TITLE OF THE RESEARCH PAPER

NTT Docomo Inc vs. Tata Sons Limited- A Case Study

By

Name of the Student: B.Himasree

Roll No.: 18LLB033

Semester: 6th

Name of the Program: 5 year (B.A., LL.B.)

Name of the Faculty Member: Mr. R.V Vishnu Kumar, LL.M (Assistant Professor)

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM, VISAKHAPATNAM - 531035

ANDHRA PRADESH, INDIA

Date of Submission: 02 May, 2021.

I sincerely thank Mr. R.V Vishnu Kumar, LL.M Assistant Professor, faculty of Alternative
dispute resolution (Clinical Paper), for guiding me through the research and helping me to
complete the present research paper on “NTT Docomo Inc vs. Tata Sons Limited- A Case
Study”. I would also like to forward my gratitude to my family and friends for their constant
efforts and aid towards the completion of this research.

B.HIMASREE.

2|Page
 TABLE OF CONTENTS:
1. CASE ANALYSIS……………………………………….……………………………......4
2. FACTS OF THE CASE…………………………………………………………………...4
3. ISSUES BEFORE THE COURT………………………………………………………….4
4. PROVISION OF LAW……………………………………………………………………5
5. DECISION OF LONDON COURT OF ARBITRATION………………………………..5
6. SUBMISSION ON BEHALF OF RBI……………………………………………………7
7. SUBMISSION ON BEHALF OF DOCOMO…………………………………………....8
8. SUBMISSION ON BEHALF OF TATA……………………………………………..….8
9. LOCUS STANDI OF RBI………………………………………………………...……...9
10. OBSERVATIONS………………………………………………………………………...9
11. ANAYLSIS……………………………………………………………………………....11
12. JUDGMENT….………………………………………………………………….………13

3|Page
 CASE ANAYLSIS

FACT OF CASES: Docomo and Tata and Tata Teleservices Ltd. Has entered a shareholder
agreement into on 25th March 2009. In the agreement they have agreed and stated to5.7 clause
that TTSL if fails to certain “Second Key Performance indicators” then in such case Tata
being a party is obliged to find a buyer for the Docomo’s shares in TTSL at its sales price.
The fair value of those shares or 50% of the price at which Docomo purchased its shares
should be taken into consideration.

After the agreement was made, after period of time TTSL fails to deliver the certain “Second
Key Performance indicators” as per the agreement by 30th May 2014. In terms of the agreed
clause 5.7 of SHA, the Docomo has issued notice to the TTSL. Docomo issued notice on 7 th
July 2014 asking the Tata to find a buyer to buy their shares in the period mentioned in the
said agreement under 5.7.2 clause.

However, the Tata did not perform its obligation. This leads to disputes between the parties.
In the SHA under the clause 12.1.2(a) states that if in any dispute arise between the parties
then in such case they would approach a senior officers who are designated by the parties
itself. However, the parties did not find any resolution after mutual discussion.

On 3rd January 2015, Docomo did not find any other way other than approach and commence
the arbitration proceedings by a request given for arbitration to the London court of
Arbitration “LCIA”. With commences of the arbitration proceedings, the Docomo has
nominated their arbitrator. Tata also nominated their arbitrator and also filed counter-claim.
LCIA court had appointed arbitral tribunal. The compositions of the tribunal are the third
arbitrator along with two nominees jointly appointed by the court.

ISSUES BEFORE THE COURT:

a) Whether special permission from RBI was required to perform the Sale Option at a
price in excess of the NPR Fair Value without violating Indian law?
b) Whether Tata had an "absolute" obligation to perform the Sale Option under Clause
5.7.2 of the SHA?
c) Whether Tata and Docomo were obliged to make reasonable endeavours to obtain
such special permission of RBI, and if so whether Tata made reasonable endeavours
to obtain RBI's special permission?

4|Page
 d) What is the consequence in law, and under the contract, of the refusal of RBI to grant
special permission?
e) Whether Tata's non-acquisition of the Sale Shares at the Sale Price paid directly or
indirectly constituted a breach of the SHA by Tata?
f) Whether, (payment of any amount in excess of the FEMA Pricing Guidelines is
prohibited, such excess amount can be indirectly made good by way of an award of
damages or restitution?
g) Whether in any event Docomo is entitled to restitution of 50% of its investment?"

PROVISIONS OF LAW:

In this case the arbitral tribunal has discussed the Indian Exchange Control laws. It has
analysed the section 5, 6, 13(1) of Foreign Exchange Management Act, 1999. 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').

DECISION OF LONDON COURT OF ARBITRATION:

The AT rejected Tata's argument that under Clause 5.7.2 its obligation became void pursuant
to Section 56 of the Indian Contract Act, 1956 (' ICA '). It held that "RBI's refusal of special
permission did not render performance impossible. There were other methods of performance
which were unaffected by the refusal. Tata might or might not have been in a position to
perform in ways which were the subject of a general permission in practice, but that is a
different matter." It categorically held that "Tata is liable for breach of contract." There was
no question of "invalidity or unenforceability attaching to the obligations of Tata under the
first part of Clause 5.7.2."

As regards Clause 12.10 of the SHA, the AT was of the view that it had no obligation. Its
reasoning was as under: “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

5|Page
application. 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.”

The Tribunal denies the argument that awarding penalties for a violation of Clause 5.7.2 will
be a violation of the applicable FEMA Regulations. The Tribunal concluded that Tata was
under an unqualified duty to perform under Clause 5.7.2. Since some methods of success
were still protected by general approvals, success did not always necessitate special approval
from RBI. The Tribunal further dismisses the case based on Clause 5.7.2's use of the word
"indemnity." Docomo is entitled to penalties for breaching the primary duty of Clause 5.7.2,
according to the Tribunal.

As a result, the amount of damages applicable to a breach of contract is sufficient. For the
time being, the balance owed under the indemnity is irrelevant. Tata's argument that Docomo
violated its obligation to minimise is also dismissed by the Tribunal. Tata's offer to pay
Docomo the NPR Fair Value is the basis for this claim. Tata does not object to Docomo's
citation of authority for the premise that a party is not relieved of its contractual obligations
only because the other party wants to recognise it because of a genuine disagreement over the
parties' contractual rights.

Docomo acted in good conscience, according to the Tribunal. It was determined that Docomo
was within its rights to demand results and that it behaved fairly in refusing to consider the
sum offered. As a result, the Tribunal determines that Docomo is entitled to damages in the
sum specified, namely US$ 1,172,137,717, upon tendering the Sale Shares to Tata or its
designee. Tata would pay Docomo the outstanding balance within 21 days. No. 171. Tata is
responsible for failing to fulfil duties that were the target of FEMA 20 general approvals. As
a result, the FEMA Regulations do not exclude Tata from responsibility. The Tribunal does
not, however, take a position on whether or not Tata requires special approval from the RBI
to fulfil its duty to pay Docomo damages in fulfilment with this Award.

After perusal of the facts and law the London court of arbitration, the arbitral tribunal passed
an order that the respondents have to pay the amount to the claimant. The application filed by
the petitioners for the enforcement of the said order in jurisdiction of Indian Territory, the
RBI has also filed an intervention application before the court.

6|Page
SUBMISSION ON BEHALF OF RBI:

 The court first asked about the locus standi of RBI in the present case to file an
application before the court. The court asked the counsel under which provision of law
gives this right to intervention application by body which has not a party to the present
case. The counsel referred the Order XXIII Rule 3 CPC 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 ).
 The consent terms this acknowledged the present application by RBI seeking
intervention. He pointed out that under the consent terms, it was agreed that the payment
of the amounts to Docomo in satisfaction of the Award would be subject to the order of
this Court on RBI's application seeking intervention. Therefore, as far as the parties
themselves were concerned, they could not be heard to object to the locus standi of RBI
or to the maintainability of the present application.
 The counsel stated that even after the award was pronounced, the Tata company has filed
application before the RBI for permission to enforce the award which was subquently
rejected by the RBI.
 The consistent view that Clause 5.7.2 of the SHA was in violation of Regulation 9 of the
FEMA 20 which provided that the transfer should be at a price not exceeding the price
arrived at, as per any internationally accepted pricing methodology for valuation of shares
on a rational basis duly supported by a Chartered Accountant ('CA') or a SEBI-registered
Merchant 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.

7|Page
SUBMISSION ON BEHALF OF DOCOMO:

 The senior counsel on behalf of Docomo argued that only a party to the Award may
object to its compliance under Section 41(1) of the Act, and only on exceedingly
narrow grounds set out in Section 48 of the Act. The remedy awarded by the AT in
the contested Award was not in the form of a put option, but rather the damages
already anticipated under SHA Clause 5.7.2. They contend that the RBI lacks the
legal authority to engage in the enforcement of an award.
 The senior counsel also added that if such cases of intervention are entertained would
be violation of fundamental policy of Indian law.

SUBMISSION ON BEHALF OF TATA:

 • At the outset, the senior counsel representing Tata explained that the position held
by Tata in its July 1, 2016 letter to RBI requesting permission had been removed
because Tata's opposition to the Award's implementation had been withdrawn. He
argued that the RBI's argument that it had repeatedly rejected Clause 5.7.2 of the SHA
was untrue. He argued that there was no blanket ban against the repatriation of funds
to an agency outside India at a price not above that determined using universally
agreed price methodology, referencing Sections 3 and 6 of the FEMA. The clause
itself stated that such a move would be permitted only with RBI's special approval.
Similarly, none of the FEMA Regulations mentioned a complete prohibition. And if
such a limitation occurred at the time of an Award's enforcement, it may be
circumvented with RBI's special permission.
 After analysing Clause 5.7.2 of the SHA, the lawyer acknowledged that the failure to
carry out Clause 5.7.2 had resulted in three distinct potential scenarios. As a result, the
provision was not necessarily invalid. As noted in Life Insurance Corporation of India
v. Escorts Ltd, RBI permission could be obtained even after the fact. He referred to
the RBI's internal notation on paper, the RBI's letter to the Ministry of Finance (MoF)
dated December 22, 2014, and the MoF's response, all of which showed a stance
contradictory to what was being expected before the Court.

8|Page
LOCUS STANDI OF RBI:

The court at first place questioned the RBI its locus standi in the present case. There is no
provision of the Act that allows an individual that is not a party to an Award to interfere in
the execution of that Award. Who may challenge the compliance is stated explicitly in
Section 48. The beginning of Section 48(1) reads: “Enforcement of a foreign award may be
refused, at the request of the party against whom it is invoked, only if that party furnishes to
the court proof that...Section 2(h) of the Act defined party to mean a party to an arbitration
agreement”. As a result, RBI cannot attempt to interfere in order to object to the compliance
of the Award in question under Section 48(1) of the Act because it is not a "party." 36. It is
not the case of the RBI that it should keep the current application pending under any clause of
CPC Order XXIII Rule 3 CPC.

After reviewing the evidence, the court determined that the person that is not a party to the
present case fails locus standi and therefore opposes the award's compliance. The court did
not consider the RBI's argument that the execution court must hear RBI because the Award
addresses the terms of the FEMA and the Regulations thereunder in extensor and came to a
definitive conclusion as to their applicability. Arbitral Awards (as well as court decisions in
such matters) can be made in private cases in which RBI's rights and duties under the law that
governs it or the laws and regulations that regulate it are addressed. That does not imply that
RBI must be heard as a party or intervener in the arbitral proceedings or in the subsequent
execution. There is no requirement in the Act or the CPC that this be done.

OBSERVATIONS:

When compared to the rules for mergers and amalgamations under the Companies Act of
1956, it is clear that the legislature did not mean this (as it stood prior to its amendment in
2015). The Company Court was to send a notice to the Central Government under Section
394 of the Act, giving it the right to be heard in the proceedings. There is no regulatory
provision that RBI be consulted on the fairness of an arbitral award if it may result in money
being remitted to a non-Indian agency outside India or to a party's account outside India. The
very fact that a regulatory body's authority and jurisdiction are addressed in an adjudication
order or an Award does not give the body or agency locus standi to participate in such
proceedings.

9|Page
At the same time, RBI would “be bound by an Award interpreting the extent of its powers or
any of its rules, just as any other body, if the Award is upheld by a Court when contested by a
party to the Award. If, for example, a civil court in India or outside India issues a judgement
interpreting RBI's powers under the FEMA in a specific way, and that judgement is either not
contested or affirmed on appeal by a superior judicial body, RBI would be bound by the
Court's decision as long as the two parties to the judgement are concerned. Since the FEMA
regulations require it, the executing court may order that payment of monies under an Award
to a non-Indian individual outside India be subject to RBI approval. The decision, too, will be
binding on the parties and RBI, until it is overturned on appeal. Even in that case, RBI is
unable to interfere and appeal to be heard in the proceedings. As of now, this appears to be a
loophole in the Act, particularly given the frequency at which Indian courts are approached
for the compliance of foreign awards. But in the absence of a provision that expressly
provides for it, the question of permitting RBI to intervene in such proceedings to oppose
enforcement does not arise.”

The “very position that the RBI is now taking in this Court, that a conversion of funds by
Tata to Docomo is not possible without its special approval, was held by Tata before the AT
and was expressly rejected by the AT in a unanimous Award. The AT concluded that because
the sum awarded to Docomo was in the form of damages rather than the Sale Price of the
shares, there was no need to request RBI's special permission. If, as in this case, no party
objects to the Award's compliance and the Court sees no impediment to its enforcement, the
Award that takes a position on the RBI's consent clause would be enforceable as such. RBI
will be bound by such determination and cannot refuse permission”.

The AT has come to the firm opinion that Docomo has been paid damages. It has
implemented the alternate procedure proposed by the parties under SHA Clause 5.7.2. It is
not also the position of the RBI that any general or special approval from the RBI is
necessary if the amount paid by Tata to Docomo is in the form of damages.

10 | P a g e
ANALYSIS:

Clause 2.2.2 of the SHA prohibited the parties from acting in violation of any applicable law.
It read as under: “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 of the
License Agreements shall prevail. Further, no Party shall take any action or have any right
that would violate applicable Law or cause a loss of any License Agreement. Each provision
of this Agreement shall be interpreted so as not to cause such violation of Law or loss of any
License Agreement and in the event of such violation or potential loss the Parties shall use
good faith efforts to agree on an alternative structure that will afford the Parties the
substantial benefits intended by such provision.”

Under the Foreign Direct Investment (FDI) Scheme, which was set out in Schedule 1 to
FEMA 20, a non-resident could buy shares or convertible debentures of an Indian company
under Sub-regulation 5(1). The FDI Scheme did not discuss options as of the date of the
SHA. The terms of the Industrial Policy and Procedures as notified by the Secretariat for
Industrial Assistance ('SIA') in the Ministry of Commerce and Industry, Govt. of India, were
expected to be followed by Indian companies issuing securities under paragraph 2(1) of
Schedule 1. Docomo invested US$ 2.5 billion to subscribe to and buy equity interests of
TTSL as a result of this agreement. There has been no suggestion that at the time of such
investment any binding legal provision was violated.

The main bone of contention was Clause 5.7.2 which provided inter alia that if Tata was
“unable to find a willing buyer or buyers to purchase the Sale Shares at the Sale Price or if
the sale of the Sale Shares is not closed during the Sale Period Tata shall acquire, or shall
procure the acquisition of, the Sale Shares at any price not later than the end of the Sale
Period. The further condition was that Tata shall have the obligation to indemnify and
reimburse Docomo for the difference between the Sale Price and the price at which the Sale
Shares are actually sold, which payment shall be made at the time of closing of the
Sale/Sales.”

Clause 5.7.2 of the SHA protected Docomo from losing more than half of its investment in
both Tata and Docomo's cases. Even the Reserve Bank of India seems to have recognised that
this was in the form of a downside security and not a guaranteed return on its investment. The
AT, for its part, has supported the clarification that the right given to Docomo under Clause

11 | P a g e
5.7.2 was not a security question that would come under the scope of FEMA 20 Regulations
4 and 5. The AT determined that Clause 5.7.2 of the SHA was a conditional obligation by
Tata to find a buyer for Docomo's shares, which should have already been accomplished
using RBI's general approvals under FEMA 20. The pledge was found to be true and
enforceable since FEMA 20 sub-regulation 9(2)(i) allowed for the conversion of shares from
one non-resident to another at any amount. Tata may have legally fulfilled its duty to find a
buyer at any expense, even above the market value of the shares, by seeking a non-resident
buyer, according to the AT. According to the AT, Docomo's inability to do so was a violation
that entitled it to damages.

As a result, the SHA cannot be assumed to be void or incompatible with any Indian
constitution, including the FEMA, let alone the ICA. Contractual duties are not expressly
prohibited by FEMA. It calls for the RBI to give special approval. Clause 5.7.2 of the SHA
was always legitimately capable of performance without the special approval of RBI, using
the general permission under sub-regulation 9(2) of FEMA 20. This was correctly retained by
the AT.

In terms of the Award itself, the AT's view of the SHA's clauses was compliant with the
contracting parties' purpose and not in conflict with any provision of Indian law. Nothing in
the SHA, as interpreted by the Award, makes it invalid or voidable under the ICA, or
contradicts either India's public policy or its fundamental legal policy. The AT's view of the
FEMA's numerous provisions and rules has also not been shown to be implausible or
grotesque. Docomo spent US $ 2.5 billion and will earn just half of that in the form of the
Award. The Court determines that no basis under Section 48 of the Act exists to prevent the
Award from being enforced.

12 | P a g e
JUDGMENT:

On this point, the Award is very straightforward. Docomo was paid damages rather than the
value of the shares. The order requiring the return of the share scrips to Tata was purely
coincidental, and Docomo had no intention of keeping the share scrips. “It could be seen as
an acknowledgement of Docomo's willingness to return the share scrips, which were of little
benefit to it. It is not available to RBI to re-characterize the essence of the pay out in terms of
the Award, to which Tata, the only party who may potentially resist its compliance, no longer
objects. RBI has not placed before the Court any requirement for any permission of RBI
having to be obtained for Docomo to receive the money as damages in terms of the Award”.

According to the aforementioned review, there is no legal clause that allows RBI to engage in
a petition requesting implementation of an arbitral award to which it is not a party. The SHA
was signed on March 25, 2009, by Docomo, Tata, and TTSL. The FEMA provided the
legislative framework in place at the time. Dealings in foreign exchange are banned under
Section 3 FEMA unless they were permitted by RBI's general or special authorization.
“Regulation 3 of FEMA 20 and Sections 6(2) and 6(3) of FEMA made it illegal for a non-
resident to pass shares in an Indian company to a resident unless the RBI granted a general or
special permission. The general authorization was granted under FEMA 20 Regulations 9(2)
and 10B (2), according to the requirements outlined in Circular No. 16 dated October 4,
2004. If such a transfer of shares did not comply with the above Circular (including the
pricing guidelines), RBI special permission would be necessary to conclude the transaction”.

The Award dated 22nd June 2016 issued by the AT in London in LCIA in accordance with
the LCIA Rules is considered enforceable in India and will serve as a deemed decree of this
Court.

13 | P a g e