Japanese telecom major DoCoMo said it was not aware of any new decision by the finance ministry on the issue of payment of arbitration amount by Tata Sons.
A report by the Press Trust of India yesterday claimed that the Finance Ministry had rejected a proposal by the Reserve Bank of India to give an exemption to Tata Sons from a foreign exchange regulation that prevents guaranteed buyback pricing for equity deals.
Under the rule — designed to prevent money laundering — no Indian company can guarantee a set buy back price to its foreign investor for buying back equity.
The PTI had reported that the Finance Ministry has, therefore, rejected the proposal for giving an exemption to the deal.
The Finance Ministry letter also suggested that DoCoMo and Tata can resolve the issue by going through the legal process.
In a clarification, DoCoMo today said that the above mentioned letter was more than a year old, while the arbitration panel ordered the Tatas to pay $1.1 bln only in June this year.
As such, said DoCoMo, the letter could not be referring to payment of the penalty.
“The reports cite correspondence between the RBI and MOF from back in late 2014 and early 2015. Docomo is not aware of any recent decision from the MOF on this subject since the award was issued,” said a statement attributed to DoCoMo and issued by consultant Chase India.
The issue has muddied the waters for foreign investors in India as the so-called ‘put options’ — under which someone gives a guarantee that he or she will buy the share at a given price — are considered above-board practice in international deals.
Moreover, the rules prohibiting buybacks at fixed price was clarified in 2014, five years after the two companies entered into the buyback agreement.
In 2009, Tata Sons pledged to buy back the stake acquired by DoCoMo in its telecom company at half price if the telecom venture failed to meet certain financial targets.
In June this year, an arbitration panel in London found that Tata Sons had breached its contractual obligations, which were legally capable of performance in ways that did not require permission from the RBI or Ministry of Finance.
However, Tata Sons has maintained that it cannot pay the amount due to Indian laws.
DoCoMo said: “Awards made in England by LCIA tribunals are recognised under the New York Convention, to which India was one of the original signatories on the 10th June 1958. As a signatory to the New York Convention, India is bound to enforce the award decision of the LCIA tribunal for Tata to pay $1.17bn to DOCOMO.”
The New York Convention is one of the key instruments in international arbitration, signed by more than 150 countries. The New York Convention applies to the recognition and enforcement of foreign arbitral agreements and awards.
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