For now, Chennai unit out of Nokia-Microsoft deal

Written by fe Bureau | New Delhi | Updated: Mar 15 2014, 06:25am hrs
NokiaSupreme Court disallows sale till Nokia Finland provides guarantee.
The fate of Nokias Chennai phone factory hangs in balance with the Supreme Court stating that the handset maker cannot transfer the plant to Microsoft unless the 16 conditions imposed by the Delhi High Court are met.

The apex court upheld the HCs December 12 order asking Nokia India to deposit R2,250 crore in an escrow account and its Finnish parent to guarantee payment of up to a maximum of R3,500 crore in taxes, pending resolution of a dispute over the tax liability with the income tax (I-T) department.

The HC had allowed the de-freezing of Nokia Indias assets in India, especially the Chennai manufacturing plant, but imposed the conditions. Nokia India had sought waiver of the conditions arguing that any undertaking by its parent firm would have penal consequences in case of default.

Nokias $7.2-billion deal with Microsoft was announced in September and is likely to be completed by month end. If the plant is not transferred, Nokia will run it as a contract manufacturer for a year and may then shut.

The I-T department and Nokia India are embroiled in a tax row over alleged violation of withholding tax norms by Nokia since 2006 while making royalty payments to its parent amounting to R21,000 crore for 2006-2013, including penalties.

A bench headed by justice AR Dave expressed dissatisfaction with the valuation report of the Chennai plant furnished by Nokia India and said that the company and the I-T department should come up with some tripartite agreement to sort out the issue. Rejecting the internal valuation report submitted by counsel Vikas Srivastava that estimated the value of the Chennai plant at Rs 2,432 crore, Dave said: We wanted an authentic report. What is the value of this (report) This should have come from someone who is an expert. You can write anything. This has no value.

Unhappy with Srivastava's failure to present concrete plan to secure the tax department's interests, the judges observed that you have not said anything at all... If their (the department's) wishes are to be granted, then they either want attachment or the high court order What do you want

Solicitor general Mohan Parasaran and senior counsel RP Bhatt argued that Nokia is wasting the court's time by repeating the old stand and is noncommittal on how to secure the department's interests.

The I-T department, on its part, had sought a direction to stop the transfer of Nokias Chennai plant assets to Microsoft pending resolution of the tax dispute.

The SG argued that the tax demand is around Rs 10,149 crore excluding interest, penalty and future demand. He said Nokia India had repatriated the dividend amount of Rs 3,500 crore to Nokia Corporation, Finland, from reserves and that too after the demand was raised. Since its inception in 1995, the company has hardly paid any tax and no such dividend was ever paid, he said, thus inviting the comments from the the judges that then there is something fishy there.

Srivastava said Microsoft was giving the best offer and if the revenue authorities attach and sell the assets for a better price, they are welcome to do it.