Delhi High Court enforces Tata-Docomo $1.17 Billion arbitration award

The Delhi High Court today delivered a judgment rejecting the Reserve Bank of India (RBI) intervention, paving the way for enforcement of $1.17 billion arbitration award passed by the London Court of International Arbitration (LCIA)..Brief Facts.Docomo had entered India in 2009 with an investment of $2.2 billion in Tata group’s Tata Teleservices for a 26.5% stake in the venture..In this regard, a shareholder agreement was entered into on March 25, 2009 between the two parties. According to the SHA, in the event of Docomo’s exit from the venture within five years, Tata would be obligated to find a buyer who would purchase the Japanese Company’s shares in Tata Teleservices at a price equivalent to the fair value of those shares as on 31st March 2014, or 50% of the price at which Docomo purchased its shares, whichever would be higher..In January 2015, Docomo initiated arbitration proceedings in London against Tata Sons, claiming that Tata Sons had failed to fulfil its obligation to find a buyer for Docomo’s stake in Tata Teleservices..The LCIA awarded damages of USD 1.17 billion in favour of Docomo for Tata Son’s inability to find a buyer as per the SHA and stated that performance of the agreement did not necessarily require special permission from the RBI because certain methods of performance were already covered by general permissions..Thereafter, Docomo approached the Delhi High Court for the enforcement of the Arbitral Award after Tata Sons refused to make the payment citing RBI’s refusal to give permission to transfer the funds..In the meanwhile, the RBI also filed an interim application seeking intervention in the matter, which was allowed by the Court..However, in February 2017, Tata Sons withdrew its objections to the enforcement of the award and agreed to make the payment..Submissions.The RBI through Advocate C. Mukund stated that as the impugned Award requires remission of money to an entity outside India, RBI’s role cannot be negated. It was further stated that the agreement violated Section 9 of FEMA and was also hit by Section 23 of the Indian Contract Act and the award sought to be enforced was opposed to the public policy of India..Senior Advocate Kapil Sibal appearing for Docomo categorically stated that RBI had no locus standi to intervene or object to the enforcement of the Award in question. He submitted that entertaining such an objection at the instance of an entity which was not a party to the Award would itself be opposed to the fundamental policy of Indian law..Observations.The Single Judge Bench of Justice S. Muralidhar, on the question of the locus standi of RBI to intervene in the enforcement of the award, observed:.“The Court is unable to accept the submission made on behalf of RBI that since the Award discusses the provisions of the FEMA and the Regulations thereunder in extenso and comes to a definite conclusion as to their applicability, hearing RBI by the execution Court is imperative.”.“The very stand that RBI is now taking in this Court that without its special permission there cannot be a transfer of monies by Tata to Docomo, was taken by Tata before the Arbitral Tribunal and was expressly negatived by the Arbitral Tribunal by a unanimous Award.”.“RBI did not contend that the SHA was void or illegal”.The Court further held that there is no provision in law, which permits RBI to intervene in a petition seeking enforcement of an arbitral Award to which RBI is not a party..On the question of validity of the Shareholder Agreement, the Court observed:.“The SHA could not be said to be void or opposed to any Indian law including the FEMA, much less the Indian Contract Act. FEMA contains no absolute prohibition on contractual obligations. It envisages grant of special permission by RBI. As rightly held by the Arbitral Tribunal, Clause 5.7.2 of the SHA (regarding obligation of Tata in case of Docomo’s exit) was always legally capable of performance without the special permission of RBI, using the general permission under sub-regulation 9(2) of FEMA 20.”.“The Court is unable to find anything in the Consent Terms which can be said to be contrary to any provision of Indian law much less opposed to public policy or void or voidable under the ICA.”.The court also made observations regarding the impact of fulfilling contractual obligations on foreign investment in the country:.“The issue of an Indian entity honouring its commitment under a contract with a foreign entity which was not entered into under any duress or coercion will have a bearing on its goodwill and reputation in the international arena. It will indubitably have an impact on the foreign direct investment inflows and the strategic relationship between the countries where the parties to a contract are located.”.Read Judgment