The Essar Group of companies says the facts rebut the charge, currently being probed by the Central Bureau of Investigation under the Supreme Court's monitoring, of a bending of rules to enable Loop Telecom to get mobile telecom licences in the controversial regime of A Raja.
Loop got licences to offer mobile services in 21 circles by the telecom ministry run by Raja, now in jail, in 2008. Essar has investment in Loop; it also holds 33 per cent equity in Vodafone Essar, a big player in the sector.
The rules prohibit a telecom company holding, directly or through associates, more than 10 per cent in another telecom company in the same circle.
The Ruias who own Essar say they have much less than 10 per cent in Loop.
The rest is with the Dubai-based Khaitans, who are related to them -- I P Khaitan and Kiran Khaitan are brother-in-law and sister, respectively, of Ravi and Shashi Ruia, the Essar promoters.
Last week, CBI had questioned Prashant Ruia of Essar to establish if there was a link between Loop Telecom and the group and whether they had invested more than 10 per cent through some alleged front companies owned by their relatives.
The Essar Group has now filed an affidivat in the Supreme Court, saying allegations that the Dubai-based Khaitans were fronting for them and were funded by them to invest in the telecom company were 'absurd'.
The affidivat has said the family relationship does not make the Khaitans an associate company of the Ruias.
The prohibition clause's wording about holding "directly or through associates more than 10 per cent in another telecom company in the same circle" is important, specially "the word through", it says. "It implies that the object of the shareholding is to hold for and
on behalf of the other person".
The effective shareholding of Loop Telecom at the time of applying for new licenses in 2007 was I P Khaitan with 20.98 per cent and Kiran Khaitan with 76.87 per cent, with Essar holding just 2.15 per cent, says the affidavit.
The structure has changed now to I P Khaitan with 32.08 per cent, Kiran Khaitan with 66.42 per cent and Essar with 1.5 per cent.
In sum, on the application date, the equity holding of Essar Group was clearly much lower than the stipulated 10 per cent.
On the funding charge, the Essar Group has stated the Khaitan group invested Rs 2,951 crore (Rs 29.51 billion) in debt securities of the former on various dates between October 2005 and July 2006.
Essar Group, on the other hand, had invested Rs 1,592 crore (Rs 15.92 billion) in debt securities of Santa Trading Pvt Ltd, a fully owned Khaitan group company (owned by Kiran Khaitan).
So, Essar argues, on the application date of Loop, the net investment by Khaitans in Essar was about Rs 1,358 crore (Rs 13.58 billion), so there was no question of any net lending by the Essar Group to the Khaitans.
The Ruias have also said the allegations that the ownership pattern of eight Mauritius-based companies which hold 15 per cent stake in BPL Communications is not known is also untrue. All these companies are fully owned by I P Khaitan.
Another 85 per cent of BPL Communications is held through Santa Trading, which again is fully owned by Kiran Khaitan.
BPL Communications is the key to the equity structure, as it holds 49 per cent directly in Loop Telecom. The rest being controlled indirectly by BPL Mobile, in which again BPL Communications holds indirect stake.