RBI Objects To Tata Sons Paying $1.17-Billion Arbitration Award To NTT Docomo
RBI had signalled that the payment Docomo sought would violate foreign investment rules.
In a setback to last week’s settlement agreement between Tata Sons Ltd. and NTT Docomo Inc., the Reserve Bank of India (RBI) on Wednesday told the Delhi High Court that the $1.17-billion arbitral award by the London Court of International Arbitration (LCIA) cannot be enforced.
The high court, in turn, asked RBI’s counsel to inform the bench if the regulator’s permission is needed even when the Tata Group is willing to make the payment, and questioned if it has the power to overrule an arbitral award. Justice S Muralidhar, who is presiding over the case, asked the counsel to clarify if it’s “an independent RBI decision or a stand-in advise of the government (finance ministry)?”
The court directed the central bank to make its stance clear on the issue in an affidavit by March 14.
NTT Docomo has been fighting Tata Sons over the right to sell its stake in the Indian wireless venture for at least 50 percent of the original investment, as per the terms of the 2009 agreement. Docomo had moved the Delhi High Court to enforce the LCIA arbitral award it won in June last year. The arbitral tribunal had directed Tata Sons to pay $1.17 billion to NTT Docomo as compensation for breaching the agreement.
The dispute between the two companies continued as the RBI had stated that the payment Docomo sought would violate foreign investment rules.
In the last hearing, on February 28, Tata Sons and NTT Docomo had informed the high court, in a joint petition, that they have reached a settlement agreement regarding enforcement of the arbitration award, and that they would not oppose the RBI’s intervention in this case.
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The Tata-Docomo Row
In 2009, Japanese entity NTT Docomo acquired a 20 percent stake in Tata Teleservices Ltd. under the agreement that in the event that NTT exercised a sale option to exit the Tata Teleservices investment, Tata Communications Ltd. and Tata Power Company Ltd. would acquire the shares held by NTT, in the same proportion as the shares it sold to NTT.
In June 2014, when NTT decided to use the exit option, it had the right to sell Tata Teleservices shares back to Tata Sons and the seven Tata group companies at 50 percent of the acquisition value or the fair market value, whichever was higher.
On June 30, 2014 the fair market value of Tata Teleservices stood at Rs 23.34 per share, much less than 50 percent of the acquisition price or Rs 58.05 per share. Tata Sons agreed to buy NTT’s stake in Tata Teleservices at Rs 58.05 per share and sought the permission of the Reserve Bank of India (RBI). At the time, the central bank’s regulation did not permit an Indian promoter to buy back, from foreign investors, shares in an unlisted Indian company at pre-determined prices. Any such buyback was only permitted at fair market value.
In October 2016, RBI entered the dispute as a third party, stating that the payout to NTT Docomo will be in violation of the foreign direct investment rules. The finance ministry maintained the RBI’s stance in the matter. Tata Sons, on the other hand, has already deposited $1.17 billion in a fixed deposit favouring the Delhi High Court.