The prolonged corporate saga over $1.17 billion payment by Tata Sons to NTT DoCoMo is likely to linger longer as the Enforcement Directorate has stepped in, contending that the transaction violated FEMA and the Delhi High Court order approving the payout be challenged in the Supreme Court.
The ED has argued that the share price agreed to be paid by Tata Sons at Rs 58 per share was much higher than the fair market value of Rs 23.34 per share on 10 November, 2014 — the date when Tata Teleservices applied for Reserve Bank of India (RBI) approval for making the payment to DoCoMo.
“In case of sale at a lower price, any indemnification by a resident (Tata Sons) to DoCoMo over and above the actual sale price of the shares was also in contravention of section 3(d) of FEMA,” the ED said in its May 31 letter to Law Ministry seeking legal opinion to challenge the high court order.
“Any agreement, which is violative (sic) of the laws of the land, is void ab initio and therefore, the above agreement is not enforceable in the court,” it said adding that since the Shareholders Agreement (SHA) violated Indian laws, it was void as per section 24 of the Indian Contract Act.
The law ministry, earlier this month, sided with the ED’s argument and has sought all relevant documents to examine the possibility of RBI filing a special leave petition before the Supreme Court, sources said.
As per the 2009 SHA, on DoCoMo’s exit from the venture within five years, Tata was to find a buyer who would purchase the Japanese firm’s 26.5 per cent stake in Tata Teleservices at half the acquisition price (which amounted to Rs 58.45) or at the fair market value (which stood at Rs 23.34), whichever was higher.
Tata Teleservices applied for permission in November 2014 to sell before the RBI but before the latter could give its verdict, DoCoMo opted in January 2015 for arbitration in the London Court of International Arbitration (LCIA).
RBI’s refusal came a month later saying it was not permissible under the Foreign Exchange Management Regulations.
However, the LCIA in June 2016 awarded damages of $1.17 billion in favour of DoCoMo for Tata’s inability to find a buyer as per the SHA and subsequently, DoCoMo moved the Delhi High Court for enforcement of the LCIA award after Tata Teleservices cited refusal of permission by the RBI to make the payment.
Tata and DoCoMo opted for an out-of-court settlement on 28 February and two months later, on April 28, the high court dismissed the RBI’s intervention in the dispute after the apex bank failed to back its opposition.
The ED now claims that international court’s decision was “not conclusive”.
“Section 11 of the Code of Civil Procedure says that any foreign judgment that is founded on a refusal to recognize the laws of India in cases in which such law is applicable or which sustains a claim founded on a breach of any law in India is not conclusive,” the ED said in its letter.
It said that Clause 2.2.2 of the SHA also clearly stated that ‘no party shall take any action or have any right that would violate applicable law.”