When Boards Forget Their Custodianship Role!

Some international arbitration cases that have gone against India highlight the uncertainty in the country’s policy and regulatory framework.

- Dipak Mondal

The dispute between the Tata Group and Japan’s NTT DoCoMo over the latter’s exit from Tata Teleservices has taken yet another curious turn. What looked like just another corporate wrangling over terms of agreement has assumed larger significance. The government has now asked the Enforcement Directorate (ED), the agency that investigates money laundering and violation of Foreign Exchange Management Act (FEMA) cases, to look into the 2009 stake sale deal between the two companies.

The ED is investigating possible violation of FEMA rules when the Indian company sold a 26 per cent stake in its telecom unit to the Japanese company. This came after the London Court of Arbitration ordered Tata Sons to pay $1.17 billion to NTT DoCoMo for failing to buy back the latter’s stake as per the shareholders agreement between the two.

According to the agreement, Tatas were to find a buyer for DoCoMo’s stake in the company at 50 per cent of the acquired price or a fair market value, whichever is higher. The Tata Group failed to find a buyer for the Japanese company’s stake. It subsequently sought the Reserve Bank of India’s (RBI) permission to buy back at 50 per cent of the initial investment made by NTT DoCoMo, though the fair value of the shares were much lower. The RBI initially rejected the request citing FEMA rules but later agreed to allow the transaction. However, the Indian government blocked the transaction. This forced the Japanese company to take the arbitration route and it won an award at the London Court of Arbitration.

However, the government doesn’t seem to be in a mood to budge and allow Tata Sons to make the payment. Moreover, it has ordered ED investigation into the deal itself. Now, the Tatas have appealed against the London Court order.