Though the headlines suggest Tata Sons and NTT DOCOMO have reached a settlement in the case where the London Court of International Arbitration (LCIA) had ruled in favour of the latter, all that has happened is both sides have realized the futility of going it alone. While the Tatas were getting a bad name in opposing LCIA’s award which would meant it would have to pay its erstwhile partner Rs 7,250 crore – according to the agreement, if certain milestones were not achieved by the JV, the Tatas would buy out DOCOMO for half the Rs 14,500 crore it invested – DOCOMO was getting nowhere by trying to enforce the award in the UK and the US. In the event, Tata has withdrawn its objections to the LCIA award being enforced in India and DOCOMO has suspended the enforcement proceedings overseas. Both will now appeal to the government to allow the LCIA award to be honoured – the Tatas, in any case, were prepared to meet their contractual obligations till the government denied permission – and the government would do well to allow this for a variety of reasons.
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It is true that when the JV was formed, the FIPB rules were clear Sebi/RBI rules would apply to share valuation/issue/transfer and these rules said share sales for unlisted firms had to be based on a price linked to the EPS or NAV or on the basis of an independent valuation – the latter suggested Tatas pay DOCOMO Rs 2,915 crore which was substantially less than the Rs 7,250 crore specified in their contract. Indeed, even the LCIA 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”. That said, while RBI rules were clear on the valuation, this was for the automatic rule and did not preclude seeking RBI permission under the approval route. This, however, was rejected by the finance ministry – since a senior Tata employee was the brother of the then RBI Governor, the file was sent to the government. While the government can stick to its earlier decision, it is important to keep in mind the spirit of the RBI rule. The restrictions were put to ensure debt – which RBI wants to keep a check on – does not masquerade as equity by way of assured buyback deals. But a transaction such as the Tata-DOCOMO one which seeks to get back half the original sum invested, and after seven years, cannot possibly be debt. In which case, allowing the payment to be made makes sense especially since, with India no longer forex-starved, rules on sending money overseas have been relaxed considerably under both the automatic and approval routes.