Recently, many foreign investors have been closely following the developments in the Indian telecom sector regarding the Tata-DoCoMo arbitration with great interest. The crux of the matter stemmed from a mid-2000s agreement between Tata and DoCoMo that permitted DoCoMo to receive a pre-set amount if it were to exit the joint venture at a certain point in time. A classic put option, in other words.

However, the Ministry of Finance (MoF) took a view in 2013 that payouts by an Indian company of such amounts would be in contravention of the extant foreign exchange norms. It is another matter that the Reserve Bank of India (RBI) was keen to permit the same since the legal framework was not fleshed out at the time of entering into this agreement in circa 2007.

The lessons for foreign investors to consider in this episode are to:

  • Review any joint venture or shareholder agreements in the 2000–2013 period for options or pre-emption rights that confer an assured return to the foreign investor.
  • Ascertain if the agreement can be enforced against an overseas party, which would obviate the need to remit funds from India in satisfaction of these covenants.
  • For those already in dispute territory, ensure that sufficient interim security measures are in place.

If you are an Indian party on whom such an option can be exercised by a foreign investor that fits the above bill, this is likely to be an exciting development. The courts in India will now need to legislate whether or not paying out such amounts will amount to a breach of the fundamental policy of Indian law.