The Foreign Investment Promotion Board has expressed dissatisfaction with the replies given by Hutchison Essar, its Hong Kong-based parent Hutchison Telecom International and Vodafone to key questions related to the shareholding structure of the country's fourth largest mobile operator.

At its last meeting on March 29, attended by representatives of these companies, the FIPB also took the view that the companies could not give "a satisfactory reply" on the unfettered right of disposal of the 15 per cent shareholding held by Asim Ghosh, Analjit Singh and IDFC in Hutch-Essar.

The race for Hutch-Essar

According to official sources, the companies "could not also repel the suspicion raised by the Board" that the agreements entered between the foreign collaborators (which are also the guarantors), lending institutions and the Indian companies are of a nature that provide independence to the Indian shareholders.

"It does not provide independence to the Indian shareholders in the matter of right of disposal, nor allow the Indian shareholders the right to enjoy the complete "usufructs" of the assets." (The word usufruct refers to the right of using and enjoying the profits of an estate or other things belonging to another, without impairing the substance).

The FIPB also felt that the companies could not "satisfactorily clarify" as to how in all media pronouncements as well as findings made before the Hong Kong and US regulators, the transaction between Vodafone and HTIL was shown for 67 per cent equity value of Hutch Essar Ltd while the application before the FIPB is about the transfer of 52 per cent stake in Hutch Essar.

During the meeting, in which Vodafone told the FIPB that "speed was of essence in the Hutch Essar deal", HTIL's legal representative quoted two Supreme Court judgments and argued that "providing loan" or "guarantee" cannot be taken to imply "benami transaction".

In rebuttal, the FIPB quoted two other SC judgments' that lay stiffer determinants of benami transactions. Those rulings hold that the true character of a transaction is governed by the intention of the person who has contributed the purchase money and the motives governing their action.

Ending the meeting, the FIPB concluded that a "conclusive examination regarding the true nature of ownership of the Indian shareholding of 15 per cent and compliance with FDI norms as per Press Note 5 of 2005" was required.