Consistent with its stand, first in February 2015 and subsequently in July 2016, the RBI told the court Tata Sons cannot pay DoCoMO despite the London Court of International Arbitration (LCIA) award in June 2016 as it would amount to violating the Foreign Exchange Management Act.
The High Court has now asked the RBI whether its special permission was required to enforce the award, and if yes to cite the relevant regulations. “Is RBI’s special permission required for paying damages for failing to fulfil contractual obligations? Say yes or no. If yes, then quote the circular, regulation or rule under which permission is required. If not, then say no,” Justice S Muralidhar said and added, “make your stand clear.”
The RBI said it would submit its stand before the court at the next hearing on March 14.
On February 28, Tata Sons and DoCoMO had informed the court they had buried their long-standing dispute whereby the former has agreed to pay the latter $1.17 billion in lieu of its 26% stake in Tata Teleservices along the lines of the ruling by the LCIA in June 2016.
The RBI counsel had said on that day he would seek directions and report the central bank’s stance on the settlement between the two on March 8.
Although the London arbitral tribunal ruled in favour of the award to DoCoMO, it appeared to have some reservations as to whether this was permissible under Indian law. Para 171 of the award said “the Tribunal expresses no view, however, on the question whether or not special permission of the RBI is required before Tata can perform its obligation to pay DoCoMO damages in satisfaction of this award.” Which is why when Tatas wrote to RBI asking for permission to pay DoCoMO based on the award, the RBI added, “It is clear that LCIA is also cognisant of the fact that the SHA (shareholders agreement) was structured in such a manner that its compliance would entail contravening the provisions of FEMA.”
As per the settlement between the two sides, the Tatas have withdrawn their objection to paying DoCoMo and the Japanese firm has, in turn, agreed to suspend its related enforcement proceedings in the United Kingdom and the United States for a period of time.
The RBI has objected to the consent terms saying if DoCoMo fails to succeed in enforcement of its award in India, it cannot say it will try and enforce it in some other jurisdiction after six months.
The court, however, disagreed with the contention and termed it “absurd.” It said that if DoCoMo does not succeed here, it can take the award for enforcement to the US or the UK and “RBI has no jurisdiction outside India.”
“How can you object to enforceability anywhere else in the world? If they (Tata) have assets anywhere else, they (DoCoMo) can move a court there for the enforcement of the award. There is no law prohibiting it,” the judge said.
The payment to DoCoMO has been stuck because the RBI’s regulations do not permit any share sale at a predetermined price but only on the basis of a fair market valuation. The Tatas have, however, deposited the amount with the Delhi High Court’s registrar. Although the RBI has sought the advice of the government twice on the matter as an exception to DoCoMo’s case, the government responded in the negative stating that providing an exception to one firm would open up several other similar cases.
NTT DoCoMo had entered into a JV with TTSL in 2009 for $2.7 billion (R12,740 crore at R117 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 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 R7,250 crore (R58 per share) or a fair market price, whichever is higher.
The agreement could not be enforced as according to the RBI’s guideline any such sale could not take place at a pre-determined rate but should reflect fair market valuation.
Based on advice from the Prime Minister’s Office (PMO), the RBI said that Tatas could only offer DoCoMo a price based on an independent valuation which worked out to R2,915 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.