The Delhi High Court on Friday paved the way for the Tatas and Japan’s NTT DoCoMo to bury their hatchet with regard to the latter’s exit from the joint venture firm Tata Teleservices as per the terms agreed upon by the two in February. Accordingly, Tata Sons can now go ahead and pay DoCoMo a sum of $1.17 billion on the lines of an arbitral award by the London Court of International Arbitration (LCIA) in June 2016, thus bringing down curtains on a three-year-old dispute between the two.
In doing so, the HC has rejected the intervention plea of the Reserve Bank of India which was opposing the payment by Tatas on the ground it was in violation of the Foreign Exchange Management Act and required its prior approval. The court also stated in its 41-page order that the 2009 agreement between Tata Sons and DoCoMo was not in any violation of Fema or any other Indian law.
Rejecting the intervention plea of the RBI, justice S Muralidhar said, “There is no provision in law which permits RBI to intervene in a petition seeking enforcement of an arbitral award to which RBI is not a party. Its prayer for permission to intervene is rejected.” The HC’s order made it clear that what is being awarded to DoCoMo by the Tatas is not assured returns on its investments but just damages, a downside protection. “The arbitration tribunal decided that the sum awarded to DoCoMo was in nature of damages and not sale price of the shares,” the order stated.
Apart from rejecting the RBI’s locus standi to intervene in an award on which both the parties had agreed, the HC also examined the shareholder agreement between Tata Sons and DoCoMo in 2009 upon which the award was based and said that there was nothing illegal in it since it did not guarantee any security. “As far as the Award itself is concerned, the interpretation placed by the AT on the clauses of the SHA was consistent with the intention of the contracting parties and not opposed to any provision of Indian law. There is nothing in the SHA as interpreted by the Award that renders it void or voidable under the ICA or opposed to either the public policy of India or the fundamental policy of Indian law,” the HC noted.
It, in fact, said that the enforcement of the award would not only be consistent with the country’s public policy but also have a positive impact on the flow of foreign direct investment. “The issue of an Indian entity honouring its commitment under a contract with a foreign entity which was not entered into under any duress or coercion will have a bearing on its goodwill and reputation in the international arena,” the HC observed.
“It will indubitably have an impact on the foreign direct investment inflows and the strategic relationship between the countries where the parties to a contract are located. These too are factors that have to be kept in view when examining whether the enforcement of the Award would be consistent with the public policy of India,” it observed. In a statement, Tata Sons welcomed the high court’s order, which allows it to amicably settle the matter.
NTT DoCoMo had entered into a joint venture with TTSL in 2009 for $2.7 billion (Rs 12,740 crore at Rs 117 per share) for a 26.5% stake. In April 2014, DoCoMo decided to sell its entire 26.5% stake in TTSL because the agreed-upon parameters could not be met. Under the terms of the agreement between the two parties, either the Tatas found a suitable buyer for DoCoMo’s stake or TTSL would have to buy its stake for 50% of the acquired price, which worked out to Rs 7,250 crore (Rs 58 per share) or a fair market price, whichever was higher.
The agreement could not be enforced as according to the RBI’s guideline any such sale could not take place at a predetermined rate but should reflect fair market valuation. Based on advice from the Prime Minister’s Office (PMO), the RBI said that the Tatas could only offer DoCoMo a price based on an independent valuation which worked out to Rs 2,915 crore ( 23.34 per share). DoCoMo then moved the LCIA in London in January 2015, which passed the order in its favour in June 2016.