Essar is set to be paid $415m under a settlement aimed at ending the threat of legal action hanging over Vodafone’s takeover of Hutchison Essar, India’s fourth largest mobile operator.

Essar, an Indian conglomerate, has threatened court action that could scupper Vodafone’s take-over. The UK mobile group plans to buy companies that control a 67 per cent stake in Hutchison Essar from Hutchison Telecommunications International, an associate company of Li Ka-shing’s Hutchison Whampoa.

But people close to Essar, which has a 33 per cent stake in Hutchison Essar, have repeatedly claimed it has a right of first refusal over the sale of the 67 per cent stake. Vodafone and HTIL have insisted Essar does not have such a right.

On Thursday, HTIL announced a “conditional settlement” with Essar which should end what was an increasingly acrimonious relationship between the companies. HTIL said Essar “will take all reasonable steps to ensure completion of the [Vodafone] transaction and will refrain from initiating any action that may inhibit or delay the completion”.

“Hutchison Telecom in turn has agreed to pay Essar $373.5m at the closing of the transaction with Vodafone,” added HTIL. It will pay Essar a further $41.5m, plus interest, no later than two years after the deal’s completion.

Frank Sixt, finance director of Hutchison Whampoa, said the settlement was motivated by the risk that litigation could sink the Vodafone-HTIL deal. Legal action could have “resulted in delay or potentially even in the transaction not being able to complete”.

People close to HTIL said it was confident it could defeat any attempt by Essar to enforce its claimed right of first refusal in the courts. But there was a risk any litigation could drag on for at least a year.

Naguib Sawiris, chairman of Orascom Telecom, HTIL’s second largest shareholder, was said to have viewed the proposed $415m payment as unjustified.

One Hutchison Whampoa shareholder said: “They’ve always said Essar never had first refusal rights. Now they’re paying these guys off not to go through a legal process.”

Prashant Ruia, an Essar director, said the settlement with HTIL was an “understanding”.

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