Tata-Docomo case: Here’s how Delhi HC order will help similar stalled deals

The Delhi High Court’s Friday judgment clearing the Tata-Docomo transaction will have a far-reaching impact on similar cases where foreign investors are looking to exit Indian joint ventures — the cases where an overseas arbitration court has given an award in favour of a foreign investor.

Corporate lawyers said many private equity firms and insurance majors were looking to exit their investments in India and had signed similar agreements with agreed valuations but due to the Foreign Exchange Management Act, which bars predetermined valuations, they were stuck with their investments in India. Today’s judgment will have far-reaching consequences on other pending matters as the Delhi High Court has made it clear that the award by the London Court of International Arbitration Tribunal will have to be honoured by the Tatas said Tejas Karia, partner, Shardul Amarchand Mangaldas.

The Reserve Bank of India had objected to the remittance from Tata Sons to Docomo for the buyback of the latter’s 26.5 per cent stake in Tata Teleservices citing FEMA. According to a 2009 contract between Tata Sons and Docomo, the Tatas were to buy back Docomo’s shares at a minimum of 50 per cent of the value that Docomo was paying while buying shares in Tata Teleservices. As Tata Teleservices made huge losses and missed performance targets, Docomo decided to exit the company in 2014 and asked the Tatas to buy back its shares.

Lawyers said the fact that under a new leadership, the Tatas agreed to settle the issue with Docomo, which helped the clearance of the $1.2 billion damages to Docomo.

Noted corporate lawyer HP Ranina said the Delhi HC verdict would encourage more foreign investors to invest in India. It is time for the government to walk the talk on encouraging foreign investments and change the FEMA laws to allow pre-determined valuations, said he.

Under former Tata Sons chairman Cyrus Mistry, the Tatas had refused to buy back the shares from Docomo, citing FEMA. After a scathing order by the London Court of Arbitration in June last year against the Tatas, Docomo upped the ante and sued Tata Sons in the UK and the US to enforce the award. Docomo later moved the Delhi High Court and Tata Sons, immediately deposited $1.2 billion with the court in July and was losing Rs 2 crore a day as interest.

A change of guard at Bombay House in October also paved the way for the transaction as Ratan Tata wanted to honour the contract with Docomo that he signed as the chairman of the group.

The RBI later impleaded itself in the case, saying it could not clear the transaction because the law barred it. But today’s Delhi High Court order set aside the RBI’s arguments.

Former RBI governor RaghuramRajan had argued FEMA needed to be changed to allow exits to foreign investors with a stop-loss clause. Contracts with pre-determined exits were a global trend, he had said.