Case: Delhi HC clears $1.17 bn arbitral award
Court rejects RBI’S intervention in enforcement of the award
The Delhi high court on Friday cleared the way for Tata Sons Ltd to pay estranged partner NTT Docomo Inc. a $1.17 billion arbitral award.
Accordingly, Tata Sons can proceed with the transfer of the amount to Docomo, and the latter can transfer its shares in Tata Teleservices Ltd to Tata Sons.
The amount of $1.17 billion was deposited by Tata Sons with the court during the course of the proceedings.
Justice S Muralidhar rejected Reserve Bank of India’s (RBI) intervention in the enforcement of the award that had been agreed to by both parties in February 2017.
The verdict has effectively limited RBI’S role in situations concerning enforcement of arbitral awards where money is sought to be remitted outside India.
RBI and Docomo declined to comment.
Tata Sons welcomed the order and said it was taking the next steps as per the court’s directive.
In its ruling, the court upheld the validity of the arbitral award of June 2016 and directed the parties to proceed with the consent terms flowing from it. It also directed that the money deposited with it be transferred to an account in the name of Tata Sons on obtaining a clearance certificate from the Competition Commission of India.
It laid out a step-by-step process for completion of the transfer of funds and shares between the companies.
Once the transfer of funds is complete, in accordance with the consent terms agreed to by Tata Sons and Docomo, the latter will begin transferring the shares to an account designated by Tata after deducting taxes.
Both companies had reached a settlement concerning enforcement of the arbitral award in February and had sought the court’s permission for transfer of funds.
But RBI had opposed the consent terms.
Not satisfied with the reasons given by the central bank for its objections, the court gave RBI time to bring on record any rules or circulars which could impede the transaction.
RBI cited violation of provisions of the Foreign Exchange Management Act, 1999, and public policy for opposing the transfer of funds.
In April 2014, NTT Docomo decided to sell its 26.5% stake in Tata Teleservices and withdraw from mobile telephony in India. Under the original agreement between Tata and Docomo, the latter had the right to request a buyer for its stake at a fair market price or 50% of its acquired price, amounting to ₹7,250 crore, whichever was higher.
On Tata’s failure to fulfil its obligation to find a buyer for Docomo’s stake, Docomo initiated arbitration proceedings against Tata Sons in January 2015, claiming breach of agreement.
A London tribunal in June 2016 ordered Tata Sons, the holding company of the Tata group, to pay $1.17 billion as compensation to Docomo. Thereafter, Docomo filed an enforcement proceeding before the Delhi high court.
“The decision is path-breaking since it recognises the power of the arbitral tribunal to award damages for failure to purchase the shares at a fixed price under an agreement between the parties. It has also made clear that such transactions would not violate provisions of Foreign Exchange Management Act, 1999 and that RBI cannot intervene when it is not a party to the proceedings,” said Tejas Karia, partner with law firm Shardul Amarchand Mangaldas.
“It is a positive sign for enforcement of foreign awards in India so long as it is couched as award of damages for breach of terms. This will reduce the ability of Indian entities to resist the enforcement of the foreign award in India to that extent,” he added.