* Etisalat accuses Indian partner of fraud
* Indian partner refutes claims
* Etisalat says faces significant financial losses
* UAE telco wrote off $827 mln in India venture
(Recasts, adds DB Group quote, analyst comment)
By Matt Smith
DUBAI, FEB 23 - UAE telecoms operator Etisalat
on Thursday said it had launched legal proceedings
against its Indian joint venture partners alleging fraud in an
attempt to recover some of the losses arising from its
scandal-hit investment in the country.
Etisalat said the action being prepared was against Vinod
Goenka and Shahid Balwa, top executives at its India partner DB
Group, and against Majestic Infracon Private Limited, a DB Group
company, for fraud and misrepresentation.
Majestic denied the charges. "No notice of demand or suit
papers have been received by us," the company said in an emailed
statement. "There is no wrongdoing by us or our directors."
On Wednesday, Etisalat said it would shut down the
operations of the venture, Etisalat DB (EDB), in which it owns a
45 percent stake, after the unit's 15 licences were among 122
India's Supreme Court ordered to be scrapped.
Etisalat paid $900 million in 2008 for its stake in Swan
Telecom, later renamed Etisalat DB, with Majestic owning 45.7
"Etisalat's case is that it was induced into its investment
in the company without any disclosure of the matters that are
now alleged to have occurred in connection with the obtaining of
2G licences by EDB," Etisalat said in an emailed statement.
"Those events occurred a year before Etisalat's investment.
Etisalat is facing very significant financial losses on its
investment in EDB despite its having no involvement in the 2G
license application or award process and being entirely innocent
of any allegations relating to it."
On Feb. 9, the UAE firm wrote off $827 million relating to
The unit has licences for 15 of India's 22 telecom zones and
its 1.7 million subscribers as of December ranked it 14th in a
"Etisalat had problems from day one in India - it could only
do a soft launch of its services and its market share was
non-existent," said a Gulf-based telecoms analyst who asked not
to be identified. "Whether Etisalat wins the case will depend on
what sort of warranties were built into the contracts between
the parties. It is likely to take years to resolve."
"There were complaints about the 2G auction before Etisalat
bought into Swan, so Etisalat will have difficulty saying it had
no idea there could be problems with the licences."
EDB was slow to roll out services, for which it was rebuked
last year by the Indian government, while in January network
host Reliance Communications said it had cut off the
operator over non-payment of fees for using its towers.
"Etisalat will still be liable for money owed to Reliance,"
added the analyst.
Relations between Etisalat and its joint venture partner
have been tense for some time.
Last year, Majestic filed a case against Etisalat with
India's company law board, alleging mismanagement of their joint
venture, which was under the management control of the UAE firm.
Separately, DB Realty, a listed property company
of the DB Group, said in a statement the shutdown of Etisalat DB
would have no bearing on its financials because this was an
investment by its founders in their personal capacity.
DB Realty's shares ended 4.7 percent lower in Mumbai on
(Additional reporting by Devidutta Tripathy; in New Delhi;
Editing by Dinesh Nair and Andrew Callus)