Delhi HC notice to Tata, Docomo on RBI application

RBI told the court that there was a prohibition on the put option in the contract between Tata and Docomo


Docomo moved the HC earlier this year to enforce an arbitration award of $1.17 billion that Tata Sons was required to pay to the Japanese phone services provider as compensation for its stake in Tata Teleservices. Photo: HT
Docomo moved the HC earlier this year to enforce an arbitration award of $1.17 billion that Tata Sons was required to pay to the Japanese phone services provider as compensation for its stake in Tata Teleservices. Photo: HT

New Delhi: The Delhi high court on Thursday asked NTT Docomo Inc. and Tata Sons Ltd to respond to a Reserve Bank of India (RBI) application seeking to be heard in a dispute between the two estranged partners.

Docomo moved the high court earlier this year to enforce an arbitration award of $1.17 billion that Tata Sons, holding company of the Tata Group, was required to pay to the Japanese phone services provider as compensation for its stake in Tata Teleservices Ltd.

The RBI, in October, sought to be heard in this dispute.

RBI’s lawyer, Mukund C., on Thursday told the court that there was a prohibition on the put option in the contract between Tata and Docomo.

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Under the terms of the shareholder agreement between Docomo, Tata Teleservices and Tata Sons, Docomo had the option to request that a suitable buyer be found to purchase its Tata Teleservices shares for 50% of the acquired price, amounting to Rs7,250 crore (or 125.4 billion yen), or a fair market price, whichever is higher.

Regulation 9 of the Foreign Exchange Management Regulations 2000 says that the “guiding principle will be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at a fair price computed.”

Lawyer Darius Khambatta, representing Tata Sons, argued that the RBI, in a letter, refused to permit the payment of the arbitration award based on this regulation.

Khambata added that the arbitration tribunal did not deem it necessary to consider the RBI’s rejection of the permission to pay, but permitted the amount of 50% of acquired price to be paid as compensation.

“It’s a pure question of law to be decided, where the RBI and the ministry of finance has said that (Tata is) not allowed to make payment, whether such an award will be against the fundamental policy of India,” Khambata said.

Justice S. Muralidhar, hearing the case, asked how often RBI had prevented money leaving the country and whether that fell within the fundamental policy of the country. If yes, he orally observed, it would be a “militant kind of prohibition”.

He also asked Khambata how a contractual clause could be rewritten based on a regulation that came after 5-6 years of the agreement being signed.

The next date of hearing is 21 December, when the two private companies will respond to the RBI application.

Tata Sons spokespersons did not respond to an email query.

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