Loop investor KHML drags govt to intl arbitration for cancelled telecom licences

New Delhi: Loop Telecom’s investor Khaitan Holdings (KHML) today dragged the Indian government to international arbitration, seeking close to $2.5 billion in damages for its cancelled telecom licences.

KHML listed out several grievances: cancellation of its 21 licences for no fault of the licensee and no refund being given by the Government against these cancelled licenses. But the most significant allegation KHML has made is that the Government subsequently auctioned these licenses for a “significantly higher amount to other operators” and pointed out that the Government will “in real terms be making a profit out of the cancellations”.

The company has sought arbitration proceedings in either London or Dubai under the agreement between Mauritius and India for Promotion of Protection of Investments.

A similar threat of the Government being dragged to international arbitration was averted when the Government managed to convince another major international telecom investor, Sistema of Russia, to stay back in India. It then subsequently lowered the price of 800 mhz spectrum and Sistema Shyam Teleservices managed to win back some of its lost licenses in a subsequent spectrum auction. But with Loop, arbitration now seems to be the only way forward.

“The claimant, Khaitan Holdings (Mauritius) Ltd (KHML) hereby demands arbitration with the respondent, the Union of India,” the notice served by KHML to Indian government said.KHML holds 26.95 percent stake in Loop Telecom and paid a cash entry of Rs 1,454.94 crore besides providing financial guarantees worth Rs 812 crore.

KHML has sought return of $140 million invested by it in Loop along with 12 percent interest from the date of receipt of the investment till the date it receives the claim, its share of the lost shareholder revenue estimated in excess of $1 billion, loss of the market values of the licences in excess of $300 million.

The arbitration notice comes after KHML held various round of meetings with Government representatives but failed to arrive at any amicable solution.

In the notice, KHML has said that the Supreme Court judgment has held Indian government’s process to issue licence “seriously flawed and legally untenable, as well as its policy being inherently arbitrary,” and neither KHML nor Loop were blamed for this. The SC’s order in February 2012 had quashed 122 licenses awarded by former telecom Minister A Raja and Loop’s 21 licenses were part of this order.

“Despite this, neither adequate or any compensation has been paid to KHML and the spectrum has been subsequently re-bid,” the notice said.

The Mauritius-based investor first served notice to the government in April 2012 for resolving disputes under the Bilateral Investment Promotion and Protection Agreements following cancellation of all of Loop licences by the apex court.

Mauritius-based Kaif Investments and Capital Global, majority investor in Loop Telecom had served notice under BIPA in April 2012