India suspects Vodafone of passing user records to UK spy agency

In what could be fresh trouble for Vodafone which is already besieged by Indian tax authorities, the finance ministry has asked the Department of Telecommunications (DoT) to examine concerns raised by the home ministry over the possibility that Vodafone India's parent Vodafone Group Plc may be passing on communication details from its Indian customers to UK security agency Government Communications Headquarters (GCHQ).

Reports emerging today said the finance ministry, in a letter dated 20 February, has asked the DoT to look into concerns raised by a December note written by the home affairs ministry that said that "leading telecom firms, including Vodafone, are learnt to be secretly collaborating with UK's intelligence and security agency GCHQ and passing on details of their customers phone calls and other communication."

Three newspapers said they had accessed the memo.

The matter assumes significance in light of a proposal by Vodafone India's British parent to buy out the remaining minority stake in the Indian subsidiary it doesn't already own at a cost of about Rs10,000 crore.

The proposal, the first after the government allowed 100-per cent foreign direct investment in the telecom sector, has already been cleared by both the Foreign Investment Promotion Board (FIPB) and the Cabinet Committee of Economic Affairs (CCEA).

The home ministry note also referred to the tax case Vodafone is fighting with the government in which authorities have said it owes around Rs11,000 crore after buying its stake in the Indian arm from a foreign company. The note also said the Vodafone Group was a tax evader in the UK.

"Realignment of Vodafone India, without settling pending tax issues which may have ramification on similar deals with other entities, is not advisable from economic angle. The Department of Economic Affairs may consider those facts while processing FIPB proposal," the MHA note reportedly said.

Typically, both agencies look closely into security concerns before approving any major investment proposal, a fact mentioned by Vodafone in its rejoinder to the reports.

"No such concern has been raised with us by the Indian Government. The Government of India's approval of our FDI application states that it was cleared by the FIPB and CCEA after all necessary due diligence," the group said in its reply. "Vodafone complies with the law in all of our countries of operation, including -- in the case of our European businesses -- the EU Privacy Directive and EU Data Retention Directive."

Vodafone does not disclose any customer data in any jurisdiction unless it is legally required to do so and has never been accused of tax evasion, the firm added.

Reports emerging today say that in a letter dated 27 December 2013, the home ministry asked the department of economic affairs to consider the points it had raised while processing Vodafone's proposal to increase its stake in its Indian subsidiary from 64.38 per cent to 100 per cent.

Intriguingly, the same letter, which granted security clearance to the proposal in the first para, ended with a paragraph that said approval ''is not advisable from (an) economic angle''.

''No such concern has been raised by the Indian government. Our FDI application was cleared by the Foreign Investment Promotion Board (FIPB) and the cabinet committee on economic affairs after necessary due diligence. Vodafone does not disclose any customer data in any jurisdiction unless - like any other operator - it is legally required to do so,'' the company said in response to a newspaper query.

''The communications ministry is examining the issue,'' a senior official in the ministry told CNBC-TV18 on condition of anonymity.