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
FACTS
OF THE 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.
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.
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.
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.
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.
