Enforcing the London arbitration panel award in favour of DOCOMO was never going to be easy because, as RBI told the Tatas when it first rejected the group buying back DOCOMO’s stake in Tata Teleservices for R14,500 crore, the proposal was against the law.
Enforcing the London arbitration panel award in favour of DOCOMO was never going to be easy because, as RBI told the Tatas when it first rejected the group buying back DOCOMO’s stake in Tata Teleservices for R14,500 crore, the proposal was against the law. Though Tatas had agreed to buy back DOCOMO’s stake for half the original price in case their joint venture didn’t perform well, at the time the deal was signed, RBI rules stipulated that any re-purchase had to be based on an independent valuation report, and that report had put a R2,915 crore cap on what could be paid. Which is why, even as the London arbitration panel gave a verdict in favour of DOCOMO, 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”. RBI could, it is true, have given special permission since the spirit of the rules was to prevent debt masquerading as equity, and the Tata-DOCOMO investment was a clean equity deal.
What makes the case more interesting is that, by next week, the central bank has to tell the court if it has the power to oppose a foreign arbitration award. The ruling, which will probably be challenged all the way up to the Supreme Court, is critical because getting global arbitral awards in their favour, several foreign firms have found the awards getting stuck in Indian courts.
Indian arbitration law, to get some perspective, divides arbitration into two parts—Part 1 is justiciable in Indian courts since the arbitration is held here, and in Part 2 where the arbitration is done overseas, local courts just have to enforce the award unless there is serious fraud. While Indian firms still tried to use Part 1 to delay foreign awards, matters seemed like they were settled in Bhatia International vs Bulk Trading in 2002. While the ruling had some grey areas, that was settled in 2012, in Balco vs Kaiser Aluminium, where SC said that once an agreement specified a foreign arbitration centre, no injunction or challenging of the award could take place in India. The position was reinforced by SC—in 2016, in Etizen vs AML—which said that any agreement which mentions a foreign juridical seat automatically ensures that Part 1 does not apply. Logically, then, there is no way the central bank can stop the award, unless it argues the Tatas committed fraud by signing an illegal agreement, and cites para 171 of the arbitral award to argue that even the London court had its doubts on the applicability of the award. The deal can only be enforced if the central government explicitly directs the central bank to clear it on exceptional grounds. The Tatas or DOCOMO petitioning the courts is going to be of little help.