Tata Sons Ltd and NTT Docomo Inc. have finally decided to bury the hatchet after a prolonged court battle over an exit agreement that required the Indian company to buy back shares from its Japanese joint venture partner at a predetermined price. This effectively means that the Tatas will have to pay the $1.18 billion to Docomo, as was agreed upon in the original contract.
The two companies, on Tuesday, jointly petitioned the Delhi High Court to resolve the matter. It is, however, to be seen how a Reserve Bank of India guideline, which bans pre-determined valuation of shares, can be circumvented when the matter comes up for hearing on 8 March.
“The parties have jointly applied to the Delhi High Court, requesting that it accept their agreed terms of settlement, subject to such further orders as the court sees fit,” said Tata Sons in a statement. “The settlement terms, if approved by the Delhi High Court, clear the way for the $1.18 billion already deposited by Tata Sons with the Delhi High Court to be paid to Docomo, and would allow Docomo to transfer its shares in Tata Teleservices Ltd.”
After hearing both parties on the joint application, Justice S Muralidhar has adjourned the matter to March 8. Law firm Khaitan & Co is advising NTT Docomo in the case, while the Tata Group is being advised by AZB & Partners.
The development gains significance as it comes days after N Chandrasekaran walked into the corner room in Bombay House as the chairman of Tata Sons. Chandra’s predecessor, Cyrus Mistry, was sacked following his differences with the board, and Ratan Tata, on several issues regarding the running of the company, including the way Mistry dealt with the NTT Docomo issue after taking office.
In 2009, DoCoMo had bought a 26% stake in Tata Teleservices for $2.45 bllion (Rs 13,300 crore). Both parties had agreed that the Japanese company could sell its shares if the Indian partner failed to achieve the performance targets by March 2014. When the Japanese carrier decided to end the alliance in 2014, it called on Tata to either buy back its stake at 50% of the original purchase price or find another buyer.
However, the RBI, which regulates the trade of put options, rejected the deal, saying the payment would have to be at a fair market value, as per an amendment in the rules in 2013. The then equity value of the JV was significantly below the originally agreed upon price.
Subsequently, Docomo had dragged Tata to an international arbitration court in London, which upheld Docomo’s arguments and directed the Tatas to pay $1.17 billion in damages.
The warring joint venture partners started litigations and other legal manoeuvring after the June 2016 order of the London Court of International Arbitration, which had asked the Tata Group to pay $1.17 billion to NTT Docomo as per the original agreement.
NTT Docomo also filed recovery suits in various jurisdiction, including the US, UK and in India.
Now, in anticipation of the matter being resolved in India, Docomo has agreed to suspend its enforcement proceedings in the UK and the US. “This agreement between the parties is a significant step towards resolution of this dispute, and both Tata Sons and Docomo are hopeful that they will continue to work together constructively to achieve a resolution of this case as well as look at further collaboration in the future,” the Tatas said in a statement.
“This development will send a positive signal among foreign investors, since they will be convinced that Indian companies do honour their contracts,” said Ranjit Prakash, founder of boutique infrastructure and dispute resolution law firm Archeus Law.
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