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Mumbai, Aug. 2: The spat between the Ruias and the Hong Kong-based Hutchison group — which has been escalating over the past six months as both sides adopted sneak stratagems to assert control over Hutchison Essar Ltd — today landed in the courts.
The Hutchison camp hauled the Ruia-owned Essar group to the Mumbai high court to thwart the latter’s attempt to call off the sale of BPL Mobile Communications, the cellular service provider in Mumbai, to Hutchison Essar Ltd.
The Ruias have a 33 per cent stake in Hutchison Essar, while the Hutchison group holds 66.99 per cent in direct and indirect shareholding.
The Hutchison group wanted the court to restrain Essar from selling BPL Mobile Communications to a third party and challenged the validity of the termination notice issued by the Mumbai-based conglomerate.
In July 2005, the Essar group acquired BPL Mobile Communications and a sister concern BPL Cellular Ltd, which provided cellular services in Maharashtra, Goa, Tamil Nadu and Kerala, for about $1 billion from Rajeev Chandrashekhar and the Nambiar family.
In January this year, the two companies were formally merged into Hutchison Essar but this was subject to regulatory approvals.
The department of telecommunications (DoT) cleared BPL Cellular’s merger with Hutchison Essar and it was assimilated into the company. But the approval for the BPL Mobile Communications merger didn't come through by the July 31 deadline and the Ruias promptly called off the sale, sparking consternation in the Hutchison group.
Justice Nishita Mhatre has adjourned the hearing on the Hutchison petition till tomorrow.
Officials from both Hutch and Essar refused to comment on the latest developments saying that the matter was sub-judice. However, it is learnt that Essar is likely to challenge Hutchison's petition as it feels that its actions are within the legal boundaries that are spelt out in the agreement.
Sources close to the Essar group maintain that the agreement provides for termination by any party if the transaction cannot be completed within the stipulated time. They add that since the deal could not be completed by July 31, Essar decided to terminate the agreement. Essar is the largest Indian shareholder in Hutchison Essar Ltd.
Sources added that Essar had received a deposit from HEL for the deal. Essar executives refused to spell out how much was paid but it is believed to be around Rs 1,500 crore.
Essar is understood to have offered to refund the deposit according to the terms of the agreement.
They contend that on a previous occasion Hutchison Essar's bid to acquire Aircel — the cellular service operator in Tamil Nadu — fell through when it failed to receive government approvals. That deal was also called off because approvals were not received.
In December 2005, Aircel was sold to Maxis from Malaysia at a much higher price by C. Sivasankaran. Sources recalled that in the Aircel case, Hutchison Essar had not gone to court and allowed the agreement to lapse.
Hutch officials also refused to comment on the latest developments but it is evident that they do not want to let the deal slip through. Sources close to the multinational say that the deal could have been extended further till the approvals come through.
After terminating the agreement, sources said that Essar is considering making fresh investments in BPL Mobile as part of its plan to build the brand further and expand in the Mumbai circle. Meanwhile, DoT sources in Delhi repudiated the suggestion that they had dithered on granting approvals under pressure from some quarter.
They said the applications for the merger of the two BPL companies with Hutchison Essar had been filed at different times. While the merger of BPL Cellular Ltd had been cleared, the application for BPL Mobile Communications was pending clearance because it had been filed later.
Sources add that the agreement provides for refund of deposit within five days from the date of termination of the agreement.
Essar and its associates had entered into an agreement in September last year with Hutchison Essar for the acquisition of Mumbai and three other circles. The agreement provided that the transaction should be completed before June 30. The three circles were purchased by HEL in January this year.
BPL Mobile is one of the leading cellular operators in Mumbai with over 1.5 million customers.
The officials said it was up to the high court to clear mergers and the relevant changes in the telecom licence were just a routine formality.
Clearly, the Ruias had different ideas - and this could partly stem from the fact that they weren't informed when Hutchison Telecom International Ltd (HTIL), the nominal parent of Hutchison Essar Ltd, didn't take them into confidence when it sold a 19 per cent stake to Orascom of Egypt in December 2005. The Egyptian company thereby acquired an indirect 10 per cent stake in Hutchison Essar and the right to appoint a board member, which hugely upset the Ruias.