Saturday, April 29, 2017

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Upholds settlement to realise London Court of International Arbitration's award in favour of DoCoMo

Tata-DoCoMo case


Signalling an end to a long-drawn regulatory tussle, the Delhi High Court (HC) on Friday upheld a settlement agreement between Tata Sons and NTT DoCoMo to realise the $1.18-billion London Court of International Arbitration (LCIA) award in favour of the Japanese telecom giant. 
Tata-DoCoMo case

This is a significant development as the DoCoMo settlement is learnt to have been priority for the new Tata Sons chairman, N Chandrasekaran. 

The Tata Teleservices-DoCoMo joint venture (JV) was scripted in 2008 when Ratan Tata was the chairman of the group.
Tata-DoCoMo case

Rejecting the Reserve Bank of India (RBI) intervention in the enforcement proceedings, Justice S Muralidhar pronounced the verdict after coming to the conclusion that there was nothing contrary to any provision of Indian law in the February 2017 settlement plan submitted by the two companies to resolve their dispute. 

“It appears to be a well-settled legal position that parties to a suit, or as in this case, an award, may enter into a settlement even at the stage of execution of the decree or award,” said Justice Muralidhar in a single-Bench judgment. 
Tata-DoCoMo case

Honouring the International Covenants

Friday’s decision held that the issue of an Indian company honouring its commitment under a contract with a foreign entity would have a bearing on its goodwill and reputation in the international arena and have an indubitable impact on strategic relationships between countries. 

It also concluded that a third party (the RBI) could not be allowed to oppose the compromise arrived at between the two companies in such a manner.
Tata-DoCoMo case
Grounds for RBIs Objection

The RBI had opposed the enforcement of the LCIA award in the high court, saying it was void in law, as it had failed to consider the existent regulatory prohibitions and would effectively allow something that could not be done directly to be done in an indirect manner. 

According to the RBI, the award was in violation of Regulation 9 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (as amended in 2013), which prohibited the transfer or sale of shares at a price exceeding the market price of shares arrived at by any international valuation methodology. The banking regulator had also said that the award was in violation of Section 6 of the Foreign Exchange Management Act, 1999, which empowers the RBI to prohibit, restrict or regulate the transfer of any security by a person outside India. 

Stating that the award had allowed a restricted capital account transaction in the garb of a breach of contract, the RBI had claimed that the award (and the settlement agreement) was against the fundamental policy of India and incapable of enforcement in any circumstance. The lawyer for the RBI had also highlighted its apprehensions of the issue becoming a dangerous precedent for similar cases in the future, if the award was eventually enforced.

DoCoMo’s lawyer, senior advocate Kapil Sibal, had opposed the RBI stance by highlighting that the banking regulator could not object to civil proceedings between two private parties for the enforcement of a valid international arbitration award. After initially opposing the enforcement, Tata’s counsel, senior advocate Darius Khambata, had also supported the enforcement in line with their joint settlement agreement and said that the realisation of the award would send a strong signal for future foreign direct investments to come into India.

However , if you go through my earlier blog posting on the heading
“Enforcement of a foreign arbitral award cannot be made in India if it opposes the provisions of FEMA” 

The same Delhi High Court has given a different analysis and findings.

More comments on the contradictions in the above mentioned cases are always welcome. 


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