Little room to manoeuvre in DoCoMo case

Lokeshwarri SK | | | Updated on: Nov 01, 2016

Cyrus Mistry fired his next salvo on the Tata Group on Wednesday, stating that Ratan Tata and the Tata Trust were kept informed about the decisions taken in the Tata DoCoMo issue.

Be that as it may, could the DoCoMo issue have been handled differently by Cyrus Mistry?

Given the Indian regulations and the stance taken by the RBI and the Finance Ministry, it appears as if Mistry had little room to manoeuvre in this instance.

Against the law

The contract signed between Tata Teleservices and NTT DoCoMo was not in line with Indian regulations.

The RBI originally did not allow share buy backs at defined price in foreign direct investments. It was held that inclusion of these clauses made the overseas investor get a fixed return after a period, making them external commercial borrowings and not FDI.

The Central Bank gave some leeway to foreign investors in 2015 by allowing share buy backs in FDI, but these deals had to take place at fair value as determined by the stock market price or other specified financial metrics. The Centre too, holds the view that share buy-backs in FDI transactions should take place at fair value only.

According to DIPP, “Investor exercising option/right shall be eligible to exit without any assured return, as per pricing/valuation guidelines issued by RBI from time to time.” Since the put option in the Tata DoCoMo contract promised a fixed price (at least half the original investment), it was held invalid according to Indian laws.

No way out

“Indian corporates are bound by Indian laws and even Cyrus Mistry couldn’t have gone beyond the boundaries of law.

An agreement between the two corporates cannot be a base for change in laws by the government,” says Rakesh Nangia, Managing Partner, Nangia & Co.

Some feel that an out-of-court settlement could have been opted for in order to ensure that the Tatas did not renege on the initial contract. But doing so would have been in contravention on Indian laws. “Any payment by Tata beyond the RBI permitted price could have tantamount to violation of FEMA, and hence, an out-of-court settlement is questionable,” says Nangia.

What next?

After the London Court of International Arbitration ruled in favour of DoCoMo, the Japanese company is now trying to enforce this award through the Delhi High Court.

The court has asked the RBI to file a formal application to put forward their stance on the enforcement of the Tata-DoCoMo international arbitration award. “In case the Delhi High Court decides to enforce the award, a precedent will be set for FDI in India,” says Nangia.

Published on January 15, 2018

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