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TATA vs.

NTT DoCoMo

TATA vs. NTT DoCoMo


The Deal

In 2009, an agreement was signed by TATA Sons with the NTT DoCoMo from
Japan, which bought a 26% stake in Tata Teleservices Ltd (TTSL) for $2.7
billion. NTT DoCoMo followed up this deal with an open offer for 20% in Tata
Teleservices (Maharashtra) Ltd TTML the listed subsidiary of TTSL. At
Rs24.70 (50 cents) a share, i.e. another $191 million.

Under this agreement, put option given to DoCoMo. Thus, DocoMo had the
right to sell the acquired shares and TATA would have to buy
back NTT DOCOMOs 26.5% stake in Telco Tata Teleservices (TTSL) at either
the pre-determined price i.e. 50% of the acquisition price or a fair market
price, whichever is higher.

The dispute

The Japanese firm had expressed its intention to exit the company in April
2014 and under the terms of the 2009 shareholder agreement
between DOCOMO.

TATA Sons refused to pay, due regards to the change in FDI Policy, which
gave rise to the dispute. The new policy specified that such a sale be done at
the prevailing market price, which PricewaterhouseCoopers values at INR
23.34. The predetermined price was INR58 (USD0.93) per share, which was
higher than the prevailing market price.

The Policy

Foreign investment in India is governed by sub-section (3) of Section 6 of the


Foreign Exchange Management Act, 19991 read with Notification No. FEMA
20/2000-RB dated May 3, 20002, as amended from time to time. Also the RBI
issues guidelines and circulars on different matters.

It is pertinent to mention the Master Circular No. 15/2014-15 issued by RBI.


Section 1 of the master circular deals with the Foreign Direct Investment.

1 http://lawmin.nic.in/ld/P-ACT/1999/The%20Foreign%20Exchange%20Management
%20Act,%201999.pdf

2 https://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=174
TATA vs. NTT DoCoMo

Topic 4 of the section is Type of instruments which mentions that 3 (ii) Prior
to December 30, 2013, issue of other types of preference shares such as
non-convertible, optionally convertible or partially convertible, were to be in
accordance with the guidelines applicable for External Commercial
Borrowings (ECBs).

This brings us to the Consolidated FDI Policy, effective from April 5, 2013,
formulated by Ministry of Commerce and Industry, Government of India. 4
Annexure - 2 mentions the terms and conditions for Transfer of Shares
/Convertible Debentures, by way of Sale, from a Person Resident Outside
India to a Person Resident in India. Point 2.3 mentions that such a sale be
governed in accordance with Regulation 10 B (2) of Notification No. FEMA
20/2000-RB dated May 3, 20005. The said regulation lays down that RBI while
granting permission for such sale shall take into account that the sale is at
the prevailing market price on stock exchange.

3 https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9903#12

4 http://dipp.nic.in/English/Policies/FDI_Circular_01_2013.pdf

5 https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174