The government has decided to cancel only three out of five business licenses of Kashi Stores in contravention of the rules
In another twist in the tale of Kashi Stores issue, the government has cancelled only three business licenses instead of its five licenses.
Earlier, the ministry of economic affairs issued an order to cancel all the five business licenses of Kashi stores on the basis of its involvement in a blatant case of fronting.
“The licenses that Kashi Stores will keep will be determined by us,” said the director general of Department of Trade, Sonam P Wangdi.
According to the rules and regulation for establishment and operation of industrial and commercial venture in Bhutan, 1995, all the licenses of Kashi Stores should be cancelled. But latest decision goes against the law.
The Kashi business house has violated rule number 29 and 33 of the rules and regulations for establishment and operation of industrial and commercial venture in Bhutan, 1995, but not the fronting rule.
Rule number 29 states that any foreign partnership or collaboration in industrial and commercial ventures in Bhutan will require a prior written approval of the economic affairs ministry.
The violation of this rule will result in immediate closure of the industry/business and cancellation of the license.
Rule 33 states that the licensee should abide by the companies Act, 1989, construction development board rules and regulation, 1992, mining rules and regulation/mining Act, Chathrim for wage rate, recruitment agencies and workmen’s compensation 1994, temporary contract license rules and regulation, 1994, and all other rules and regulations governing trade, commerce and industries in Bhutan as issued by the government.
According to Sonam P Wangdi, Kashi Stores was not a case of fronting but indirect fronting. “We found out that Kashi Stores’ case was an investment without permission,” he said.
“Kashi violated the rule number 29 and 33,” he said.
“It was a case of illegal investment not a direct fronting,” said the secretary of ministry of economic affairs, Dasho Sonam Tshering.
Business Bhutan learnt that Kashi Stores’ owner voluntarily surrendered the license after the fronting committee in Phuentsholing exposed the case. But later Kashi appealed to the minister of economic affairs and reasoned that he did not surrender the license but his son had done it.
It was ordered that the Kashi case be restudied and a committee was formed inside the ministry to do it. After thorough investigation, the committee recommended cancellation of all the five business licenses and also found out that Mr. R.S Agarawal himself had surrendered the license and not his son.
But the case was further discussed during a GNH Committee meeting, the highest decision making committee under the economic affairs ministry. Business Bhutan learnt that the decision to cancel three business licenses was in compliance with the decision of the cabinet.
The Kashi Stores issue was discussed by the cabinet ministers along with the Gelephu fronting case. The proposal to study the latter case was put forward by the government of India.
In Gelephu, four fronting cases were discovered involving four Indian businesses following which their business licenses were cancelled. The involved Indian businessmen approached the Indian embassy and the Indian consulate and the issue was discussed in the cabinet.
The Kashi Stores case was exposed by the fronting committee in Phuentsholing following an investigation into the defunct Mega Private Limited. It was found that Mega Pvt. Ltd. had a hidden Indian business partner whose name was not mentioned in the license of the company.
It was exposed following a dispute among the three partners of Mega Pvt Ltd and a secret agreement among the partners was revealed in a court of law. The agreement showed the existence of a fourth partner, R.S Agarawal, the owner of Kashi Stores in Phuentsholing.
The agreement made R.S Agarawal one of the four directors of the company and gave equal legal rights as others and the legal rights to 25% of the profits. However, in the articles of incorporation of the company shown to the ministry, the fourth partner is shown to be a Bhutanese man, Ugyen Samdrup, in place of R.S Agarawal.
After the expose, the Ministry of Economic Affairs issued the order to cancel all the business licenses of Kashi Stores and gave a deadline till December 31, 2011, to wrap up the business in Phuentsholing.