DoCoMo to exit TTSL as Delhi HC okays $1.18 bn arbitration award

29 Apr 2017

The Delhi High Court on Friday approved the $1.18-billion arbitration award to Japanese telecom major NTT DoCoMo that Tata Sons has to pay for DoCoMo to exit Tata Teleservices (TTSL), likely ending a prolonged corporate battle that had cast a shadow on India-Japan ties.

The court also overruled the Reserve Bank of India's objection that it would amount to a transfer of shares in violation of the law, and allowed the transfer of $1.18 billion by Tata Sons to the Japanese company.

''There is no provision in law which permits RBI to intervene in a petition seeking enforcement of an arbitral award to which RBI is not a party. Its prayer for permission to intervene is rejected,'' said the judgement by Justice S Muralidhar.

The 22 June 2016 award of an arbitration court in London is ''declared as enforceable in India and shall operate as a deemed decree of this court, ''Justice S Muralidhar of the Delhi High Court said in his order.

The court will retain the $1.36 billion already deposited by Tata Sons until the parties get approval from the Competition Commission of India and obtain the withholding tax certificate.

DoCoMo, which is seeking enforcement of the award, while exiting the Tata Teleservices joint venture, will nominate an authorised dealer for the remittance of the award along with interest, legal and arbitration costs, to a designated bank account, after tax deduction.

The high court's order paves the way for the Tata Group to sell or merge the loss-making telecom venture to an incumbent player, possibly with the RCom-Aircel combine.

NTT DoCoMo acquired a 26.5-per cent stake in TTSL for $2.7 billion (Rs13,070 crore at the then exchange rate), in 2009 (See: DoCoMo-Tata Tele JV looks to gobble up new entrants).

Under the terms of the shareholder agreement, Tata Group had to find a buyer for DoCoMo's stake if TTSL failed to achieve certain performance milestones over the subsequent five years. DoCoMo was also assured of a minimum 50 per cent of the amount it invested in such an eventuality.

TTSL, however, failed to meet the performance benchmarks. It also failed to find a buyer for DoCoMo's stake.

Tata Group then sought RBI approval for transfer of the amount as it was a foreign exchange transaction. But, the central bank opposed the transfer saying that the put option should be exercised on the prevailing return on equity and not based on a pre-determined valuation.

This forced DoCoMo to file for arbitration at the London Court of International Arbitration, which ordered the Tatas to pay $1.18 billion as damages for failing to comply with the shareholders' agreement.

While the Tata group initially opposed the enforcement of this award at the Delhi High Court, it changed its line after the exit of Cyrus Mistry as chairman.