Launched in Chennai in June 2009, services were rolled out in 18 of India’s 22 telecom circles and the company initially ramped up subscribers faster than competitors, prompting top executives to claim in public that the company’s near-term target is to be among the top three telecom companies in India. The Tata Review article had concluded by saying, “Tata DoCoMo refuses to be static and is primed for constant innovation”.
It’s true Tata DoCoMo has refused to be static — it’s only that the drive from that juncture has been in reverse gear, and the only “innovation” DoCoMo is indulging in right now is how to seize the Tata group’s UK and US assets to recover the $1.17 billion it won as per a recent London Court of International Arbitration award. The move, however, is unlikely to succeed, as there is considerable merit in the Tata group’s counter that the UK and US assets are owned by individual group companies and are not Tata Sons’ properties.
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The Japanese telecom giant has already accused the Tatas of acting in bad faith and making excuses for not honouring the arbitral award. However justified its monetary claims be, DoCoMo is wrong in making such accusations as the Tata group has never refused to pay the money in accordance with the agreement it had signed with DoCoMo. In early 2009, NTT DoCoMo invested $2.2 billion in the Indian wireless business on the understanding that if certain targets weren’t met in five years, its partner would either find a buyer for the Japanese company’s 26.5 per cent stake at fair market value, or would take over those shares at half the original value of the investment, whichever was higher. When DoCoMo decided to exercise the option in April 2014, there was no taker for the unprofitable operations, so the Tatas sought the Reserve Bank of India’s permission to pay out $1.17 billion.
That is precisely when the matter took a curious turn. By then, the RBI had a new set of rules that banned any exit by a foreign equity investor at an assured price. Still, the central bank wanted to allow the payment because it was a question of an Indian company honouring an agreement, struck at a time when there was no clear law against options embedded in such an investment. In a memo to the finance ministry dated December 22, 2014, the RBI said it was “inclined to accept” the Tata proposal. The finance ministry, however, turned down the suggestion on the ground that it would set a bad precedent. The matter came up once again after the arbitration order - and once again, the permission was denied by the RBI as it was in contravention of the existing rules. Clearly, the central bank was being once bitten, twice shy. DoCoMo, which is planning to move the finance ministry once again, is unlikely to get the consent as finance ministry officials have let it be known that a policy change cannot be made for a single company. Given the tough stand of the ministry, DoCoMo is unlikely get a sympathetic hearing to its argument that India is signatory to a New York international convention, wherein international awards are automatically enforceable in India.
If you want proof of this, ask the retrospective tax victims - Vodafone and Cairn - or Devas, which won not one, but two arbitration cases in its deal with Antrix.
This is unfortunate as DoCoMo had got into the agreement with the Tatas when rules allowed such a condition. If the rules were changed midway, who is at fault? If the central bank, under Raghuram Rajan, didn’t have a problem in allowing this as an exception, there is little logic for the government to poke its nose into a straightforward commercial arrangement between two private entities. Blocking the arbitration payment will only add to the government’s poor record on dealing with foreign investors. In any case, this was certainly not a case of equity masquerading as debt. For the Tata group, the delay in making payments, albeit caused by external forces, isn’t any relief as the controversy could affect its efforts to sell Tata Steel’s business in the UK and other parts of Europe till the dispute is resolved. So the purpose of the government couldn’t have been protection of India Inc’s interests.
Was it necessary to make the whole thing a spectacle, especially when India’s reliability and integrity as an investment destination is under serious question once again?