The dispute between Vodafone and the Ruia-owned Essar Group, its 33 per cent partners in Vodafone-Essar, over ownership of BPL Mobile deepened this week after the UK-based telecom major alleged that Essar had altered the share structure of the Mumbai service provider in violation of a 2006 agreement.

The allegations were made in a case that Vodafone inherited from Hong Kong-based Hutchison Telecommunications International Ltd, from which it bought its 67 per cent shareholding, over BPL Mobile.

On September 5, an arbitration panel set up to resolve the issue passed an interim order blocking further share sales in BPL Mobile till the issue is settled.

The UK-based telecom major Vodafone, which acquired its stake in Hutchison-Essar (since renamed Vodafone-Essar) in February 2007, alleged that Essar and its associates allowed Mauritius-based Gypsy Rover to make an investment of around Rs 600 crore (Rs 6 billion) in the company. The date of the investment could not be ascertained.

The company also accused Essar and its associates of making a compulsorily convertible preference share issue of around Rs 95 crore (Rs 950 million) to Gypsy Rover. The allotment, according to Vodafone witnesses, was at Rs 145 per share and took place in October 2007.

Vodafone also alleged that Gypsy Rover invested around Rs 45 crore (Rs 450 million) in BPL Mobile's equity shares in two tranches. These transactions took place at Rs 195 per share, the first on February 28, 2008, and then on March 13, 2008.

A BPL Mobile spokesperson admitted that BPL Mobile has issued around 17 per cent equity to a Mauritius-based company owned by an international institutional fund investing in emerging markets.

But the spokesman said this did not violate any agreement but the company had raised only $80 million or roughly Rs 336 crore to finance BPL Mobile's expansion in Mumbai and for its stake in new licensee Loop Telecom.

Meanwhile, sources said Essar has sought an out-of-court settlement several times, a request that Vodafone has repeatedly refused.

An Essar spokesperson said: "The arbitration matter between BPL and Vodafone Essar is a legacy issue pertaining to a dispute between Hutchison and BPL, which did not get resolved at the time of Vodafone's transaction with Hutchison. This matter...does not impact Vodafone-Essar business. The matter is sub judice and both parties have agreed to let the dispute be settled by the ongoing arbitration."

The spokesperson did not respond to a question on an out-of-court settlement.

The dispute dates back to 2006 when Hutchison was to buy the BPL Mobile from the Ruias for $400 million and merge it with Hutchison-Essar. But Hutchison was unable to get government approvals for the merger on time and the Ruias and their associates argued the deal was off � a position that Hutchison did not accept. The two partners decided to resolve the dispute through arbitration.