When International Arbitration Collides With National Law A critique of the foundation laid by the Delhi High Court in the case of NTT DoCoMo Inc. vs. Tata Sons Limited

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Charan Rawat, Prof. Dr. Bindu Ronald

Abstract

The decision of the Delhi High Court (DHC) in the matter of 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 (RBI). While the Foreign Exchange Management Act, 1999 (FEMA) does not permit “assured returns” to an overseas investor when such investor desires to monetise its Indian investments through sale to a resident Indian investor, 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 the basis on which Supreme Court arrived at its views in the matter of Vijay Karia & Others vs PrysimanCavi 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 infractions of FEMA do not result in a “breach of public policy of India”. This paper aims to analyse and critique the decisions taken in these disputes. 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 authors 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.The paper tries to elucidate how these cases have set an incorrect precedent as regards assured returns in India.

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