Another hurdle to Orascom's Hutch stake buy

In yet another controversy over Orascom's acquisition of 19.3 per cent equity in Hutchison Telecom International (HTIL), the ministry of company affairs has said the former should have mandatorily consulted its Indian joint venture partner "" Essar group "" before signing the deal.

Orascom Telecom's 19.3 per cent stake in HTIL gives it a 12.19 per cent effective holding and board representation in Hutch Essar.

The MCA reply comes after the Essar group wrote to various ministries and the Prime Minister's Office seeking clarifications on whether any direct or indirect equity changes in telecom companies needed approvals or clearances from relevant authorities.

The ministry, in a communication to the ministry of commerce and industry, said according to the new FDI guidelines, the Indian promoter must mandatorily be consulted before the foreign shareholders can sell their share in the parent company.

"According to the law ministry's opinion, 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 the Indian promoters," the MCA said.

The MCA has also called for changes in the telecom FDI guidelines to clarify these issues. "Since the guidelines have been issued by the ministry of commerce and industry and the Department of Industrial Policy and Promotion (DIPP), it is requested that the clarification, as deemed appropriate and necessary, on the issues raised by Essar Technologies may be issued by the DIPP."

On the issue of whether Orascom's stake in Hutchison Telecom International posed a security threat to Hutchison-Essar's operations in India, the MCA has put the ball in the FIPB's court. The FDI guidelines stipulate that the FIPB must screen and approve the investor, the MCA said.

On the other hand, the department of telecom has given a clean chit to Orascom's acquisition of equity in HTIL, and has said it did not pose a security threat to the company's operations in India.