New Delhi: The Reserve Bank of India (RBI) on Wednesday opposed the consent terms between Tata Sons Ltd and NTT Docomo Inc. on the enforcement of a $1.17 billion arbitration award to the Japanese telco.
Not satisfied with the reasons for its objections, the Delhi high court gave RBI until 14 March to clarify its stand. Given that neither Tata Sons nor Docomo had objected to the arbitral award, the court wondered whether RBI’s permission was required at all for them to go ahead with it.
“Does the implementation of this award as it reads require special permission of the RBI? Is any special permission of RBI needed for payment of damages? If yes, then produce the rule, regulation or circular (to the effect),” the high court said. “What in these consent terms trouble you?”
RBI has previously contended that the arbitral award was just an enforcement of the original contract disguised as payment of damages. The arbitral award directed Tata Sons to pay $1.17 billion in damages for breaching a shareholder’s agreement that allowed Docomo to exit its stake in Tata Teleservices Ltd at 50% of its acquisition price or fair value, whichever was higher. Current laws specify that foreign companies can only exit investments at a valuation based on the return on equity.
RBI’s lawyer C. Mukund told the high court that it has to first decide on the regulator’s objections before allowing consent terms. He contended that permitting this transaction would set a precedent for other cases. RBI also objected to the clause which said Docomo was open to pursuing legal proceedings in foreign jurisdictions if it didn’t get the money in six months.
The court wasn’t satisfied.
“RBI is not opposing the arbitral award. RBI is simply the custodian of all of India’s foreign exchange and it will do its duty based on its function assigned to it by Indian law as custodian of all Indian currency,” said Shailesh Haribhakti, chairman, DH Consultants Pvt. Ltd, an accounting and consulting firm. “It’ll have to refer the matter back to the finance ministry based on which it had given its earlier refusal. We should not jump the gun and think the RBI is doing something under the law or not. It is just protecting its role under the Constitution as the custodian of all foreign currency in India.”
A Tata Sons spokesperson declined to comment as the matter is still in court.
RBI’s permission is crucial. The Tatas have always maintained that they were willing to pay up if the law allows it.
“My reading of the situation is that the court will not interfere in RBI’s decision,” said Ramesh Vaidyanathan, managing partner at law firm Advaya Legal. “The court, in all likelihood, may dispose of the matter as the parties (Tata and Docomo) do not have a grievance any more.”
Shally Seth Mohile in Mumbai contributed to this story.