Tatas, Do­como may Ring in a Set­tle­ment To­day

Cos to jointly pro­pose com­pen­sa­tion plan, work­able only if HC re­jects RBI’s in­ter­ven­tion ap­pli­ca­tion

The Economic Times - - Front Page -

Deepali Gupta & Ari­jit Bar­man

Mum­bai: Just days af­ter N Chan­drasekaran took charge as the new chair­man of Tata Sons, In­dia’s largest con­glom­er­ate is mov­ing to re­solve its spat with its Ja­panese joint ven­ture tele­com part­ner NTT Do­como.

Both par­ties are plan­ning to file a joint pe­ti­tion on Tues­day (Fe­bru­ary 28) in the Delhi High Court (HC) to pro­pose a mech­a­nism to en­able the Tata Group to pay the Ja­panese telco the en­tire $1.17 bil­lion (.`7,250 crore) as com­pen­sa­tion for its 26% stake in Tata Te­le­ser­vices without in­fring­ing upon In­dia’s for­eign ex­change norms, said four peo­ple with knowl­edge of the sit­u­a­tion.

De­tails of the pro­posed mech­a­nism are sketchy, but the sources cited sug­gest that the in­tent is to find a route that will by­pass the ob­jec­tion of Reserve Bank of In­dia (RBI), us­ing a for­mula to al­low for fair value of Do­como’s stake and pay out an ad­di­tional sum.

Till date, both RBI and the fi­nance min­istry had said that a 2009 con­tract be­tween the two com­pa­nies — un­der which Do­como was guar­an­teed a pay­out — would vi­o­late for­eign in­vest­ment rules. In Oc­to­ber 2016, RBI be­came a party to the case. The pro­posed so­lu­tion is work­able only if the court re­jects the RBI’s in­ter­ven­tion ap­pli­ca­tion.

Se­nior coun­sels Dar­ius Kham­bata and Kapil Sibal are ex­pected to ar­gue on be­half of Tata and Do­como, re­spec­tively.

Spokesper­sons of Tata Sons and Do­como de­clined to com­ment.

Tata Group watch­ers say that Ratan Tata, who took charge of the $120-bil­lion salt-to-soft­ware con­glom­er­ate last Oc­to­ber through a board­room coup that saw the un­cer­e­mo­ni­ous sack­ing of Cyrus Mistry, has been per­son­ally in­volved in seek­ing a quick res­o­lu­tion. He has been lead­ing the dis­cus­sions with the Ja­panese side. Tata has been of the view that not hon­our­ing the 2009 agree­ment would harm the group’s rep­u­ta­tion.

“It is a so­lu­tion that is be­ing pro­posed. It is up to the court to give di­rec­tion on it,” said one of the peo­ple.

In its last hear­ing, the Delhi HC was still con­tem­plat­ing whether to ac­cept RBI’s plea to in­ter­vene in the mat­ter. How­ever, dur­ing ar­gu­ments, the judge has re­peat­edly men­tioned the pos­si­bil­ity of a joint res­o­lu­tion. He asked ques­tions on what the ar­bi­tra­tion judg­ment was, point­ing out that it had re­ferred to al­ter­na­tive routes of sat­is­fy­ing the con­tracted clauses.

In a sim­i­lar mat­ter ear­lier this month, Jus­tice Mu­ralid­har, who is also pre­sid­ing over the Tata-Do­como case, ruled that penalty un­der in­ter­na­tional ar­bi­tra­tion is dif­fer­ent from pre-de­ter­mined value of shares. This is the crux of Do­como’s ar­gu­ment in the Delhi High Court at the mo­ment.

Do­como has main­tained that there are ways to side­step the reg­u­la­tions be­ing cited as hur­dles to cash­ing the Ja­panese part­ner out. It had pro­posed, among other pos­si­bil­i­ties, a trans­ac­tion with an off­shore en­tity of the Tata group, find­ing a third-party buyer, or even di­lut­ing stake in Tata Te­le­ser­vices – the tele­com joint ven­ture – through a pref­er­ence share is­sue and then pay­ing the fair mar­ket value for the un­listed com­pany.

In 2009, Do­como bought 26.5% stake in Tata Te­le­ser­vices for about Rs 12,740 crore. The two agreed that on fail­ure to meet cer­tain cri­te­ria, Do­como would have the right to exit the ven­ture af­ter five years and would get back a min­i­mum 50% of its in­vest­ment amount­ing to Rs7,250 crore (or 125.4 bil­lion yen), or a fair mar­ket price, which­ever was higher.

The RBI ruled that the op­tion was not valid and the pay­ment would have to be at the fair mar­ket value, as per an amend­ment in FDI rules in 2013, a few years af­ter the deal. When Do­como sought to quit, the eq­uity value of the com­pany was sig­nif­i­cantly be­low the agreed half of the in­vest­ment. Do­como moved the high court ear­lier last year to en­force an ar­bi­tra­tion award of $1.17 bil­lion that Tata Sons, the hold­ing com­pany of the Tata Group, was re­quired to pay to the Ja­panese phone ser­vices provider as com­pen­sa­tion for its stake in Tata Te­le­ser­vices.

The Ja­panese tele­com ma­jor has also filed for en­force­ment of the award in the UK and the US and threat­ened to at­tach as­sets on non-re­pay­ment. “Both the par­ties have (now) agreed to go easy and ex­tend the trial dates (for these cases in the US and the UK) wher­ever they come up at the mo­ment,” said a per­son close to Do­como, adding that ne­go­ti­a­tions to­wards a res­o­lu­tion had be­gun.

The court is to de­cide whether the ar­bi­tral award can be en­forced in spite of the RBI and the fi­nance min­istry’s re­fusal to al­low Tata to pay the Ja­panese com­pany. Tata had so far claimed that the award vi­o­lates the fun­da­men­tal pol­icy of In­dia, a valid ground for it to be set aside.

Tata has de­posited the nec­es­sary funds with the Delhi HC, should the court rule that the award is en­force­able.

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