Mukesh Ambani, the chairman and one of the promoters of Reliance Infocomm, will forego the Rs 50-crore worth of sweat equity given to him in the company, in a stunning development that removes a serious bone of contention between him and his brother Anil Ambani.

Mr Ambani informed Reliance Communications Infrastructure (RCIL) that he had decided to cancel the 'sweat equity' deal. The issue of discounted shares to him, which happened in April this year, had become a major source of controversy over the past few weeks.

In an interesting side development, there was speculation that an audit firm had been appointed by Reliance Industries (RIL) to examine the procedures followed by RIL in its interactions with Infocomm. An RIL director, when contacted, said he was unable to provide information that late in the day.

RCIL, which is a major stakeholder in Infocomm, has accepted the annulment of shares held by Mukesh Ambani. The company will return the Rs 50 crore to Mr Ambani; this is the amount that was paid by Mr Ambani to RCIL for acquiring the 12% stake in Infocomm, as part of the 'sweat equity' deal.

"For the past few weeks, a sustained campaign has been carried out over the acquisition of 50 crore RIC shares by Mr Ambani. Mr Ambani has sought annulment of this transaction and his request has been accepted by the board of RCIL," an Infocomm statement said.

Top sources close to Mukesh Ambani said the chairman "wants to build a strong company and not increase his personal wealth." Company watchers and analysts say the move will help dilute adverse publicity and possibly improve Mukesh Ambani's image among shareholders and investors.

"This has been one of the roots of the current controversy. The move, we hope, will change public perception. Mukesh Ambani is a builder of world-class assets right from Patalganga days. He is not interested in personal wealth," a top RIL source said.
The issue flared up into a major controversy a few weeks ago when it emerged that the shares, representing about 12% in Infocomm, were given to Mr Ambani by RCIL some time this year, at a huge discount.

The value of the stake is estimated to be over Rs 7,000 crore. Mr Ambani is believed to have bought them for Rs 50 crore.

Sources close to Mukesh Ambani defended the discounted sale, saying that he was one of the promoters and was entitled to preferential treatment. However, sources close to Anil Ambani allege that the shares were actually promised to Mukesh Ambani in '00, at a time when he was not a promoter. Reliance Infocomm and its promoter RCIL also did not exist then.

The 50 crore shares gave Mukesh Ambani a 12% stake in Infocomm, where RCIL holds another 65.3%, directly and indirectly. It directly holds 12%, while the balance 53% is held by yet another RCIL subsidiary, Reliance Communications Technologies.

RIL has a direct holding of 7.6% in Infocomm, but owns about 45% of RCIL. Over the past year, RIL has invested about Rs 12,000 crore in Infocomm. After the announcement, there was heavy spin-doctoring by both sides. Sources close to Anil Ambani termed Thursday's development as a "victory", while sources close to his elder brother portrayed it as a measure taken in the interest of the shareholders and company.

According to the younger Mr Ambani, the issue of giving shares on such terms was neither discussed nor agreed to by the RIL board, though the company is a major investor in Infocomm. He wrote a letter to the RIL board last week, saying that the directors had been kept in the dark about the issue. He has also demanded that the directors discuss the issue in Monday's board meeting.

Sources close to Anil Ambani did not comment on whether this would lead to a patch-up between the estranged brothers. "There are other issues as well, such as the conversion price of Infocomm preference shares issued to RIL. Let us wait and see," the source added.