Time To Revisit Legislations? An Analysis Of The Tata Docomo Case

Time To Revisit Legislations? An Analysis Of The Tata Docomo Case.

[Priya Gupta]

The author is a third year student of Gujarat National Law University.

On the 28th of April, 2017, an important arbitration dispute was settled by the Delhi High Court in the case of NTT Docomo Inc. v. Tata Sons Limited,[1] wherein the court upheld the sanctity of a private contract in a foreign-seated arbitration by denying the Reserve Bank of India the right to intervene. A currently unsettled concern was raised by RBI in the enforcement of an arbitral award between NTT Docomo Inc. (‘Docomo’) and Tata Sons Ltd. (‘Tata’) whereby it contended that the award was against public policy of India as foreigners in matters of equity investments cannot add clauses that assure them a return below the sovereign yield.

Facts of the Case

Docomo and Tata entered into a Shareholder Agreement on the 25th of March, 2009, clause 5.7 of which stated that if Tata failed to satisfy certain ‘Second Key Performance Indicators’ stipulated in the agreement, it would be obligated to find a buyer or buyers for Docomo’s shares at the Sale Price i.e., the higher of (a) the fair value of those shares as of 31st March 2014, or (b) 50% of the price at which Docomo purchased its shares.

Tata breached the agreement and so was called upon by Docomo to find a buyer or buyers for acquisition of sale shares. Another option later deemed unacceptable to Docomo was that Tata would acquire shares at the fair market price of INR 23.44 (USD 0.36). Finally, the dispute between the two parties was referred for arbitration when Tata failed to honor its obligations due to RBI’s objection before the London Court of International Arbitration.

Arbitral Award and its Enforcement

The tribunal rejected the contentions of Tata including which was the claim that an award of damages would result in contravention of the laws of India, especially the FEMA regulations. It stated that as Tata was under a strict obligation to perform, a special permission from RBI was not required. The methods of performance were deemed to be covered by other general permissions. It noted that-

“Tata is liable for its failure to perform obligations which were the subject of general permissions under FEMA 20. The FEMA Regulations do not therefore excuse Tata from liability. The Tribunal expresses no view, however, on the question whether or not special permission of RBI is required before Tata can perform its obligation to pay Docomo damages in satisfaction of this Award.”

On the other issue of non-acceptance of Tata’s offer to buy the shares at fair market price, the tribunal said that Docomo acted in good faith by insisting on performance as it had the reasonableness to not accept the amount on the offer. Therefore, the tribunal ruled out in favor of Docomo by making Tata liable for an amount of US$ 1,172,137,717 payable within 21 days.

The real problem arose when Docomo sought to enforce the award in India. RBI filed an intervening petition where its counsel contended that the agreement was in violation of regulation 9 of the FEMA 20 which provided that the transfer should be at a price determined on internationally accepted pricing methodology. Further, the settlement was also in violation of section 6(3) of FEMA as valuation, transfer and issue of shares had to be conducted on the basis of the RBI guidelines which were not followed in the present case and hence the award was contrary to the public policy of India.

Judgment of the Delhi High Court

The Court first took up the question as to whether an intervention petition by the RBI could be entertained and, if yes, on what grounds. To answer this, it referred to section 2(h) of the Arbitration and Conciliation Act, 1996, which defines ‘party’ to mean a party to an arbitration agreement. Sections 48 and 34 work on the same lines by making sure that only a party to an arbitration agreement could file an application for setting aside the arbitral award. Since RBI was not a party to the agreement under section 48(1), its application was liable to be set aside.

On the issue of violation of provisions of FEMA, it was stated that the agreement between Docomo and Tata was based on contractual promise which could always have been performed using general permissions of RBI under FEMA 20. It was held that the promise was valid and enforceable because sub-regulation 9(2) (i) of FEMA 20 permitted a transfer of shares from one non-resident to another non-resident at any price. Moreover, the issue at hand dealt with damages for breach and not for purchase or sale of shares overseas which is why a special permission would not be required.

Therefore, the contentions of RBI were set aside and the court ordered for the enforcement of the arbitral award.


It has generally been a recurring tendency of Indian courts to intervene in enforcement of awards by drawing approaches contradictory to the intent of the Act. This has been one of the major reasons for India for not being able to place itself on the global map of arbitration. The Delhi High Court has shown a pro arbitration approach in the current case by appreciating the negative impact on the goodwill of the country if a foreign award is not recognized. The award is said to be positive step as it reduces the ability of Indian companies to violate agreements with foreign entities and provides a wider interpretation to what can and can’t be opposite to public policy.

However appreciable the approach of the court may be, the one issue that cannot be ignored here relates to the pending rules on capital account transactions with respect to debt instruments. Traditionally, the government does not have any prescribed limits as to equity investments from foreigners but have capped debt investments since over-indebted countries often see a run on their currency.[2] Since then, an investor putting a percentage on his investments when the return falls has been disallowed by RBI as debt in the guise of equity. Even though the current case did not deal with sale of shares, isn’t it pertinent to think of a situation where it did? What would the approach of the court be? Wouldn’t the enforcement of the foreign award be against the public policy of India?

It is to be noted that when this issue first came in hand, the then RBI Governor Raghuram Rajan had understood the need for an amendment to the rules and promised to act on the same. Unfortunately, promises remained on paper and the rules were never changed. Even though the budget of 2015 granted RBI the power to make rules on capital account transactions with respect to instruments of debts, the clause is still left to be notified.

FEMA needs to be amended to allow exits to foreign investors with a stop-loss clause. Contracts with pre-determined exits have been a global trend.[3] Notably, many equity firms signing similar agreements have expressed their concern of being troubled by their investments with India. The government of the day must realize that sitting on such recommendations will only make India a hostile ground for inviting investments.

[1] NTT Docomo Inc. v. Tata Sons Ltd., 2017 S.C.C. OnLine (Del) 8078.

[2] ‘Tata-Docomo case: Is RBI Right in Opposing Settlement?’(Moneycontrol, 11 March 2017) http://www.moneycontrol.com/news/business/companies/tata-docomo-case-is-rbi-rightopposing-settlement-2149485.html accessed 12 July 2017.

[3] Dev Chatterjee, ‘Tata-Docomo Case: Here’s How Delhi HC Order Will Help Similar Stalled Deals’ (Business Standard, 29 April 2017) http://www.business-standard.com/article/companies/tata-docomo-case-here-s-how-delhi-hc-order-will-help-similar-stalled-deals-117042900151_1.html accessed 13 July 2017.

[1] 2017 S.C.C. OnLine (Del) 8078.

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