India plans to block Tata Sons Ltd’s payment of a $1.17-billion arbitration award to NTT Docomo Inc, which is seeking compensation for its stake in the Indian conglomerate’s wireless business, people familiar with the matter said.
The finance ministry won’t grant an exemption to the Indian foreign exchange Act that Tata Sons would need to pay the money to its Japanese partner, according to the people.
The government is wary of setting a precedent, as at least 10 other companies have sought waivers for similar deals, one of the people said, asking not to be identified as the information is private.
NTT Docomo is seeking compensation for its stake in Tata Teleservices Ltd as it tries to exit one of its worst overseas investments. The London Court of International Arbitration ordered last month that Tata Sons, the holding company for India’s largest conglomerate, pay $1.17 billion to NTT Docomo for breaching an agreement over the wireless venture.
The Japanese company’s agreement with Tata Sons gives it the right to request a buyer for its stake at a fair market price or 50 percent of its acquisition cost, whichever is higher. That formula yields a greater price than what’s allowed by current Indian regulations, which state foreign companies can only exit investments at a valuation based on the return on equity.
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Tata Sons has sounded out the finance ministry on its willingness to grant an exemption, though it hasn’t yet made a formal application, one of the people said. Tata Sons may face penalties from the Indian government if it makes the payment without such approval, the people said.
NTT Docomo filed a plea in the Delhi High Court seeking enforcement of the arbitration ruling, Bloomberg Quint reported July 26, citing court proceedings.
The court will next hear the case on August 30, according to the report.
If the Indian government blocks the transfer, NTT Docomo plans to take all available steps to recover the money from Tata Sons wherever the Indian company does business, one person said.
D S Malik, a spokespeson for the finance ministry, didn’t respond to two calls to his mobile phone seeking comment. A representative for Tata Sons didn’t immediately reply to an email seeking comment.
NTT Docomo will take “various measures” to pursue the arbitration payment, Yousuke Oowada, a spokesperson for NTT Docomo, said in an e-mailed response to questions.
The Reserve Bank of India rejected on July 25 an application for the transfer of the funds, a decision that NTT Docomo thinks is “unfair,” he said.
A representative for the Reserve Bank of India didn’t immediately respond to an email seeking comment.
Japan legal claim threatens Tata assets in UK: Report
Tata Sons issued a statement on Thursday stressing that Docomo has obtained an “exparte” or one-sided order from the Commercial Court in London. "Because the order was obtained exparte Tata's arguments have not yet been heard. We would like to clarify that the London Commercial Court has granted Tata Sons a period of 23 days, starting July 27th 2016, to apply to set aside the exparte order. The arbitral award cannot be enforced until the end of that period, or until any application made by Tata Sons has been finally decided upon."
The statement also said the UK assets of Tata Steel and Jaguar Land Rover are not owned by Tata Sons. "These are subsidiaries of Indian public listed companies of which Tata Sons is a promoter with a minority shareholding of not more than 30 per cent to 35 per cent. These companies are not party to the arbitration proceedings, and no award has been issued against them. It follows that the award cannot be enforced against those companies," the statement said.
Tata Sons had said in a statement earlier this week that it has "underlined" its commitment to honour its contractual obligations to Docomo, and has taken "every possible step keeping in mind the interests of all stakeholders and in accordance with Indian law".