Tata-Docomo dispute will set a precedent for M&A & PE transactions in India

By Mini Raman

  • 03 Aug 2016

Much of the Indian transactional law is at its nascent stage, and very few concepts have been tested by the courts of law in India. The Tata Docomo dispute is a rare case in which Indian foreign investment law and transaction documentation drafted around such law are being scrutinised under international arbitration.

In early 2009, NTT Docomo (Docomo) invested Rs. 14,500 crore ($2.2 billion) in an Indian wireless business on the agreement that if certain targets weren’t met in five years, its partner, Mumbai-based Tata Group, would either find a buyer for the Japanese company’s 26.5% stake at fair market value (i.e. provide an exit to Docomo), or would itself buyback those shares at half the original value of the investment (i.e. buyback option), whichever was higher.

Docomo decided to exercise its exit option in April 2014 and found that there was no taker for the unprofitable operations. Consequently, Docomo sought to exercise its buyback option under the agreement and required the Tata Group in this regard to buyback its shares at a predetermined price which was higher than the fair value of the joint venture company’s shares.


Clauses for exit and buyback such as the ones referred to above are common in investment agreements with joint venture partners and private equity funds. And hence, the concern with the outcome of the Tata Docomo dispute, as it will determine the enforceability of these provisions under the Indian law.

One of the concerns dealt with in the dispute is the enforceability of pricing norms prescribed by the Reserve Bank of India (RBI) . The Master Circular On Foreign Investment (Master Circular) issued yearly by the RBI requires that the transfer of shares of an Indian company by a resident Indian to a non-resident entity cannot be more than the fair value of such shares.

In the event any party wished to acquire shares other than in accordance with the pricing guidelines of the RBI (i.e. at a price higher than at the fair value of the shares), prior approval of the RBI has to be sought for such a transaction. In light of such a requirement, the Tata Group sought the approval of the RBI for the acquisition of Docomo’s shares in the joint venture. 


The Tata Group asked for the RBI’s permission to pay out the equivalent of Rs 7,250 crore to Docomo. The RBI did not grant such approval. This was one of the reasons that the Tata Group could not acquire the shares of Docomo in the joint venture company.

Following this, in January 2015, Docomo took the dispute to the London Court for International Arbitration. Last month, the court awarded the Japanese firm $1.17 billion (Rs7,840 crore at the current rate) in compensation from Tata Sons, the Indian conglomerate’s holding company.

Docomo is now seeking to enforce the award of the London Court.


Given that the pricing regulation for the transfer of shares from a non-resident to a resident is a fundamental subject under Indian investment laws, it would be interesting to see how a foreign award which is contrary to this regulation is enforced. In other words, it will set a precedent for settling cases where an international arbitration award stands in contravention to the foreign investment law in India.

From one perspective, the whole of Indian foreign direct investment law is now being tested by the decision of the London Court of International Arbitration.

And the award, its enforcement and the consequences that follow are being keenly watched by foreign partners in Indian joint ventures, and private equity funds invested in Indian companies.


Mini Raman is partner at LexOrbis, a Bangalore and New Delhi-based intellectual property law firm.

Like this column? Sign up for our daily newsletter to get our top reports.


Share article on