Bahrain Telecommunications Company's (Batelco's) plan to raise its stake in Indian communications firm S Tel has been rejected by the Indian government, according to reports.

Earlier this year, Batelco had sought approval to raise its nearly 42 per cent stake in S Tel by an additional 6.3 per cent for about $53 million.

If the deal had taken place, S Tel's foreign holding would have risen to 54.61 per cent because another foreign entity - Mauritius-based Telecom Investment Private, already has a 5.6 per cent stake in the firm, The Economic Times reported.

After deliberating the proposal for nearly six months, India's Foreign Investment Promotion Board (FIPB), the nodal agency for clearing all major foreign investments, rejected it on security grounds.

The home ministry had expressed 'serious reservations' on the proposal after its investigations revealed that these investments were being routed through Cayman Islands.

The revenue department too had opposed the proposal and said the stake rise amounted to treaty shopping, a term used by investors for routing investments into India through Mauritius.

The nodal investment agency has cleared Australian telecommunication firm Telstra's proposal to launch operations in India.

Telstra had earlier formed a 49:51 joint venture with India's Microland Investment, but then sought the FIPB's nod to increase its stake in the joint venture to 74 per cent.

It also told the FIPB that Microland, an IT infrastructure services provider, would replace Microland Investment as the shareholder and ultimately would have 26pc equity in the venture.

Telstra said it will carry national and international long-distance traffic and also offer Internet services in India after obtaining the FIPB nod.

The FIPB also cleared Boston-based American Tower Corporation's (ATC) deal to buyout Essar Telecom Infrastructure (ETIPL) for about 2,000 crore rupees in an all-cash deal.

In February, biggest US independent tower firm ATC had agreed to acquire 4,450 towers of ETIPL, its third major acquisition in the country in less than a year. ATC said it had executed the transaction through Transcend Infrastructure, its indirect wholly owned Indian subsidiary.

Telstra is making a re-entry into India. It had a joint venture with the BK Modi Group in India, which launched the country's first cellular in Kolkata in 1995. But both partners fell out, resulting in the company being sold to Bharti Airtel for $90 million.