Arbitrate and Violate - A Critique of the Foundation Laid by the Delhi High Court in the Case of NTT DoCoMo Inc. vs. Tata Sons Limited

The decision of the Delhi High Court in the matter of NTT DoCoMo Inc vs Tata Sons Limited and the settlement thereof in the year 2017 has attracted significant attention from all stakeholders. The case involves an analysis of the foreign direct investment policy and the regime regarding foreign investments in India and exits of foreign investors from companies in India. The dispute involves an interplay of interpretation of contracts and the role of the Reserve Bank of India. While the Foreign Exchange Management Act, 1999 does not permit “assured returns” to a foreign investor at the time of its exit, it appears that the arbitral tribunal, and the DHC took a favoured view when it came to NTT DoCoMo Inc. The decision of the DHC, upholding the foreign arbitral award for a contract that was in obvious violation of FEMA was quite startling. Unfortunately, this rationale was also used by the Supreme Court in the case of Vijay Karia & Others vs Prysiman Cavi E Sistemi SLR & Others, which further compounds this issue. The Apex Court accepted the view of DHC in the NTT Docomo case, and held that a violation of the provisions of the FEMA does not result in a “breach of public policy of India”. This paper aims to analyse and critiq the decisions taken by the arbitral tribunal, DHC and the Supreme Court in the case of NTT DoCoMo Inc vs Tata Sons Limite and Vijay Karia & Others vs Prysiman Cavi E Sistemi SLR & Others. Besides legality, these two cases also raise serious concerns regarding the quality of corporate governance of companies and the professional ethics of legal advisory services, which has been discussed further in this paper. In the author’s view, RBI, as a custodian of the foreign currency reserves and implementer of FEMA, is best placed to interpret the regulations and operational guidelines issued under FEMA. The decision in these two cases, where the parties have used the international arbitration clause to bye-pass the laws of India, has now provided a template for parties to enter into contracts with a deliberate intention to bypass the provisions of the law, and indulge in unethical practices. The paper tries to elucidate how these cases have set an incorrect precedent as regards assured returns in India. Keywords: “assured returns”, “international arbitration”, “Tata - NTT Docomo Dispute”, “pricing guidelines”