Tata Group’s payout of $1.17 billion in damages to Japanese telco NTT Docomo cannot be approved and is illegal, since it involves the transfer of shares to a foreign company, the Reserve Bank of India (RBI) told the Delhi High Court yesterday, according to this ET report. The court, however, was skeptical about RBI’s intervention and questioned whether there is a need for a special permission from RBI for the payout.

According to the report, the court termed RBI’s statements as “absurd” since it does not have jurisdiction outside India. “How can you object to enforceability anywhere else in the world? If they have assets anywhere else, they can move a court there for the enforcement of the award. There is no law prohibiting it,” the court added. The case is now postponed to March 14th after RBI’s lawyer requested more time to file its counter affidavit to the court’s inquiries.

RBI’s concerns come after Tata Group, which jointly owns the Tata Docomo brand in India through a partnership with NTT Docomo, agreed to pay $1.17 billion in damages to NTT over a legal arbitration case. Japan’s NTT Docomo holds a 26% stake in Tata Docomo in India along with Tata Teleservices. After the venture started posting continuous losses, TTL was ordered to pay $1.17 billion in damages to NTT by a London court in June last year. The terms of the agreement between both companies provide an option for the acquirer (NTT Docomo) to request a suitable buyer for at least 50% of the acquired price in case venture turns non-profitable.

This isn’t the first time that RBI had intervened in the case. In December it filed itself as party in the ongoing case and earlier blocked Tata from paying out the entire $1.17 billion in a single transaction, citing that it would lead to circumvention of existing foreign exchange regulations. Tata then deposited the entire amount with the Delhi Court registrar. NTT, however, went on to move a US district court in November last year to force Tata to pay the $1.17 billion arbitrary sum.

How Tata Group planned to pay the arbitrary sum

According to this Moneycontrol report, Tata is looking at paying $1.17 billion in two tranches in order to comply with the foreign exchange rules. In the first payout, Tata proposed to pay fair market value price to NTT and the reaming sum would be sent using the offshore payments route.

Image source: Ravi Karandeekar used under CC-BY-SA.