Hutch stake: Law ministry now puts ball in AG’s court
THE ministry of law in its final report to the finance ministry has said that the Attorney General will take the final call on whether the 12.26% stake in Hutchison-Essar (HEL), held by its MD Asim Ghosh and Max India chairman Analjit Singh, is in violation of the Foreign Exchange Management Act (FEMA) and the country’s FDI norms. While the law ministry’s draft report has recommended that the government may appoint one or more inspectors to investigate and report on the ‘true’ ownership of the company, this has no mention in the final report. The draft report also said that it was open to the concerned ministry to get the matter further investigated to find out the extent and nature of control, financial interest and the power to influence the policy of HEL by Mr Ghosh and Mr Singh. This point also, however, does not feature in the final report. Last month, the finance ministry had consulted the law ministry after RBI had said that Mr Ghosh and Mr Singh’s 12.26% shareholding in HEL amounted to violations of FEMA and FDI norms. The law ministry, in its latest report, has said that the AG’s opinion would be sought on four issues. First, if Mr Singh’s and Mr Ghosh’s holdings amount to benami transactions since Hutchison International had provided funds to the duo to buy their holding. Second, since neither Hutchison-Essar nor Mr Ghosh and Mr Singh had filed any declaration about holding beneficial interest in the Indian companies’ shares under Sec 187-C of the Companies Act, the AG must decide if there has been a violation of Press Note 5. Third, whether HTIL and now Vodafone can be said to have holdings in two Indian companies on the ground that it is financially interested in both these companies, and can therefore control and materially influence the policy of these companies. Lastly, if there has been a breach in the country’s FEMA and FDI guidelines. In February, UK-based cellular major Vodafone had announced that it reached a deal with Hutchison International (HTIL) to buy its 67% stake in HEL for $11.1 billion. The FIPB has so far deferred the clearance for Vodafone’s acquisition of Hutch-Essar twice and has sought additional information from all stakeholders on the shareholding structure of the company. Sources said that FIPB would take a call on Vodafone’s application only on receiving conclusive replies from both the finance ministry and the law ministry on the extent of foreign holding in HEL. Vodafone on its part has clarified that $11.1 billion was paid for a direct stake of 52% in the business. It has also added that it would be required to consolidate (into its accounts) the companies that it owns (52%) as well as those of its Indian partners (15%), because the balance of risks and rewards pertaining to these companies would lie mainly with Vodafone. Besides, Vodafone has also added that its auditors had confirmed that this is the required accounting treatment. “We have consistent advice on the company’s holding structure and it is legal and compliant with Indian laws. We will have a direct stake of 52%. However, we will consolidate 67% into our accounts,” Vodafone Group head (corporate and financial media relations) Ben Padovan had told ET on Thursday.
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