SC seeks Birlas' reply to Tata Industries' plea

IDEA DISPUTE

The Supreme Court has asked A V Birla Group to file its reply to a petition by Tata Industries, seeking arbitration to resolve a dispute over the termination of their joint venture Idea Cellular.

Tatas, which served two termination notices to its partner before selling its 48.14 per cent stake in Idea to the Birla group firm Grasim, has sought arbitration on the ground that Birlas had violated the shareholder agreement.

However, the A V Birla Group has rejected the plea for arbitration. If the arbitration is settled in favour of Tata Industries, the company will have the right to buy out Birlas' stake in Idea. Tata Group sold the 48.14 per cent stake it held through Tata Industries and its subsidiary Apex Investments (Mauritius) Holding, to Grasim for Rs 4,406 crore, last year, even while the termination notices were pending.

A bench headed by Judge V S Sirpurkar issued the notice to Grasim on July 9 and fixed the next date of hearing on August 20.

Alleging breach of shareholder agreement by Birlas, Tatas moved the apex court seeking to appoint a nominee arbitrator on behalf of Grasim, as the company had refused to appoint one.

Tatas said that it had appointed retired Supreme Court judge Arun Kumar as its nominee arbitrator.

"The resolution of the existing disputes between the parties and the acceptance of the offer notice by the respondent (Grasim) are two distinct proceedings and cannot affect the continuance of the other," Tatas stated.

The company said that a vested right to seek reparation against Birlas was created the moment it had breached the provisions of the shareholders agreement (SHA) by applying for a mobile licence for Mumbai circle.

The SHA prohibited the companies from competing in the cellular business and disclosing confidential information, and the non-defaulting party had the right to terminate the agreement and buy the entire equity capital of the defaulting founder at the default price.

The disputes were to be resolved through arbitration in Mumbai.

By issuing the termination notice, Tatas had offered to buy out Birlas' stake in Idea. Although Tatas subsequently decided to exit Idea and sold its stake to Grasim, which had the right of first refusal, it maintained that it has not given up its claim to buy out Grasim from Idea through the termination notice.

According to Tatas, the termination offer was made in accordance with Article 12.04 (e) of the SHA and there was no merit in the Birla group's stand that they were stopped from asserting their claims under the termination notices after having proceeded with the offer to sell its shares in Idea.

The vested right could not have got displaced by the acceptance of the offer notice by Birlas or the subsequent transfer of Idea shares by Tata Industries and Apex to Grasim, it said. Tatas had also moved the Bombay High Court in August 2006 seeking appointment of an arbitrator by Birlas.

However, it had withdrawn the petition after Birla's raised an objection that it was an international commercial arbitration in view of a foreign company and the arbitral tribunal should be constituted by the chief justice of India under section 11(12) of the Arbitration and Conciliation Act.