Loop Telecom investor KHML slaps $1.4bn notice on Indian govt

NEW DELHI: An investor in Loop Telecom has slapped a $1.4-billion notice on the Indian government, seeking international arbitration while arguing that the South Asian nation was not able to protect investments made in the mobile phone operator since 2008. According to the arbitration notice seen by ET, Mauritius-registered Khaitan Holdings Mauritius Ltd ( KHML) has invoked the India-Mauritius Bilateral Investment Promotion and Protection Agreements ( BIPA) treaty and has intimated the ministries of communications, finance and external affairs of treaty violations.


KHML confirmed initiating the arbitration process but declined to give any further details. Officials at the government couldn’t be reached for comment.

Privately-owned Loop was among the nine mobile phone operators, whose licences were cancelled by the Supreme Court in 2012, citing irregularities in the grant of the permits in 2008. Loop lost 21 of its 22 permits, and currently offers services only in the Mumbai circle.

KHML holds 26.95% of Loop, while the rest is owned by some members of the Khaitan family.

KHML has sought return of the $140 million it had invested in Loop till date with a 12% annual interest since 2008 and compensation for the loss of use of this investment. It has also claimed its share of ‘lost shareholder revenue’ which it pegs to be in excess of $1 billion, which would have been generated over time by Loop’s successful operations.

The company has also sought the market value for all the licences that were cancelled by the apex court last year. It has put a $300-million tag on the licences based on the recent re-auction of spectrum that happened at much higher values.

“The licences were cancelled solely due to the illegal acts and omissions of the Union of India and no criticism or blame was leveled at KHML or Loop by the court,” the investor has said in the notice. “As a necessary and direct consequence, Loop, and through it, KHML has suffered significant losses, with its investment wasted the absolute loss of the prospect of future returns on that investment.”

KHML had sought Rs 3,764 crore from the government in previous communications, on the account of lost telecom fees paid, loss in direct and indirect investments made in the country. However, ET had reported in its September 26 edition that KHML will seek a higher claim from the government, since the authorities fixed the last base price for pan-India airwaves six to seven times more than what Loop Telecom paid in 2008 for its licences.

KHML has demanded that the government appoints an arbitrator within two months and has offered to keep London or Dubai International Finance Centre as the seat of arbitration. It has sent the notice through its law firm Vinson & Elkins.

KHML had first raised its rights under the treaty with the government on February 16 this year. A company can invoke the bilateral treaty if the investor and the government do not reach an amicable solution within six months of sending the first notice. However, despite several meetings and talks with government officials, efforts did not lead to an amicable solution, the arbitration notice said.

The mobile phone company becomes the first among those who lost their licences in 2012 to go ahead with international arbitration.

Apart from Loop, affected companies included Norway’s Telenor ASA-owned Uninor, Russia’s Sistema-owned Sistema Shyam Teleservices , Abu Dhabi-based Etisalat’s Indian arm Etisalat DB Telecom and STel Pvt Ltd, then owned by Bahrain Telecommunications Co BSC.

While STel and Etisalat wound up operations, some of the others, including Uninor and Sistema Shyam, threatened international arbitration but didn’t follow through.

Uninor and Sistema Shyam, in fact, bought back spectrum in some circles through government-held auctions. Loop didn’t participate in any of the auctions.

The fact that New Delhi later allowed affected licensees to set-off what they paid in the auctions against the entry fee they had already paid is the premise on which the government had rejected Loop’s initial claims for refund.

This reason could also place Loop at a disadvantage in the event of any arbitration against ‘expropriation of a foreign investors’ assets’, some tax experts say.


Loop is also embroiled in the investigations into the multi-billion dollar 2G scam. The Central Bureau of Investigation has accused Loop, the Essar group, and some of their founders, of benefitting from alleged irregularities in the sale of 2G bandwidth in 2008.

The agency has charged some promoters of Loop and Essar with conspiracy and cheating, saying the two companies had created a “complex corporate veil” to conceal that Essar, with significant ownership in another telecom firm, also had a more than a 10% stake in Loop, violating rules of cross ownership. Both companies and their promoters have denied any wrong doing.