The Idea Cellular Ltd, India's third-biggest cellular carrier by revenue and users, said on Tuesday it had received a government notice asking for 6 billion rupees ($96 million) in penalties for allegedly violating rules when it acquired a smaller rival five years ago.
Idea is preparing to challenge the government order, it said in a filing to the stock exchanges.
In 2008, Idea Cellular agreed to buy smaller rival Spice Communications in a three-way deal that also gave Malaysia's Axiata about a fifth of Idea. Idea currently runs Spice operations in two zones as part its own operations.
The telecommunications ministry has said Idea violated rules as it held permits in zones where Spice had operations. Indian rules then prohibited companies to own 10 percent or more in a competing carrier in the same zone.
Idea has denied any wrongdoing and has said the merger was approved by courts. Shares in Idea, India's second-biggest telecommunications carrier by market value, largely ignored the news and were trading about 0.4 percent lower by 0453 GMT.