FIPB defers decision on Hutch-Essar buyout

The Foreign Investment Promotion Board (FIPB), which met here today, has deferred taking a decision on Vodafone's application to pick up a 51.96 per cent stake in Hutchison Essar Ltd (now to be renamed Vodafone Essar Ltd). The aggregate foreign interest in the company will be 74 per cent following the completion of the overseas transaction.

Sources said the deferral was on account of the Reserve Bank of India seeking some more time to send in its comments on Asim Ghosh's and Analjit Singh's holdings (who together hold 15 per cent stake in the company).

The board has also decided to call all the parties concerned within a week and seek clarifications on various issues.

It will subsequently meet again, possibly on March 28-29.

It has also decided to have individual consultations with Vodafone, Hutch and Essar group (which holds a 33 per cent equity stake). Sources said that further clarifications will also be sought from Ghosh and Singh, who will also be called for a special meeting.

Earlier this month, the FIPB had written to the RBI asking whether Ghosh and Singh's equity stake was compliant with FEMA regulations.

It had also written to Ghosh and Singh on whether they had not broken the telecom sectoral cap for FDI which is at 74 per cent.

In a strong defence that there has been no violation of foreign direct investment guidelines or that of foreign exchange regulations, Analjit Singh and Asim Ghosh has told FIPB that these shares are held by companies which are 100 per cent owned by them, with unrestricted voting rights, and whose financial benefit which might accrue will be received only in India subject to the provision of capital gains tax and Indian laws. Vodafone it had clarified does not and will not have any voting arrangement in these companies.

Ghosh had also clarified that he has received credit support for his investments (from Hutchison who gave loans ) which have been publicly disclosed but the primary liability for repayment is with his companies.

Defending allegations that he has violated FEMA regulations Ghosh in his letter pointed out that his agreement specifically provides that any transfers(if he wants to sell his shares for example) can be exercised if complaint with the Indian laws and with the approval of the competent regulatory agencies. He adds"therefore the agreement inherently safeguards against any contravention of FEMA or telecom sectoral cap".