LEAD: Indian court cancels graft-tainted telecoms licences

Feb 2, 2012, 11:02 GMT

New Delhi - India's Supreme Court on Thursday cancelled telecoms licences granted to mobile network companies in alleged fraudulent sales in 2008 and ordered a fresh auction.

The court ruled that the licences were issued by former telecoms minister Andimuthu Raja without following proper bidding procedures, in what has been dubbed India's biggest corruption scandal.

Government auditors said the illegal sales caused the national exchequer an estimated loss of up to 40 billion dollars.

In their order, judges GS Singhvi and AK Ganguly ruled that the licences issued after January 2008 were granted in an 'arbitrary and unconstitutional' manner.

The judges said the affected licences would remain valid for four months during which time the country's telecom regulator was to make recommendations for a fresh auction, petitioner Prashant Bhushan told reporters.

A total of 122 licences held by nine companies, including several Indian joint ventures between Norway's Telenor ASA and United Arab Emirates' Etisalat Co, stand cancelled, broadcaster CNN-IBN said.

India's mobile telephone networks are grouped into 22 regions, serving nearly 894 million subscribers. Several licences are issued to companies within each region.

Bhushan described Thursday's judgement as 'historic.' 'It will change the manner in which corruption is investigated and dealt with in the country.'

The ruling came during the court's handling of a petition seeking cancellation of licences granted during Raja's tenure. Raja, on trial for fraud since November, has denied any wrongdoing.

The judges also heard another petition seeking an investigation into the alleged role of Home Minister Palaniappan Chidambaram - who was finance minister when the licences were issued - and ordered another court to decide whether the minister should be probed.

Leading national media said the verdict came as a setback to the Indian National Congress party-led coalition and could impact one of the world's fastest-growing telecommunications market.

The United Progressive Alliance has been mired in a slew of corruption scandals including the organization of the Commonwealth Games in October 2010.

Telecom Regulatory Authority of India chief JS Sarma dismissed fears of a disruption in telecom services, saying the order did not affect companies granted licences before 2008, which made up 95 per cent of the mobile subscriber base.

The five per cent affected, or 45 million subscribers, could switch to other mobile networks in the next four months, Sarma said.

Telecom experts gave mixed reactions, with some saying the move brought uncertainty into the sector and would deter foreign investors.

Others saw it as a positive development. 'It is excellent news for investors,' said telecoms expert Mahesh Uppal. 'Spectrum will now be managed transparently and reflect its value,' he told broadcaster CNN-IBN adding, 'This is good news for older players as well because they will have more spectrum and less competition'.

Indian players affected by Thursday's order include Loop, Videocon, Idea Cellular and Tata Telecom.

Meanwhile, Telenor's joint venture Uninor said it had been 'unfairly treated' and was 'shocked' by the verdict. 'We will study the order in detail and exercise all options available to ensure that Uninor continues to operate in India,' it said in a statement.

The main opposition Bharatiya Janata Party attacked Premier Manmohan Singh, saying he should accept accountability for the scam.

Telecom Minister Kapil Sibal rejected the claim that the verdict was an indictment of the government, and said the court order brought regulatory clarity to the country's telecom sector.