Tata-Docomo case: Delhi HC rejects RBI plea, clears $1.17 billion arbitration award
With Delhi HC rejecting RBI’s plea, Tata Sons can now transfer the $1.17 billion arbitration award to Docomo, which will then transfer shares in Tata Teleservices to Tata Sons
New Delhi: The Delhi high court on Friday cleared the way for enforcement of the $1.17 billion arbitration award between Tata Sons and NTT Docomo Inc.
Accordingly, Tata Sons Ltd can proceed with the transfer of the amount to Docomo, and subsequently the Japanese firm can transfer its shares in Tata Teleservices Ltd to Tata Sons.
The amount of $1.17 billion has already been deposited by Tata Sons with the court.
Justice S. Muralidhar rejected Reserve Bank of India’s (RBI) intervention in the enforcement of the arbitral award that had been agreed to by both parties.
The verdict has effectively diluted RBI’s standing, thereby limiting its role in a situation concerning enforcement of the arbitration award where money is sought to be remitted outside India.
RBI declined to comment.
In its ruling, the court upheld the validity of the arbitration award and directed the parties to proceed with the consent terms flowing from it. It was directed that the money deposited with the court would be transferred to an account in the name of Tata, on obtaining a clearance certificate from the Competition Commission of India (CCI).
A step by step process was laid down in the 41-page order, for completion of the transfer of funds and shares between the parties.
Docomo would have to nominate an authorised dealer for the remittance of funds to the designated bank account in accordance with the consent terms.
Once the transfer of funds is complete, Tata Sons would have to initiate the process of debiting its dematerialised accounts of all shares of Tata Teleservices Ltd held by Docomo and have them credited to the dematerialized accounts of Tata.
Tata Sons had all along maintained that while it was willing to pay NTT Docomo what it owned the company according to their agreement, Indian laws prevented it from doing so.
Both companies had reached a settlement concerning enforcement of the arbitration award in February itself and sought the court’s permission for transfer of funds under it. Subsequently, the RBI opposed the consent terms.
Not satisfied with the reasons for its objections, given that neither Tata Sons nor Docomo had objected to the arbitral award, the court had given RBI time to bring on record any rules or circulars which could impede the transaction.
RBI opposed the transfer of funds under mutual settlement between the companies and contended that permitting transfer of funds violated provisions of the Foreign Exchange Management Act (FEMA), 1999, and was against public policy.
RBI’s intervention was opposed by both Tata and Docomo through their respective counsels.
“The decision is path-breaking since it recognises the power of the arbitral tribunal to award damages for failure to purchase the shares at a fixed price under an agreement between the parties. It has also made clear that such transactions would not violate provisions of Foreign Exchange Management Act , 1999 and that RBI cannot intervene when it is not a party to the proceedings. said Tejas Karia, Partner, Shardul Amarchand Mangaldas.
It is a positive sign for enforcement of foreign awards in India so long as it is couched as award of damages for breach of terms. This will reduce the ability of Indian entities to resist the enforcement of the foreign award in India to that extent, he added.
In April 2014, NTT Docomo had decided to sell its entire 26.5% stake in Tata Teleservices and withdraw from mobile telephony in India. Under the original agreement between Tata and NTT Docomo, the latter had the right to request a buyer for its stake at a fair market price or 50% of its acquired price, amounting to Rs7,250 crore, whichever was higher.
In January 2015, NTT initiated arbitration proceedings against Tata Sons, claiming the latter failed to fulfil its obligation to find a buyer for Docomo’s stake in Tata Teleservices Ltd.
A London tribunal in 2016 ordered the promoter of major Tata operating companies to pay $1.17 billion as compensation to NTT Docomo in June for breaching the agreement. Thereafter, Docomo filed an enforcement proceeding before the Delhi high court.
Former chairman Cyrus Mistry’s handling of this dispute was reportedly one of the reasons for Tata’s growing displeasure with him—which eventually resulted in his ouster as chairman of Tata Sons on 24 October.