More spanners in Vodafone deal

Law ministry tells finmin to inquire into the acquisition of Hutchison-Essar further.

In a move that would add to delays in closing Vodafone's acquisition of Hutchison-Essar, the law ministry has told the finance ministry that the company's shareholding pattern can be investigated further.

The finance ministry had referred the matter to the law ministry late last month, seeking its opinion on several issues, principally the shareholding structure of Hutchison-Essar and a possible breach of foreign direct investment (FDI) norms laid down for telecom service providers.

This follows a public interest litigation filed by NGO Telecom Watchdog in the Delhi High Court earlier this year. The court had ordered the Foreign Investment Promotion Board (FIPB) to consider and decide on the issue in two months.

The FIPB, which comes under the finance ministry, has convened a meeting on April 12 to discuss the issue.

In its letter of April 2, the law ministry has said that since the matter involves complex issues, the opinion of the Attorney General could also be sought.

Sources close to the developments said the law ministry felt that Section 247 of the Companies Act, 1956 provides for investigation of ownership of a company, where it appears to the central government that there is a good reason to do so.

The government can appoint inspectors to investigate and report on the membership of a company, to determine who controls or materially influences its policies.

Questions have arisen over the stakes of Hutchison-Essar Managing Director Asim Ghosh and Analjit Singh, who owns the healthcare and life insurance group, Max.

These stake were held on behalf of overseas owner Hutchison through a complex set of deals and could breach the 74 per cent FDI cap for telecom services.

Vodafone of the UK, the world's largest telecom company, had signed an agreement in February to acquire a controlling stake in Hutchison-Essar for $11.1 billion in cash.

The company, which was planning to rename the Indian company Vodafone Essar, had also announced an investment of $2 billion in the company in the next couple of years.