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The Delhi HC has upheld the award by the London Court of International Arbitration that has held Tata liable for damages for non performance of SHA. This brings an interesting question whether RBI can be an intervening party while entertaining petitions for execution of International arbitral awards.

Current provisions of the Arbitration and Conciliation Act 1996 do not provide for RBI's intervention and the Delhi HC has admitted that this is a gap requiring legislative intervention

Due to the above exclusion, the AT as well as the Delhi HC have reviewed and concluded on the SHA purely from a contractual point of view and not discussing if any of the Regulations under FEMA 20 are violated or not complied with.

Also this has led to another interesting interpretation that the award contemplates remittance in the nature of a Current account transaction and the return of shares by Docomo is voluntary and not linked to the remittance.

This has opened a debate on the interpretations of Current account and Capital account transactions. The current discussion is purely on the legal interpretations of various applicable laws including FEMA,1999.

The SHA has been verified by the Delhi HC and found that the clauses therein have not violated any applicable law

  • Can the Indian party agree to a nonresident buyer a guaranteed exit at a price not less than 50% of the original investment without any subjectivity to the FEMA 20 regulations?
  • The Delhi HC has held that the clause 5.7.2 of the SHA is a protection to Docomo from losing not more than 50% of its investment.
  • It has also said that RBI has accepted that this was in the nature of a downside protection and was not in the nature of an assured return on its investment
  • Guaranteeing an exit at a price not less than 50% of original investment, can this be considered as a downside protection or an indirect assured return on investment?

The London Court of International Arbitration Tribunal has held that section 56 of the Indian Contract Act that makes a contract impossible to perform is void does not apply to the performance of clause 5.7.2 of SHA (which requires Tata to find a Nonresident buyer at a price not less than 50% of original investment)

  • The AT in its order mentions that the parties knew there might be restrictions on performance and Tata might not find a buyer at the Sale Price because a 26% holding in an unlisted company is illiquid; licensing restrictions might prevent Tata from increasing its holding in TTSL; or there might be a requirement for special permission from RBI.” The parties must have intended that Tata could only avail itself of those alternatives if it could perform in fact and in law
  • In that context, when the SHA was entered into knowing fully well that the first part of the obligation cannot be performed, is that not hit by the section 56?
  • If both parties were aware of the impossibility, then under second para to section 56, the promisee (NTT Docomo) is not entitled to compensation). But the AT has chosen to treat the breach by Tata in finding a suitable buyer at the agreed sale price as eligible to damages

Arbitration and conciliation Act 1996 provides for opposition to execution of a foreign award under section 48(2) if the Court finds that-

  • (a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
  • (b) The enforcement of the award would be contrary to the public policy of India.
  • Is not remittance against the current Regulations of FEMA 20, contrary to Public policy of India?

Section 2(g) of the Indian Contract Act 1872 states that an agreement not enforceable in law is void

  • Both the AT and the Delhi HC have consistently maintained that the obligation under the SHA is for Tata to find a nonresident buyer at the agreed sale price and since Tata has failed , there is breach of agreement
  • They insist that there is nothing unenforceable in the agreement
  • But the same AT points out that both the parties know that it is only Tata who can avail itself of the alternatives by agreeing to procure at the agreed price if it could perform in fact and in law.
  • Since the first part is known to both parties as not performable and the second part is restricted by Exchange control regulations, is not the clause 5.7.2 hit by section 2 (g) of the ICA?

 The AT award maintains that the payment contemplated is damages for non-performance of the first part of the obligation on Tata and hence does not require approval by RBI

  • The damages is for non-performance by Tata due to its failure to find a non-resident buyer at the agreed sale price
  • The second part is that Tata will buy in the event of failure of first part
  • The AT has recognized that the parties were aware of the fact that Tata will not be able to find a non-resident buyer since the investment in an unlisted company is illiquid, subject to license conditions and would require exchange control approvals
  • In the context, any compliance by Tata by offering to buy at the agreed sale price would definitely have attracted the RBI permission requirement and so the transaction is effectively in the nature of a Capital account transaction and not that of a current account transaction
  • The Delhi HC while passing an order seeking to execute the AT award has chosen to agree in effect with the conclusion by the AT that it is an award of damages and not require RBI approval.
  • Should it not have attributed to itself the responsibility of checking whether it is really a current account transaction that does not require RBI approval?
  • The liability that is linked to performance which is known abinitio as one that would be performed only by Tata which event would have triggered RBI approval, is essentially related to a Capital account transaction and would require the RBI approval. Should Delhi HC not seen beyond the AT award to check independently the character of the transaction under FEMA?

It may be pertinent to note section 13 of Code of Civil procedure 1908. When foreign judgment will not be conclusive- A foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except-

(c) Where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable;

(f) Where it sustains a claim founded on a breach of any law in force in India.

  • Subsection (c) and (f) look to be relevant and the exchange control provisions apply.
  • But the discussions in the Delhi HC have not considered the above

Under Rule 8(4) of Order I of CPC –Parties of suits - , my reading suggests that RBI could be one of the parties seeking to intervene in the Execution Petition of the AT.

  • It says -No part of the claim in any such suit shall be abandoned under sub-rule (1), and no such suit shall be withdrawn under sub-rule (3), of rule 1 of Order XXIII, and no agreement, compromise or satisfaction shall be recorded in any such suit under rule 3 of that Order, unless the Court has given, at the plaintiff's expense, notice to all persons so interested in the manner specified in sub-rule (2).
  • It automatically provides that RBI needs to be issued notice
  • This is a suit seeking execution of the Foreign award
  • Under Order 1 , Rule 1, RBI could be a party to the suit ( whether Intervention Application can be a suit in a case seeking execution proceedings of a foreign AT is a matter to be addressed)
    • Rule 1 Order I of CPC states -Who may be joined as plaintiffs- All persons may be joined in one suit as plaintiffs where- (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged to exist in such persons, whether jointly, severally or in the alternative; and (b) if such persons brought separate suits, any common question of law or fact would arise.
  • RBI fits in both the caonditions
  • But RBI is excluded quoting Arbitration and Conciliation Act 1996

The Delhi HC has admitted that there exists a gap in the Arbitration and Conciliation Act 1996, particularly, in the context of Indian courts being frequently approached for the enforcement of international Awards.

  • It states that 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
  • Is it not high time that the Government looks into this gap and make RBI an automatic intervening party where remittance of Foreign exchange is involved, though RBI had not been a party to the International arbitration agreements?

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.

  • Does this not confirm that this not presenting any further requirement by RBI was due to the fact that it was fully convinced that the character of the transaction is on Capital account and this is already covered under requirements of FEMA 20?
  • Also will the RBI's presenting such requirement not confirm that the remittance is damages and not on Capital account? RBI must have realized that the transaction's nature is purely on Capital account and hence no fresh requirements for approvals need to be presented to the court

The Delhi HC quotes that the law under Arbitration does not require RBI's intervention to be a pre requisite before any International AT award could be executed as in the case of Mergers and amalgamations under section 394 of the Companies Act 1956 requiring that the Central Government's objections if any should be considered by the Company court -

It has already recorded that it is a gap and require specific procedural amendment of the Arbitration Act in this regard

The London Court of International Arbitration is not obliged to see the SHA from the point of FEMA and may be inclined to check the agreement purely from the contractual point

i. Should not the Indian Court see from the Exchange control point of view also?

ii. This is considering that section 48(2) provides for the court to refuse if the Court finds that-

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public policy of India

The SHA was entered into between the parties on 25th March 2009 whereby an investment by Docomo of US $ 2.5billion was made. The trigger notice requiring Tata to facilitate the exit at the agreed price of 50% of original investment was issued on 7th July 2014. The reason for Docomo to approach the LCIA was that the fair market value of the shares was a fraction of the agreed sale price and so Tata could not find a non-resident buyer.

  • If within a gap of 5 years the valuation has slid to a fraction of the agreed sale price, what could be said of the original valuation based on which the investment was made?
  • Was Docomo overzealous at the time of investment that it wanted to enter Indian Telecom market through an Indian partner that it overlooked the real conditions in the investee company and subsequently changed its plans over the years?

The Code of Civil procedure Under Part II Execution , section 44A coves foreign decrees:

i. Execution of decrees passed by Courts in reciprocating territory-

  • (1) Where a certified copy of decree of any of the superior Courts of any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it had been passed by the District Court.
  • Explanation 2. - "Decree" with reference to a superior Court means any decree or judgment of such Court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect to a fine or other penalty, but shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment.

ii. Does that imply that order from a competent court in India is required to execute a foreign arbitration award and that it shall not be automatically executable in India unless the Indian court passes an order on the award?

iii. That must have been the reason for the current application before the Delhi HC seeking an order to confirm the award as an order or decree of the Delhi HC.

Finally RBI has not gone on appeal against the Delhi HC order. Is it because it is restrained by the provisions of sub rule 3A of Order XXIII of CPC that states:

3A. Bar to suit - No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.

The author can also be reached at crd27220@icai.org


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