Tata Sons has agreed to pay USD 1.18 billion in damages to NTT DoCoMo to settle long standing dispute over exit of the Japanese firm from their India joint venture.
The holding company of the USD 103 billion salt-to- software group firms, reached an out-of-court agreement with Japan's largest mobile phone firm to enforce a June 2016 award of a London arbitral tribunal.
Following this, the two firms applied to the Delhi High Court to suspend legal proceedings and accept the settlement.
The settlement came within days of Tata Group getting a new Chairman in N Chandrasekaran following the ouster of Cyrus Mistry last year.
"The settlement terms clear the way for the USD 1.18 billion already deposited by Tata Sons with the court to be paid to DOCOMO, and would allow DOCOMO to transfer its shares in Tata Teleservices, Inc," the Japanese firm said in a statement.
DoCoMo had in November 2009 acquired 26.5 per cent stake in Tata Teleservices for about Rs 12,740 crore (at Rs 117 per share). This was as per a 2008 understanding that in case it exits the venture within five years, it will be paid a minimum 50 per cent of the acquisition price.
DoCoMo in April 2014 decided to exit the joint venture that struggled to grow subscribers quickly. It sought Rs 58 per share or Rs 7,200 crore from Tatas.
But the Indian Group offered Rs 23.34 a share in line with the RBI guidelines which state that an international firm can only exit its investment at a valuation "not exceeding that arrived at on the basis of return on equity".
The Japanese firm dragged Tatas to international arbitration where it won a USD 1.18 billion award. It also filed a plea in the Delhi High Court seeking enforcement of the arbitration ruling.
"Tata Sons is pleased to announce that in the interests of putting an end to a dispute that had arisen with NTT DOCOMO, Japan, and in the larger national interest of preserving a fair investment environment in India, it has reached an agreement with NTT DOCOMO on a joint approach to enable enforcement of the June 22, 2016, London Court of International Arbitration (LCIA) award.
"As a gesture of good faith and in accordance with the Tata group’s long-standing record of adherence to contractual commitments that it has always enjoyed both in India and abroad, the Board of Tata Sons has decided to withdraw its objections to the enforcement of the Award in India," Tata Sons said in a statement.
It said the agreement is a significant step towards resolution of the dispute and hoped to continue to work together with DoCoMo to achieve a resolution of this case as also look to further collaboration in the future.
"As part of this joint application, and in anticipation of the matter being finally resolved in India, DOCOMO has agreed to suspend its related enforcement proceedings in the United Kingdom and the United States for a period of time," the Japanese firm said in the statement.
It said the joint application to the Delhi High Court for accepting the London arbitration award was a successful result from recent discussions with "Tata Sons under the leadership of Ratan Tata, the former Chairman of Tata Sons, which are ongoing."
"Today's agreement is a significant step towards resolution of this dispute, and DOCOMO is hopeful that the two parties will continue to work together constructively to achieve a resolution," it added.
The Japanese firm said the settlement will enable it to "consider reinvestment of an amount in India, under a new cooperative relationship with Tata Sons".
"DOCOMO believes that such relationship could become a paradigm for India-Japan economic ties," the statement added.
Against Rs 58 per share of Rs 7,200 crore that Japanese firm sought from Tatas for its 26.5 per cent stake in the loss-making Tata Teleservices, the Indian Group had offered Rs 23.34 a share in line with RBI guidelines that states that an international firm can only exit its investment at a valuation "not exceeding that arrived at on the basis of return on equity".
It had made an offer of Rs 23.34 a share after the Finance Ministry and the RBI rejected the Group's application to buy back DoCoMo's shares at the pre-agreed valuation of Rs 58 a share. The 60 per cent lower offer was made on the basis of a fair market value determined on June 30, 2014.
The Japanese firm then dragged Tata Sons to international arbitration where it won a USD 1.18 billion award. To honour that award, an application was made to the Reserve Bank of India seeking exemption from the Foreign Exchange Act.
The RBI, in turn, wrote to the Finance Ministry for exemption from the rules as such a measure would boost investor confidence. The finance ministry, however, turned down the plea.
According to the ministry, it is not only Tata-DoCoMo but many other legacy issues that will have to be given exem