Loop investor drags govt to global arbiter

Khaitan Holdings seeks $1 billion in damages for destruction of its investment due to licence cancellation

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Loop Telecom investor Khaitan Holdings (Mauritius) Ltd on Tuesday filed for international arbitration with the Indian government, seeking $1 billion in damages. The company in its notice has sought arbitration over the destruction of its investment after the Indian Supreme Court cancelled Loop Telecom’s licences to offer GSM services in 21 circles in 2012. It has claimed damages for violation of the India-Mauritius bilateral investment treaty.

Khaitan Holdings (Mauritius) Ltd (KHML) holds 26.95 per cent equity in Loop Telecom while the rest is owned by Kiran Khaitan and various domestic Indian investors. KHML has said that Loop Telecom had paid Rs 1,454.94 crore as entry fee for the 21 licences and also financial guarantees worth Rs 812 crore. Loop Telecom had spent another $140 million to make the licence operational. KHML’s official spokesperson confirmed having initiated the arbitration process but declined to give any further details.

A finance ministry official said an inter-ministerial group headed by the telecom minister would take a call on the matter at its next meeting. Loop had earlier offered to negotiate with the government. At its last meeting, the inter-ministerial group had discussed that but Attorney General G E Vahanvati recommended there not be any negotiations and if the company wanted to go for arbitration, it could. KHML has said it has invested $140 million in Loop so far and should be returned the amount with 12 per cent annual interest from the date of receipt of investment to that of realisation. It has demanded that it be compensated for the loss of market value of the licence. The loss, it says, has been demonstrated recently by the government re-auction of the relevant spectrum at a substantially higher value, pegged at $300 million.

KHML has  demanded  its share of the lost shareholder revenue, estimated  in excess of $1 billion, which would have been generated over time by the successful operation of the licences.

The firm has filed for arbitration under the United Nations Commission on International Trade Law and nominated the Singapore-based Francis Xavier SC as its arbitrator. KHML has  offered to hold arbitration outside India, in London or Dubai.

The company has said the Supreme Court held the government process of issuing licences “seriously flawed and legally untenable, as well as its policy being inherently arbitrary” and neither KHML nor Loop Telecom were blamed for that. After its licences were quashed, Loop Telecom decided not to participate in spectrum re-auctions held in November 2012 and March 2013. Russian telecom company Sistema and Norway’s Telenor participated in the re-auctions, after which their threats to invoke arbitration were put in abeyance.