NGO says Vodafone violated FIPB norms

Telecom Watchdog, a non-governmental organisation (NGO), has moved the government alleging that the British telecom company Vodafone violated Foreign Investment Promotion Board (FIPB) norms at the time of acquisition of majority stake in Hutchison Essar (HEL), now Vodafone Essar.

In a letter to the Department of Telecommunications (DoT), the NGO has accused Vodafone of buying 15.03 per cent stake held by certain individuals in HEL over the prescribed limit.

This could be verified from the regulatory filings that Vodafone has made abroad, Telecom Watchdog alleged in the letter, a copy of which is in possession of Business Standard.

The government, while granting Vodafone permission to acquire 51.96 per cent share in HEL on May 7, 2007, had prohibited the company from "transferring financial and economic holding/interest of 15.03 per cent shares in HEL to a foreign company," it said.

However, on getting approvals from the government for acquisition, Vodafone made the payment, which also included the prohibited 15.03 per cent shares.

When contacted Telecom Watchdog secretary Anil Kumar confirmed the development and said, "DoT will not take any action, but still we feel it is our duty to bring it to the government's notice." Senior executives of Vodafone Essar said they cannot comment on a letter which they have not seen.

The NGO has also alleged that Vodafone has kept $352 million as retention money for "undisclosed purposes under a retention deed dated May 8, 2007, entered into between Vodafone and Hutch".

This money could be used for bribing government officers and for undisclosed liabilities, the NGO fears.

The letter follows an earlier petition filed by the NGO in the Delhi High Court in March this year. The NGO had challenged the acquisition of HEL by Vodafone, citing that the new telecom entity would be having over 89 per cent foreign shareholding.

This, according to Telecom Watchdog, is against the 74 per cent cap on foreign direct investment (FDI) in the telecom sector.

The next hearing of the case is scheduled for January 24, 2008.

In February this year, Vodafone acquired 67 per cent stake in HEL for around $11.1 billion. The remaining 33 per cent is held by the Ruias and certain individuals.