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Advantage VSNL in battle with BSNL — DoT fears violation of shareholders' pact

G. Rambabu

NEW DELHI, Oct. 24

THE Department of Telecommunciations (DoT) finds itself in a spot over the interconnection tussle between Videsh Sanchar Nigam Ltd (VSNL) and Bharat Sanchar Nigam Ltd (BSNL).

Even though the Communications Minister, Mr Pramod Mahajan, has served an ultimatum to VSNL to adhere to the interconnection rates sought by BSNL, it now appears that the Tata group company is on a stronger legal wicket.

According to informed sources, it has come to DoT's attention that in case it allows BSNL to start routing its outgoing international calls through the networks of Data Access and Bharti, then the Government may have to end up compensating VSNL for its losses on this count.

As per the shareholders' agreement signed with the Tata group following the VSNL disinvestment, "the Government shall defend, indemnify and hold the strategic partner harmless from and against any actual losses, liabilities, damages, judgements, settlements and expenses".

Article 9.1 of the agreement further states that this includes "reasonable attorneys fees, actually incurred or suffered by the strategic partner arising out of or resulting from (a) any breach by the Government or the company of any representation and warranty contained in this agreement or (b) any breach by the Government or the company on any of the covenants, agreements or obligations contained herein".

The Government had also committed that "excepting the impact or consequences that arise due to the company no longer being a Government company or a public sector undertaking, the company will reasonably be able to carry on its business on substantially the same basis as its business is currently carried on".

VSNL has now informed DoT and the Ministry of Disinvestment that by threatening to stop routing all the outgoing calls through its network, DoT being the administrative ministry of BSNL would inadvertently be violating the shareholders' agreement, for which the Government will be liable to provide adequate compensation.

"As per its understanding, the Government's own calculation of the reserve price of VSNL at the time of disinvestment assumed that the revenue sharing arrangement would be preserved even after disinvestment," VSNL has stated. Under the circumstances, any change in the present arrangement will have to be compensated by the Union Government.

Finding itself in a spot, the sources noted that DoT had now sought legal opinion before deciding on its future course of action. It was for this reason also that despite setting a deadline of October 1, Mr Mahajan failed to go ahead with his threats of cutting the chord between BSNL and VSNL.

The Minister, who is out of the country for four days, will on his return be presented with the legal views of the Department, after which he will have to decide on the future course of action.

In any case it's now advantage the Tata group.

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