Sir Richard Branson's year-long effort to sell mobile phones in India, the world's fastest-growing market, faces being derailed only days after going live.

On Sunday, Sir Richard's Virgin Group unveiled a partnership with Tata Indicom, under which the Indian company will market a mobile service aimed at young consumers using the Virgin brand.

A powerful industry group, which includes Vodafone, the world's largest mobile operator, has now demanded that the Indian Government declare the deal void. The Cellular Operators Association of India claims Virgin is entering the market via the backdoor as an illegal "mobile virtual network operator" (MVNO), where it effectively buys mobile capacity wholesale from Tata and sells it on under its own brand - a model not permitted in India.

A spokesman for the Indian Department of Telecommunication said that Virgin could be ejected from the Indian market. "The spectrum [used by the Virgin-branded mobile service] was allocated to Tata. It is up to Tata to intimate any transfer of that spectrum to the department," he said.

"We are not aware that they did and it is possible we will not allow them to operate."

A spokesman for Virgin Mobile India, the new company formed to run the service, said: "Our agreement does not involve selling of bulk airtime and so isn't an MVNO."

Sources close to the process confirmed that the telecoms ministry had asked for details of the deal but that no decision had been made yet. They added that it was possible that the government would soon relax the rules on MVNOs.

Tata has ramped up the stakes by asking the regulator to investigate alleged license abuse by Bharti Airtel, a rival, which it said had improperly outsourced network and IT management to foreign companies.

Virgin runs virtual networks in six countries. When it launched in 1999, Virgin Mobile UK was the world's first MVNO – breaking with tradition by not having its own network but using another service provider's.

Being denied access to India's explosive growth would be a severe blow to Sir Richard. While Western markets are largely saturated, it is estimated that more than 870 million of India's 1.1 billion population are yet to own a mobile.

According to the Telecom Regulatory Authority of India (TRAI), the Indian mobile market crossed the 200 million subscribers mark last year. The Indian government has proposed a target of 500 million mobile users by 2010.

A virtual-type model would allow Virgin to tap that expansion at a fraction of the cost of the alternatives. By contrast, Vodafone opted to bulk-up its Indian presence last year by taking over Hutchison Essar, the country's forth largest operator, for $10.7 billion.

It is only two years since India raised the ceiling for foreign ownership in telecoms groups to 74 per cent from 49 per cent, a move that led to a flood of new investment. The Indian authorities have received more than 550 applications from more than 45 domestic and foreign firms to launch mobile services in the country.

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