Government planning to block Tata arbitration payment to Docomo

By Vrishti Beniwal, Siddharth Philip and George Smith Alexander

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 Indian 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.

Pursuing Payment
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 Aug. 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 spokesman 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 e-mail seeking comment.

NTT Docomo will take “various measures” to pursue the arbitration payment, Yousuke Oowada, a spokesman 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 e-mail seeking comment.