The government move to deny 'security clearance' to Gautam Adani-owned Adani Port & Special Economic Zone (APSEZ), formerly Mundra Port, will obviously hit the private port's ambitious expansion plans in the country. The company's target of 200 million tonne capacity by 2020 from 75 million tonne now looks a Herculean Task, given the mess that the company has entangled in.

Security clearance by home ministry is a mandatory formality for all companies undertaking sensitive infrastructure projects in India and sought on a project-to-project basis. The denial means that the fastest growing private port company in India, with investments in several ports in India and one in Aus tralia, will find it difficult to grow within the country.

The government brought in a `security clearance’ requirement after a slew of Chinese companies successfully bid for India’s port projects. A few years back, a joint venture between Mumbai-based Zoom Developers (it is under corporate debt restructuring, now) and two Chinese partners had won the mandate to develop Vizhinjam Port.

During the same time, a dredging contract awarded to a Chinese company was also abandoned after Indian navy objected to it. Both the bids were subsequently disqualified, and told to go for rebidding. The government later brought in a requirement of `security clearance’ to filter investment from abroad as well as domestic companies with foreign links and suspected fund flow. For APSEZ, the denial has come as a rude shock. Its bids were disqualified in three recent projects.

The first project it was denied clearance was in November 2010, when the company was bidding for Jawaharlal Nehru Port's fourth container terminal.

Subsequently, its bids for a Vizag Port project as well as Vizhinjam Port were disqualified. For Vizhinjam project, APSEZ received all mandatory clearances from other ministries including defence and foreign, but home ministry turned it down.

Earlier in 2010, CBI arrested one of its promoters on a duty evasion case that took place in 2006. Adani had sold some chemical cargo at high seas (which is perfectly legal) and stored it in tanks that are not custom-bonded (which is illegal). The directorate of revenue intelligence (DRI) and other agencies that investigated the issue revealed that the deal was under-invoiced and the cargo was sold at low price to reduce duty payment. This was definitely a serious case against the promoter, and if proven guilty, the promoter should be punished.

But is it a serious crime that threatens national security? When it was denied clearance by home ministry in the JNPT project, Adani had taken the government to court; the ministry said the matter is confidential. The Bombay high court ordered the company to withdraw the plea and asked it to move the shipping ministry to resolve the issue. Despite making a representation to the ministry immediately after that, the company is clueless. It is all hidden in an ever-evasive `confidentiality’ clause.

So what makes the ground for denying security clearance? Money laundering cases, or suspicious money trial that is being investigated by any security agencies could probably make strong grounds for denying security clearance.

Otherwise, the foreign equity owners with dubious background could be reason enough to deny clearance.

Will APSEZ fall in any of these? If there are any such cases, why it is allowed to buy companies abroad? Nobody seems to have any answers. While the government has all the right to hold back: why a security clearance was denied to a company, it needs to tell companies the grounds on which it denies or gives `security clearance’.