The 12 per cent sweat equity that Reliance Industries' chairman and managing director Mukesh Ambani acquired in Reliance Infocomm in March/April this year resulted from an option given to him nearly four years earlier by an entirely different company, called Macronet Private Limited.

Reliance Infocomm did not exist when the sweat equity option was given; nor did Reliance Industries have any investment in Macronet at the time.

The Reliance 'ownership issue'

Further, the value of the sweat equity option, at the time it was given, was Rs 360,000(12 per cent of Macronet's capital base of Rs 30 lakh). By the time the option was exercised in 2004, this became Rs 50 crore (Rs 500 million) at face value.

The directors of Macronet in July 2000, when the sweat equity option was given to Ambani, were Ajeet Verma (a former Bank of India official who now works for Reliance Energy) and Ashok Jain (an accountant in a Reliance group firm).

Mukesh Ambani joined the board as managing director in July 2000. Around the same time, Manoj Modi, a close associate of Mukesh Ambani, also joined the company as a director.

The two companies involved went through a series of transformations. Macronet was renamed Reliance Infocom (spelt with a single 'm') in November 2000, and then Reliance Communications Infrastructure Ltd (RCIL) in March 2002, by which time it was investing in the hardware backbone for the Reliance telecom venture.

Along the way, Reliance Industries invested over Rs 2,330 crore (Rs 23.3 billion) in RCIL, but Mukesh Ambani never exercised in this firm the stock option that had been given to him in July 2000.

On a separate corporate track, there existed a firm called Reliance Infocomm (with two 'm's), which was merged into another firm called Reliance Information Communications, which was immediately renamed Reliance Infocomm.

Both Reliance Industries and RCIL have invested in Infocomm, which now handles the telecom business. It is this firm, in which the original Macronet (now RCIL) holds the majority stock, which eventually gave Mukesh Ambani his sweat equity.

Asked why Ambani had taken sweat equity in one company when it had been offered to him in another, a senior Reliance group executive said, "The sweat equity arrangement was such that Mukesh Ambani would be offered 12 per cent sweat equity in the company which would run the voice business. Since Reliance Infocomm now runs the voice business, the offering of sweat equity in Infocomm to Mukesh Ambani was in line with the arrangements arrived at between him and Macronet."

Asked whether the existence of Mukesh Ambani's sweat equity option had been disclosed to RIL when it invested first in RCIL and then in Infocomm, the executive said: "Reliance Industries had invested in the Infocomm business three or four months after the sweat equity arrangement was arrived at. Reliance Industries knew about the arrangement from the very beginning of its investment. The allegation that Reliance was kept uninformed about the sweat equity arrangement is baseless."