

Subsequently, VSNL cancelled this agreement at ETL's behest. For the period January to August, 1996, when the first agreement was operational, ETL should have paid VSNL a sum of Rs 1 crore (on a pro rata basis for eight months). However, VSNL agreed to a one-time settlement of Rs 25 lakh.

VSNL officials assert that there were valid business reasons for this agreement to be terminated and a new one drawn up. ``We stand by all our decisions as they are perfectly justifiable both on technological and commercial grounds,'' a top VSNL official said.

As for accepting just one-fourth of what was due to them, the official claimed that Rs 25 lakh was not unreasonable, since ETL had ``verbally communicated'' its desire to pull out in June, 1996, itself, which meant that only six-month dues were to owed.

But in September, 1996, VSNL apparently decided to rework the deal and drew up a second agreement with Chettiar's company. This time, upfront payments were completely eliminated. Instead, ETL was to have parted with 70 per cent of GEMS 400 revenue to VSNL.

This second agreement was to have been signed first by Chettiar and returned to VSNL for its signature. Though he signed it, the agreement was not sent to VSNL. By this time, Chettiar's activities had exploded into the public and he absconded.

VSNL officials justify the benefits given to ETL in this second agreement. ``The advent of the Internet changed the business environment for e-mail products. The exclusivity clause was also dropped in the second agreement. Obviously, we had to discount these,'' argued a top official.

Nevertheless, VSNL appears to have hit the panic button with CBI's entry into the picture. Syngal, along with Amitabh Kumar and RK Gupta (both directors), flew down to Chennai last Thursday for talks with ETL officials.

According to VSNL sources, the discussions centred around getting ETL's consent for accepting that the first agreement was still in force, as its termination had ``not been legally complete,'' and the talks were ``very cordial.''

This is intriguing because documentary evidence available with ETL reporedly shows that VSNL had already accepted Rs 25 lakh through three cheques issued between September, 1996, and January, 1997, as final settlement.

The VSNL view during the talks was that the first agreement was still valid. And even if it had been terminated, the amount due to VSNL in the final settlement was Rs 1 crore.

Sources say that ETL officials refused to oblige, as this would have landed the company with an additional financial obligation to VSNL. In fact, the positions of the two sides are understood to have been so diverse that two sets of drafts of the minutes of that meeting have been circulated.

As a follow-up, a senior VSNL official again met ETL officials on Monday, reportedly to persuade ETL to sign VSNL's version of the minutes. But sources said this was refused since the VSNL draft "was not reflective of the proceedings". No independent confirmation of the two sides' positions was available.

The validity of the first agreement seems to be the bone of contention between VSNL and ETL. When contacted, a top VSNL official conceded that the first agreement was terminated. ``But our legal opinion points out that the termination was not legally complete,'' he argued.

ETL officials, when contacted, refused to comment.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.