Tata-Docomo Case: RBI Can’t Intervene In Arbitral Award, Rules Delhi High Court

Rejecting the Reserve Bank of India's (RBI) ability to intervene, the Delhi High Court upheld the consent agreement between Tata Sons Ltd. and NTT Docomo on Friday.

The decision of a single-judge bench of Justice S Muralidhar will allow Tata Sons to pay Docomo $1.17 billion as per the arbitral award by the London Court of International Arbitration (LCIA). Additionally, shares of Tata Teleservices (TTSL) held by Docomo will be transferred to Tata Sons.

Docomo had been fighting Tata Sons over the right to sell back its stake in the Indian wireless venture, to the Tata Group holding company, for at least 50 percent of the original investment, as per the terms of a 2009 agreement. It had moved the high court to enforce an order it won in June last year from the LCIA, which ruled that Tata should pay $1.17 billion to Docomo as compensation for breaching the agreement. The award was opposed by Tata Sons initially, on grounds that the Reserve Bank of India did not allow foreign investors any guaranteed return on an equity investment in India, but the joint venture partners later filed a petition in the high court to settle the matter.

The high court has agreed with the reasoning in the arbitral award that what is being awarded to Docomo is damages and not the price of the shares. It pointed out that LCIA's direction that shares must be returned to Tata Sons was only incidental.

There is no purchase of shares that is happening; so the question of RBI's permission does not arise, Sitesh Mukherjee, head of the dispute resolution practice at law firm Trilegal, told BloombergQuint.

The order also states that the RBI has failed to place before the court any regulatory requirement that Docomo should seek permission to receive the amount as damages. The court order makes it clear that as long as the award stands, there is no need for any special permission of the RBI for remission by Tata Sons of the amount awarded to Docomo as damages.

Also Read: Delhi High Court Allows $1.17-Billion Arbitration Award By Tata Sons To Docomo

The matter before the high court was at the stage of recognition of the arbitral award and the RBI couldn't have intervened, Anand Desai, partner at law firm DSK Legal, said.

Mukherjee agreed with the court's reasoning that the RBI's permission was not needed since the agreement provided for legal ways to carry out the obligations.

Besides rejecting RBI's locus, the high court order also concludes that the shareholder agreement between Tata Sons and Docomo is not violative of the foreign investment rules. It says that RBI's Foreign Exchange Management Act (FEMA) contains no absolute prohibition on contractual obligations when it's possible to carry out such obligations without special permission of the regulator.

The order leaves no scope for the RBI to object; it clearly says Docomo can remit the money, Desai said.

If Tata Sons had not challenged the award and had RBI not represented its case before the court, it may have been able to investigate, and if Tata Sons was found to have done indirectly what it could not have done directly (i.e., buy TTSL shares at higher than market value) it may have been able to penalise Tata Sons, Murali Neelakantan, a lawyer who practices corporate law told BloombergQuint.

Interestingly, in a similar matter, while allowing the enforcement of the arbitral award, the Delhi High Court had left the window open for the RBI to proceed against the party for any FEMA violations.

Also Read: Hope RBI Won't Delay Final Resolution With Tatas: Docomo