| Call jam
Mumbai, Aug. 14: The battle between the Ruias and the Hong Kong-based Hutchison Whampoa group appeared to escalate today after Hutchison Essar Ltd (HEL) claimed that it has received regulatory approval for the merger of BPL Mobile Communications with itself.
The Ruias ó who terminated a share purchase agreement with Hutchison Essar on August 1 ó immediately raised a legal quibble by saying that the department of telecom (DoT) had approved a merger between the two entities and not the acquisition of shares by HEL.
The Hutchison group has a 67 per cent direct and indirect stake in Hutchison Essar, while the Ruias own the rest. BPL Mobile Communications, which was acquired by the Ruias in July 2005, provides cellular services in Mumbai, where Hutchison Essar is a competitor.
The Ruias had scrapped the deal with Hutchison Essar for the buyout of BPL Mobile Communications as the regulatory approval had not come through by the July 31 deadline. They also claimed that the approval didn't conform with the requirements of the share purchase agreement that was signed between the two sides in December 2005.
Both sides rushed to Bombay High Court, which is hearing petitions by the two sides. On August 10, the court gave the two sides a 30-day window to start an arbitration process to reach an out-of-court settlement.
Armed with DoTís approval, Hutchison Essar rushed to Bombay High Court seeking a modification of its August 10 order. Hutchison had demanded that the court declare the Ruias termination of the share purchase agreement as illegal. In its earlier order, the court was silent on this issue even as it restrained the Ruias from selling BPL Mobile Communications to a third party.
Responding to the Hutch request, Justice Nishita Mhatre incorporated a modification directing the Ruias not to act upon the termination notice which they had served earlier for the limited purpose of keeping the DoT application valid.
At the same time, the court accepted the argument by BPL Mobile and its shareholders that the acquisition of the shares had to be approved under the DoT guidelines and that the completion of such an acquisition without such permission would be illegal and void.
The court also clarified that its findings were prima facie and would not influence or be binding on the arbitration tribunal. Both sides accepted these clarifications.
The legal nitpicking by the Ruias over the DoT approval for the merger signalled that the two sides would continue to squabble over the issue and that instead of bringing both parties to the negotiating table, it had actually taken them farther away.
The Ruias are asserting that the DoT approval is for the merger of the two companies and that this is not in consonance with the provisions of the share purchase agreement. They argue that HEL should first get DoT's approval for the acquisition of BPL Mobile Communicationsís shares and the go-ahead for a merger should come only in the second stage.
Sources say the Ruias are also emphasising the point that the DoT approval for the acquisition of shares should have come by the July 31 deadline. The original deadline was set for June 30 and was extended by a month. So, the Ruias argue that they were entitled to call off the deal.
Although officials from both the Essar group and Hutch did not comment further on the implications of the DoT order, a clearer picture is expected to emerge once HEL obtains a copy of the order. Sources said that given the current circumstances, a reconciliation between the two warring partners appears remote.
One legal expert said the Ruias may have a point in insisting on DoT approval for acquisition of shares in the context of extant telecom regulations, which stipulate that an operator cannot hold more than 10 per cent of another company that has operations in the same circle. However, some feel that since a merger comes only after an acquisition of shares, the DoT approval means there is no need for an approval for acquiring BPL Mobile Communicationsís shares.