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Indian industry watchdogs will investigate whether Vodafone's $11bn deal for mobile operator Hutch Essar violates laws designed to regulate foreign control.

The world's largest mobile operator agreed to buy a controlling holding in Hutch Essar in mid-February. The 67 per cent stake comprised Hutchison Telecommunications' 54 per cent, and options the Hong Kong-based group held over a further 15 per cent of Hutch Essar, which was owned by two Indian individuals.

The remaining 33 per cent is held by Indian investment group Essar. Two thirds of Essar is controlled offshore in a tax workaround, meaning the carve-up of Hutch Essar could breach a cap on foreign investments set at 74 per cent.

After a complaint from the reserve bank of India, the Foreign Investment Promotion Board will now review whether the complex arrangements are within the law.

Hutchison Telecommunications told the Financial Times yesterday that it had complied with regulations in making the deal with Vodafone. Earlier this month Hutchison Telecommunications announced it would pay Essar $415m to drop a mooted legal challenge to the deal. Essar had claimed it had first refusal on any sale of Hutch Essar. ®

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