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2017 (5) TMI 492
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....Award dated 22nd June 2016 passed by the Arbitral Tribunal ('AT') in London, United Kingdom in LCIA Case No. 152896 under the London Court of Arbitration ('LCIA') Rules. 2. The specific prayer in the petition is for the recognition and enforcement of the aforementioned Award made in favour of Docomo and against the Respondent Tata Sons Ltd. ('Tata'), as a decree of this Court, execution of the decree, and pending such execution and satisfaction of the decree, to pass appropriate interim orders of injunction. Background Facts 3. A Shareholder Agreement ('SHA') was entered into on 25th March 2009 between Docomo, Tata and Tata Teleservices Ltd. ('TTSL'). Clause 5.7 of the SHA inter alia stated that if TTSL failed to satisfy certain 'Second Key Performance Indicators' stipulated in the SHA, Tata would be obligated to find a buyer or buyers for Docomo's shares in TTSL at the Sale Price i.e., the higher of (a) the fair value of those shares as of 31st March 2014, or (b) 50% of the price at which Docomo purchased its shares. 4. Since TTSL did not deliver evidence to Docomo of its compliance of the Second Key Performance Indicator by 30th May 2014, a Trigger....
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....ead as under: "1. What were Tata's obligations under Clause 5.7.2? 2. Did Tata perform its obligations under Clause 5.7.2? 3. Was Tata excused from performing its obligations under Clause 5.7.2 on the grounds that such performance was illegal under Indian law? In particular, (a) Were methods of performance available to Tata to which there was no legal impediment? (b) Was RBI's permission required: (i) for a sale of the Sale Shares at the Sale Price to a third party? (ii) in order to allow Tata to make payment by way of indemnity? (iii) for a sale of the Sale Shares to a foreign affiliate(s) of Tata? (c) Even if RBI permission was required for Tata to purchase the Sale Shares at the Sale Price or to indemnify Docomo up to the Sale Price following a sale to a third party at any price, is Tata liable for its failure to perform? In particular, (i) did Tata bear the risk of not obtaining any necessary regulatory permission? (ii) if the alternative methods of performance could not legally be performed, did Tata have an absolute obligation to find a buyer or buyers for the ....
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....ed in any respect. It was in that sense an absolute obligation. (para 121) (iii) "The parties provided for alternative methods of performance because they knew there might be restrictions on performance; Tata might not find a buyer at the Sale Price because a 26% holding in an unlisted company is illiquid; licensing restrictions might prevent Tata from increasing its holding in TTSL; or there might be a requirement for special permission from RBI." The parties must have intended that Tata could only avail itself of those alternatives if it could perform in fact and in law. (para 121 (2)) (iv) The parties had agreed that at least one purpose of the clause was to provide stop loss protection. It followed that performance might be required at a time when the market value of the Sale Shares was below the Sale Price, so that a buyer might not be willing to pay the Sale Price; but the clause did not expressly relieve Tata from liability in that event. Instead, it provided Tata with alternative methods of performance. (v) Tata's 'waterfall' analogy was rejected. This would have the effect that if the value of the Sale Shares fell so that Docomo chose to exercise its option to....
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....ssue of Security by a Person Resident Outside India) Regulations, 2000 (FEMA 20), RBI Circular No. 16 dated 4th October 2004, ('October 2004 Guidelines'), Circular No. 49 dated 4th May 2010 ('the 2010 Circular'), the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Seventeenth Amendment) Regulations, 2013 ('the December 2013 Regulations'), RBI Notification dated 23rd May 2014 ('the new Pricing Regulations') and came to the following conclusions: (i) The performance of TTSL's obligation under Clause 5.7.2 was subject to a general permission from the Reserve Bank of India ('RBI') in two respects. First, a non-resident purchaser was always able to buy the same share at the sale price in accordance with Regulation 9(2)(i) of FEMA 20; second, a purchaser resident in India including Tata was also able to buy the Sale Shares at their fair market value, determined in accordance with the pricing guidelines in force from time to time, in accordance with Regulation 10(B)(2) of FEMA 20. (ii) The impediment to performance was therefore factual rather than legal. The only reason why the aforementioned two methods of performance were not availa....
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...."The Tribunal has accepted Docomo's case that the alternative methods of performance in the second part of Clause 5.7.2 are only available to Tata if it is able to perform as a matter of fact and law. Assuming, in Tata's favour, that the consequence of RBI's refusal of special permission in its letter of 20th February 2015 was to render invalid or unenforceable performance under the second part of Clause 5.7.2, the effect was that that alternative was not available to Tata. The effect was not to extinguish Docomo's rights under Clause 5.7.2; the first part remained valid and enforceable. Clause 12.10 therefore has no application." 15. The AT rejected Docomo's claims for breach of Clause 2.2.2 of the SHA, for breach of Clause 10.1.1(b) and (d), for restitution as well as Tata's counter-claim concerning the validity and enforceability of alternative methods of performance under Clause 5.7.2. 16. The AT's conclusions in paras 169, 170 and 171 of the Award were as under:- (1) The Tribunal rejects the argument that an award of damages for breach of Clause 5.7.2 would amount to a circumvention of the relevant FEMA Regulations. The essence o....
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.... gave detailed reasons therefor. It concluded that Docomo should receive a rate which is approximately 17 basis points in excess of the average of the US prime rate during the relevant period. The AT found that the most appropriate rate which met the justice of the case was 3.5% per annum. Interest at that rate on the aforementioned sum was awarded to Docomo from 3rd December 2014 till the date of the Award compounded with quarterly rests that worked out to US$ 65,276,963. Docomo was further held entitled to interest at the same rate on the amount outstanding from 21 days after the date of the Award till the date of payment compounded with quarterly rests. 18. Importantly, in Footnote 259, the AT observed as under: "As noted above, Tata submits that it may require several regulatory approvals to comply with any payment obligations under an award. It should not therefore be penalised with post award interest accruing in a period where regulatory approval is pending: see Rejoinder at para 220, Bundle A-6 at page 461. The Tribunal rejects this submission. The Tribunal considers it appropriate that, subject to a 21 day grace period, Docomo should be compensated for being ou....
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.... Bank Amount of deposit (Rs.) Deposit Receipt Numbers. 1. State Bank of India 2150,00,00,000.00 3958173725 2. ICICI Bank 2000,00,00,000.00 039313003887 3. HDFC Bank 2100,00,00,000.00 50300155315692 4. Axis Bank 1300,00,00,000.00 15012291013 5. Kotak Mahindra Bank 650,00,00,000.00 1411776805 6. Indus Bank 250,00,00,000.00 300716407545 Total 8450,00,00,000.00 23. On 2nd September 2016, the Respondent filed a reply the details of which need not be discussed in view of the subsequent developments as may be noticed hereinafter. Rejoinder was filed to the said reply by the Petitioner on 28th September, 2016. RBI's intervention application 24. On 30th November 2016, RBI filed IA No. 14897 of 2016 seeking intervention. By an order dated 5th October 2016, t....
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.... Award (being the sums of (i) US $ 1,172,137,717, (ii) US $ 65,276,963, (iii) GBP 119,012.59 and JPY 1,067,670,175, and (iv) interest at 3.5% per annum compounded with quarterly rests on the amounts specified in the foregoing items (i),(ii) and (iii) from 21 days of the date of the Award until payment of the said amounts) ("Funds") in the manner set out in paragraph 4 below, and as per the directions of this Hon'ble Court, for payment to the Petitioner in satisfaction of the Award in United States Dollars to a bank account designated by the Petitioner ("Designated Bank Account"), subject to ruling on the objections raised by the Reserve Bank of India ("RBI") in its Application for Intervention in these proceedings after hearing RBI. The obligations of the Respondent hereunder shall further be subject to (i) receipt of approval of the Competition Commission of India and (ii) receipt of the Withholding Tax Certificate (as defined hereinafter). The Petitioner will apply to the Indian Income Tax authorities to obtain the withholding tax certificate ("Withholding Tax Certificate") in relation to payments under the Award based on which Respondent will remit the Funds, after deduction....
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.... its nominees and in completing and executing Form FCTRS for this purpose. 4.4 Both Parties will take all actions and provide all documents and information as requested by the AD to permit remittance of the Funds, after deduction of taxes, if any, to the Designated Bank Account and the credit of the Shares to dematerialised accounts of the Respondent and/or its nominees.' 5. In light of the withdrawal of the objections of the Respondent, this Honourable Court may be pleased to declare that the Award is enforceable in India and shall operate as a deemed decree and this Honourable Court shall proceed to execute the same, subject to the ruling on the objections of RBI as raised in RBI's Application for Intervention in these proceedings (and for that purpose the Parties agree not to object to the intervention of RBI). 6. The Petitioner agrees and undertakes that the enforcement of the Award in India, and this deemed decree, against the Indian assets of Tata will be limited to the monies deposited (along with interest accrued thereon) in this Hon'ble Court by the Respondent only so long as Respondent complies with its obligation to make up for any diff....
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....duction of taxes, if any, and the credit of the Shares to dematerialised accounts of the Respondent and/or its nominees as set out in this order. 12. The parties shall bear their respective costs in connection with these proceedings." Submissions on behalf of RBI 27. Mr. C. Mukund, learned counsel appearing for RBI was first asked by the Court about the locus standi of RBI to file such an application in this Court. He was asked about the provision under the Act which permitted such an intervention application by an entity which was not a party to the Award sought to be enforced. While Mr. Mukund was unable to dispute that there was no provision in the Act which permitted such intervention, he referred to Order XXIII Rule 3 CPC and submitted that the Court was not bound to take on record a compromise seeking to give effect to an Award in terms of a contract that was per se hit by Section 23 of the Indian Contract Act 1872 (ICA). He referred to the Explanation to Order XXIII Rule 3 which stated that an agreement/compromise which was void or voidable under the ICA was not deemed to be lawful within the said Rule. According to him, the compromise under Order XXIII Rule 3....
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....ant Banker. It was also in violation of Section 6(3) of FEMA which empowered RBI to prohibit, restrict or regulate the transfer of any security by a person outside India. The Foreign Investment Promotion Board ('FIPB') by a communication dated 14th March 2009, approved Docomo's acquisition of shares in TTSL and stated that "Issues/valuation/transfer of shares shall be as per SEBI/RBI guidelines." Therefore, the Award in question which dispensed with the obtaining of any permission from RBI for transmission of the damages granted to Docomo was contrary to the fundamental policy of India and could not be enforced. Submissions on behalf of Docomo 32. Mr. Kapil Sibal, learned Senior counsel appearing for Docomo, submitted that under Section 41(1) of the Act it is only a party to the Award which can object to its enforcement, and that too on extremely limited grounds set out in Section 48 of the Act. The relief granted by the AT in the impugned Award was not in the form of a put option but only the already envisaged damages under Clause 5.7.2 of the SHA. Mr Sibal was categorical that RBI had no locus standi to intervene or object to the enforcement of the Award in question. He sub....
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....an a party to an arbitration agreement. Clearly, therefore, in terms of Section 48(1) of the Act, RBI not being a 'party' cannot seek to intervene in order to object to the enforcement of the Award in question. 36. It is not RBI's case that it can maintain the present application under any provision of the CPC. Order XXIII Rule 3 CPC reads as under: "3. Compromise of suit.- Where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far as it relates to the parties to the suit, whether or not the subject matter of the agreement, compromise or satisfaction is the same as the subject matter of the suit: - Provided that where it is alleged by one party and denied by the other than an adjustment or satisfaction has been arrived at, the court shall decide the question; but no adjournment shall be gr....
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....o which RBI is not a party where its powers and functions under the statute that governs it or the rules and regulations thereunder may be discussed. That would not mean that either during the course of the arbitral proceedings or in the consequential execution RBI would have to be joined as a party or intervener and heard. There is no provision under the Act or the CPC that requires this. 41. The fact that the legislature did not intend this is evident when a comparison is made with the provisions for mergers and amalgamations under the Companies Act, 1956 (as it stood prior to its amendment in 2015). Section 394 thereof envisaged notice being issued to the Central Government by the Company Court in order to give it an opportunity to be heard in those proceedings. There is no such statutory requirement that where the enforcement of an arbitral Award might result in remitting money to an non-Indian entity outside India, or to an account of a party outside India, RBI has to necessarily be heard on the validity of the Award. The mere fact that a statutory body's power and jurisdiction might be discussed in an adjudication order or an Award will not confer locus standi on such body....
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.... It is not even RBI's stand that any general or special permission of RBI would be required if what is being paid by Tata to Docomo is in the nature of damages. In this context the Court would refer to RBI's own stand at various stages of the proceedings. In the internal notings on file of RBI (which was provided to Tata by RBI under the Right to Information Act, 2005), while processing the application of Tata for permission it was noted as under: "I would take a different view. The assured return applies where the overseas investor gets his entire principal PLUS a certain return. Here both the parties agreed to protect the downside loss at 50% of the invested value. This is according to me a fair agreement/contract and we should facilitate honouring this commitment. We may approve. DG(HRK) Although strictly as far as wordings of the regulation this may not be allowed. From the point of view of equity & the intention behind the regulation (that there would be no assured return) the foreign investor has a merit in this claim. The larger of issue of fair commitment to reasonable contracts in relation to FDI inflows also have to be kept in view. Our strategi....
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...., stating: "You are advised that in terms of Regulation 9 of Foreign Exchange Management Transfer or Issue of Security by a Person resident outside India) Regulations, 2000, as amended from time to time, a person resident outside India may transfer the shares or debentures held in an Indian company at a price not exceeding that arrived at as per any internationally accepted pricing methodology for valuation of shares on arm's length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. The guiding principle being that the nonresident investor is not guaranteed any assured exit price at the time of making such investment/agreements and shall exit at the price prevailing at the time of exit. Accordingly your request to purchase shares of Tata Teleservices Limited from NTT Docomo Inc. at any pre-determined price cannot be acceded to. You may ensure that the transaction complies with the provisions cited above." 49. Significantly, therefore, even at this stage, RBI did not refuse the special permission on the ground that the SHA was illegal or void. It is not understood why RBI had to seek advice from the MoF in this regard. Its refusal t....
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.... on 25th March 2009. The regulatory regime in force at the time was provided under the FEMA. In terms of Section 3 FEMA, dealings in foreign exchange were prohibited unless permitted by a general permission or special permission of RBI. Regulation 3 of FEMA 20 read with Sections 6(2) and 6(3) FEMA prohibited a non-resident from transferring shares of an Indian company to a resident unless permitted by a general permission or special permission of RBI. The general permission had to be obtained under Regulations 9(2) & 10B(2) of FEMA 20 subject to the conditions set out in Circular No. 16 dated 4th October 2004. In the event that such transfer of shares was not in conformity with the above Circular (including the pricing guidelines), the special permission of RBI would be required to complete such a transfer. 55. Clause 2.2.2 of the SHA prohibited the parties from acting in violation of any applicable law. It read as under: "2.2.2 The Parties have agreed that the provisions of this Agreement shall be subject to the provisions of the License Agreements, and in the event of any inconsistency between the provisions of this Agreement and the License Agreements, the provisions....
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....e ambit of Regulations 4 and 5 of FEMA 20. The AT held that Clause 5.7.2 of the SHA was a contractual promise by Tata to find a buyer for Docomo's shares which could always have been performed using general permissions of RBI under FEMA 20. It was held that the promise was valid and enforceable because sub-regulation 9(2)(i) of FEMA 20 permitted a transfer of shares from one non-resident to another non- resident at any price. The AT held that Tata could have lawfully performed its obligation to find a buyer at any price, including at a price above the shares' market value, through finding a non-resident buyer. Its failure to do so was, according to the AT, a breach entitling Docomo to damages. 59. The SHA, therefore, could not be said to be void or opposed to any Indian law including the FEMA, much less the ICA. FEMA contains no absolute prohibition on contractual obligations. It envisages grant of special permission by RBI. As rightly held by the AT, Clause 5.7.2 of the SHA always was legally capable of performance without the special permission of RBI, using the general permission under sub-regulation 9(2) of FEMA 20. 60. As far as the Award itself is concerned, the....
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....bearing on its goodwill and reputation in the international arena. It will indubitably have an impact on the foreign direct investment inflows and the strategic relationship between the countries where the parties to a contract are located. These too are factors that have to be kept in view when examining whether the enforcement of the Award would be consistent with the public policy of India. 64. It appears to be a well settled legal position that parties to a suit, or as in this case, an Award, may enter into a settlement even at the stage of execution of the decree or Award. In The Oudh Commercial Bank Ltd. v. Thakurain Bind Basni Kuer (1939) 41 Bom LR 708, the Privy Council held that independent of Order XXIII Rule 3 CPC, the provisions of Order XXI Rule 2 and Section 47 CPC would enable the executing Court to record and enforce a compromise. This was reiterated by the Supreme Court of India in Moti Lal Banker v. Mahraj Kumar Mahmood Hasan Khan AIR 1968 SC 1087. In N.K. Rajgarhia v. Mahavir Plantation Ltd. & Ors. (2006) 1 SCC 502, it was observed that "the court's freedom to act to further the ends of justice would surely not stand curtailed." The Court came to the concl....