Hutchison row: Govt supports Essar

In the midst of a controversy over foreign shareholding in telecom joint venture Hutchison-Essar, the Company Affairs Ministry has come out in support of Essar by asking FIPB to change guidelines that allow greater say to the Indian partner in the consultative process.

Referring to the opinion of the Law Ministry, the Company Affairs Ministry requested the Foreign Investment Promotion Board for "clarification as deemed appropriate and necessary on the issue raised by Essar shareholding."

Raising the issue of the sale of foreign equity by Hutchison to Orascom, Essar had written to the government in January seeking clarification on certain provisions contained in the guidelines issued by Ministry of Commerce and Industry, Department of Industrial Policy and Promotion.

It appeared from the opinion of the Ministry of Law on the query that the word "consultation" appearing in the guidelines does not mean "mere opinion seeking." "It implies meeting of minds, which has to be achieved through an integrated, participatory consultative process with Indian promoters," Ministry of Company Affairs said in its communication to Ministry of Commerce and Industry.

As far as modality to enforce this requirement was concerned, it could be achieved by "making necessary arrangements in the Articles of Association of the licensee company." Ministry of Company Affairs also said that screening of investor and FIPB approval prior to sell stake should be made mandatory to take care of security related issues.

Sale of over 10 per cent equity in Hutchison-Essar by foreign partner to Egypt's Orascom had prompted the Indian partner to ask government if clearance was required for the deal.

Essar, which was kept out of the loop about the Orascom deal, wanted to know from the government whether sale of equity in an Indian telecom JV by a foreign partner to another foreign company, directly or indirectly, necessitated approval and regulatory clearance, including from FIPB.

Essar had alleged that sale of stake without the consent of serious Indian investors in the telecom company, could constitute a serious threat to national security.

And "it will be difficult to hold serious Indian investors responsible in a situation where the entire shareholding pattern has changed without the consent of the Indian investor," Essar had said.

Ministry of Company Affairs forwarded Law Ministry's opinion to the ministry of Commerce and Industry last week for further action by the FIPB.