No Fresh Examination By RBI Of $1.17-Billion Tata-Docomo Arbitration Award: Delhi High Court

The Delhi High Court on Tuesday rejected the Reserve Bank of India’s (RBI’s) submission to let the banking regulator examine afresh payment of the $1.7-billion arbitral award by Tata Sons Ltd. to its erstwhile Japanese telecom partner NTT Docomo Inc. The court also asked RBI to state which legal provision can be an impediment to the award.

After RBI's counsel Soli Sorabjee raised the request, the high court said there was no question of examining the matter afresh, as the central bank had already been through the same process twice.

The next hearing has been scheduled for Wednesday, March 15.

In the last hearing on Thursday, the Delhi High Court had asked RBI’s counsel C Mukund to inform in writing 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.

On February 28, Tata Sons and NTT Docomo had informed the high court, in a joint petition, that they have reached a settlement regarding enforcement of the arbitration award by the London Court of International Arbitration (LCIA), and would not oppose RBI’s intervention in the case. Tata Sons also withdrew their objection to the award.

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.

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.