RBI may not take a hard line in Tata-DoCoMo case today

After Tata Sons agreed to pay $1.17 bn to DoCoMo to settle the case, HC will hear RBI's stand

The Reserve Bank of India (RBI) is unlikely to take a tough stance in the Tata-NTT DoCoMo case in the Delhi High Court on Wednesday, a development that may help the two companies reach a settlement, according to sources. While one of the sources indicated that the central bank under Urjit Patel could possibly take a similar stand as it did in 2014 when Raghuram Rajan was the governor, another said RBI could tell the court it was up to the Union government to take a call.      

Even after RBI came out with a new set of rules banning a foreign investor’s exit at an assured price, the central bank in 2014 took a view that the Tatas should be allowed to make the committed payment to its telecom venture partner DoCoMo according to the commercial agreement between the two companies. RBI's opinion at that point was an Indian company must honour the agreement with a foreign investor, especially as there was no clear rule on exit at an assured price when the deal was signed between the Tatas and DoCoMo in 2009. But, the finance ministry had rejected that view.

It is learnt that N Chandrasekaran, even before he took charge as Tata chairman, had a meeting with Governor Patel. Senior Tata executives are also learnt to have recently met top representatives of the finance ministry to discuss ways to resolve the DoCoMo dispute.    

After Tata Sons agreed to pay $1.17 billion to DoCoMo on February 28 to settle the case around termination of a joint venture, the court will on Wednesday hear the central bank’s stand on the issue. The two companies have been in a legal tussle over DoCoMo’s exit from the telecom joint venture at a pre-determined price.       

Internally, the central bank feels this is the way future deals are going to get structured and the Foreign Exchange Management Act (Fema) should be duly modified to reflect that with reasonable safeguards for foreign investors. 

“Our internal assessment is that this is how most international agreements are done and this is how future deals would be structured too,” a senior RBI official said referring to commercial pacts such as Tata-DoCoMo. “We advised the government the same last time but the government turned it down saying a rule is a rule,” he said. 

RBI, meanwhile, modified its Fema Act, and said, “Any foreign investment already made in accordance with the guidelines in existence prior to February 13, 2009, would not require any modification to conform to these guidelines. All other investments, after the said date, would come under the ambit of these new guidelines.” The guidelines say the pricing has to be done according to extant rules of the Securities and Exchange Board of India (Sebi) and RBI.

The central bank had earlier said any transfer from a non-resident (in this case DoCoMo) to a resident (Tata) had to be done according to a set pricing rule. “Price of shares transferred by way of sale, by non-resident to resident shall not be more than the minimum price”, which is the pricing formula determined by Sebi, generally an average of the past few months’ trading price. 

This means DoCoMo is bound by the rules to sell the stake at much less than the pre-agreed Rs 58.045 a share even as an international court of arbitrage has ruled the Tatas pay up at the agreed price. 

RBI had written to the government stating that the arrangement, guaranteeing any assured exit pricing, was “not in line with the extant provision”.

“However, the larger issue here is of a fair commitment in the contracts in relation to an investment and a downside protection of an investment, rather than an assured return. Besides, our strategic relationship with Japan in recent times in relation to FDI flows is also a matter to be kept in view.”

“In view of this, we are inclined to accept the proposal and in future, in all such cases, similar principal shall be applied,” the RBI letter had said. 
 

However, government turned down this request.