This was expected, and finally, Etisalat has begun the process of winding up the operations of Swan Telecom (Etisalat DB Telecom Pvt Ltd), citing a “complete breakdown in the relationship between Etisalat and its Indian partners, Shahid Balwa and Vinod Goenka, who face various criminal charges of corruption associated with Swan’s acquisition of its UAS licences.” The Economic Times reported recently that the company has asked its subscribers to port out to other telecom operators.

The company has claimed that it was “completely unaware of any issues or risks associated with the licences which were already owned by Swan when it made its investment”, and has now sued Shahid Balwa, Vinod Goenka and Majestic Infracon Pvt Ltd (formerly Tiger Trustees Pvt Ltd) for fraud and misrepresentation associated with soliciting Etisalat’s investment in Swan.

Etisalat DB becomes the second venture, after S-Tel, to ask customers to port out, and shutter operations, following the cancellation of 122 2G licenses by India’s Supreme Court.

Note that there is no clear indication yet about whether Etisalat will choose to participate in the auctions, if, indeed, there are auctions this year.

The complete statement from Etisalat:

Etisalat issues proceedings for winding up Etisalat DB Telecom Pvt Ltd (EDB)

Etisalat has issued proceedings for the winding up of Etisalat DB Telecom Pvt Ltd (EDB) (formerly Swan Telecom) so that there can be a proper and orderly end to the business of EDB that is supervised by the Indian Courts.

Recent events have led to a complete breakdown in the relationship between Etisalat and its Indian partners, Shahid Balwa and Vinod Goenka, who face various criminal charges of corruption associated with Swan’s acquisition of its UAS licences. Etisalat was completely unaware of any issues or risks associated with the licences which were already owned by Swan when it made its investment. Etisalat has sued Shahid Balwa, Vinod Goenka and Majestic Infracon Pvt Ltd (formerly Tiger Trustees Pvt Ltd) for fraud and misrepresentation associated with soliciting Etisalat’s investment in Swan.

Majestic is unable, or unwilling, to meet the funding requirements of EDB’s business. The Majestic appointed directors on the board of EDB, Mr Hussein Balwa and Mr Vinod Goenka, have refused to cooperate further in the management of EDB and have placed the company in an impossible position by tendering their resignations.

In addition, the Supreme Court in India has cancelled all UAS Licences issued in 2008, for reasons associated with the policy and approach to their issue, with effect from June. For so long as this decision is effective, in addition to the impossibility of running a business with Majestic and Messrs, Shahid Balwa, Hussein Balwa and Vinod Goenka, the lack of capital and the commercial position make it no longer possible, as a matter of law and practical reality, for EDB to continue its telecommunications operations.

In all these circumstances, the entire basis for EDB’s operation no longer exists. EDB has decided therefore to shut down its network, and has given the appropriate notices to the Indian authorities. As a leading telecommunications company with a reputation for integrity and ethical behaviour, Etisalat has instructed its representatives on the EDB board to ensure, as far as is practicable, that the winding up of EDB is properly conducted under Indian law and the various interests of all stakeholders are properly managed in accordance with the law.