Hutch holding under probe

FIPB checks if applicable FDI limits have been breached.

Apprehending that the foreign investment cap in Hutchison Essar Ltd has been breached, the government is inquiring into its equity structure.

The move has been triggered by the spat between the promoters over the equity structure of the company "" India's fourth-largest mobile operator.

The Foreign Investment Promotion Board (FIPB) is trying to track the goings-on in the company on this front. The board had received a plea from Essar Teleholdings Ltd on July 14, asking it to not take notice of Hutchison Essar's disclosure on its direct and indirect FDI holdings on March 7, 2006.

At a meeting the same day, the board took note of the changes in the equity position as per the Hutch communication.

It also took note of the communication received from Essar, which holds 33 per cent in the joint venture, seeking more time to submit its own revised equity structure.

However, the board did not approve the Hutchison application, and asked for more details to be submitted within two weeks.

The differences between the two partners centre around Essar Teleholdings' claim that its Hong Kong-based partner Hutchison Telecom International Ltd has not informed the government about changes in the indirect foreign shareholding in Hutchison Essar Ltd which have taken place after March 7, 2006.

Essar has said that a number of changes have occurred in Essar holding companies since that time.

"Since Hutch holds a majority stake in the JV, only it should communicate the change in equity holding to the FIPB, within six months of such a change taking place. The FIPB has sought an explanation from Essar regarding its communication. The company, on its part, has said that there are some technical details which it is looking into, and that this was the justification for seeking the deferment," an official said.

Officials added that there was doubt in some quarters about the equity structure of the mobile operator being within the norms.

"A decision on the case will now be taken at the highest level, once all details are made available by the month end," they said.