Based on the recommendation of the Foreign Investment Promotion Board (FIPB), the government has deferred a decision the proposals of Analjit Singh and Asim Ghosh to part-sell their minority stakes in Vodafone Essar.
On October 30 this year, the FIPB had recommended that a decision their move be deferred as, among other things, the Department of Revenue had objected to the proposals on the ground of "treaty shopping", or tax avoidance, highly-placed sources told PTI.
In the domestic context, treaty shopping refers to cases where investors use the Mauritius route to bring in investments, taking advantage of the double-tax avoidance treaty between the two countries.
Sources also said the Department of Industrial Policy and Promotion (DIPP) has sought more time in taking a decision saying that they are in the process of examining the same.
Meanwhile, the FIPB has directed the DIPP to examine the comments of the Department of Economic Affairs (DEA), which had held that the proposals 'technically conform' to FDI guidelines on the issue of "Indian control" of the companies involved.
The DEA, however, is believed to have opined that the numerous holding companies through which Singh and Ghosh hold stake in Vodafone Essar, are all shell companies.
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Singh and Ghosh want to sell 49 per cent each of their holdings in these two investment companies that indirectly own stakes in Vodafone Essar.
The proposals from the duo entail an FDI inflow of Rs 533 crore through Analjit Singh's Scorpio Beverages, and Rs 330 crore through AG Mercantile, owned by former Vodafone Essar Managing Director Asim Ghosh.
The proposals also involve another firm, Telecom Investments India (TII), which is the holding company of Vodafone Essar, in which Singh and Ghosh hold 38.78 per cent and 23.97 per cent stake, respectively, through a host of investment firms including Scorpio Beverages and AG Mercantile.
The Mauritius-based CGP India, an indirect subsidiary of Vodafone, holds the rest 37.25 per cent in TII.
Ghosh is seeking to reduce his holding in Vodafone from 4.68 per cent through AG Mercantile. Post clearance, his stake will come down to 2.39 per cent.
Singh, through three of his companies, has an effective shareholding of 7.58 per cent in Vodafone-Essar. After the transaction, his holding will fall to 3.87 per cent.
A decade ago, Singh had sold most of his stake in Hutchison Max for Rs 560 crore which eventually became Hutchison Essar and later to Vodafone Essar.