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India’s law ministry has given a favourable opinion on Vodafone’s bid for control of Hutchison Essar, marking a crucial step that could propel India’s largest telecom deal closer to government approval.

Vodafone’s bid for India’s fourth-largest mobile operator comes under scrutiny again on Monday when India’s foreign investment regulator meets to discuss feedback from several government bodies on whether Hutchison Essar breached foreign ownership limits.

The law ministry’s opinion that Hutchison Essar has not violated foreign investment regulations has already been submitted to regulators, according to people close to the matter. This legal opinion will have the most sway on whether the Foreign Investment Promotion Board (FIPB), a unit of the finance ministry, will finally approve Vodafone’s $11bn bid for Hutchison Essar. A decision from the FIPB could be imminent.

Vodafone, the world’s largest mobile operator, in February agreed to buy the shares held by Hutchison Telecommunications International (HTIL) and those it has options over. But close of the deal has been stymied by a drawn-out regulatory inquiry over whether Hutchison Essar, through a complex shareholding arrangement, has violated Indian law that limits foreign direct investment in domestic telecoms operators to 74 per cent.

Several government bodies, including India ’s central bank and the national security agency, have voiced concern over a 15 per cent stake held by minority shareholders.

HTIL, a unit of Hong Kong tycoon Li Ka-shing’s Hutchison Whampoa, holds 52 per cent of Hutchison Essar directly. It also has options over another 15 per cent held by Asim Ghosh, Hutchison Essar managing director, and Analjit Singh, chairman of healthcare group Max India and an Indian investment vehicle.

The remaining 33 per cent is held by Essar, an Indian conglomerate, but two-thirds of its stake is controlled through an offshore company for tax reasons.

One critical issue is the nature of options exercised by HTIL over the stakes held by Mr Ghosh and Mr Singh. The law ministry was examining details of put and call options that protected the two shareholders against potential ”downside” but also allowed them to enjoy any economic benefits of their shares.

The extent of HTIL’s guarantee raised questions over whether the shares belong to Hutchison or to the two stakeholders. Also in the spotlight is whether Mr Ghosh and Mr Singh had rights to independently vote on their shares.

Owners of Hutchison Essar submitted additional documents to the FIPB in early April after the regulator asked for more details about the company’s ownership structure in its last meeting at the end of March.

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