New Delhi: Tussles within the Tata Group on how it should react to Japanese telecom giant NTT Docomo’s legal challenges helped widen a bitter rift between Cyrus Mistry and the Ratan Tata-headed Tata Trusts.
However, these differences of opinion stemmed not from Mistry acting alone or in a manner that reportedly clashed with the Tata Group’s high ethical standards. In fact, Ratan Tata and several other members of the Tata Trusts not only sat in on a handful of key meetings that decided the group’s legal strategy, but also allegedly pushed for decisions that were, ironically, even less in keeping with the Tata Group’s ‘ethos and culture’ than the line of action Mistry mooted.
According to documents attached to a new affidavit filed by the former Tata Group chairman, on crucial decisions – such as whether the Tata Group should unconditionally deposit the $1.17 billion with the Delhi High Court – Tata Trust members showed “extreme anxiety”.
On other issues associated with the Docomo imbroglio, such as whether the finance ministry could be persuaded into giving a FEMA exemption, Ratan Tata and colleagues may have taken “direct charge”.
After the London arbitration court ruled against the Tata Group in June 2016, documents show that Ratan Tata was also keen on “suing Docomo for defamation”.
The quick deterioration of the Tata Group and NTT Docomo’s business relationship over the last two years in general, and over the last year in particular, has gone onto become a highly contentious issue since Mistry’s sacking.
Several business newspapers – and indeed to a lesser extent, the Tata Group – have indicated through anonymous sources and cryptically worded press releases that the manner in which Mistry handled the Tata Docomo affair was one of the reasons why he was fired, behaving as he did in a manner that conflicted with the “culture and ethos” of the Tata Group.
These new documents, accessed by The Wire and detailed below, present another side to this picture.
Docomo fallout
What have Docomo and Tata Teleservices been fighting over the last two years? In 2009, the Japanese telecom giant invested roughly $2.6 billion in order to buy a 26.5% stake in Tata Teleservices (TTSL).
When the investment was made, the agreement had a “put option” — which meant that when NTT wanted to sell its stake, it had the right to sell it at either “fair value” or half the “acquisition price” (in this case, half of $2.6 billion). By 2014, five years after it made the investment, NTT had enough and said it wanted to exit TTSL, thus exercising its put option.
However, By 2014, the Reserve Bank of India had come out with a new set of rules that detailed that foreign companies (like NTT Docomo) could only exit investments “at valuations based on return on equity”. What did this mean? Put simply, it meant that Docomo would have to settle for far less than the $1.3 billion it believed it was owed.
The last year has seen both sides (mainly Docomo though) accuse the other of behaving less than honourably, with Docomo engaging in international arbitration. A month after the London court’s order came through, the Japanese side also headed to the Delhi high court, to have it declare that Tata must be forced to pay despite contravening RBI regulations.
While the last two months have seen some attempt at peace talks, developments will likely start moving quickly on Feburary 2, which is when the next hearing at the Delhi high court will take place.
The new documents filed by Mistry back up (to a certain extent) his initial assertions in November 2016, a week after he was sacked, that Ratan Tata and trustee N.A. Soonawala were kept in the loop with regard to how the Tata Group handled the Docomo affair. “At all times, Ratan Tata and Soonawala concurred and approved the course of action adopted by the Tatas and as advised by legal counsel,” Mistry’s office said in November.
How much of this is true, given that the Docomo dispute has dragged out over the last four years? The Wire breaks it down.
Were Ratan Tata and Soonawala kept informed of how Mistry was handling the Docomo dispute?
The oldest instance of the Tata Trust trustees being kept in the loop, that Mistry’s documents show, is on February 1, 2015. This is two months after a final round of conciliatory talks between the Tata Group and NTT failed and at least a year after the Tata Group pointed out that offshore Tata companies could not buy Docomo’s shares.
A harried email from Tata Group chief legal counsel Bharat Vasani sent on Sunday, February 1 (2015), talks about how the Tata Sons board still “doesn’t have full clarity on what should be the scope of prior consultation process with the Trustees and what their expectations from us are”.
“Despite having two trust representatives on our Board,” Vasani’s email reads, “we had to withdraw two resolutions from the last EGM of Tata Sons”.
Vasani’s frustration is clear and to drive home his point, he reminds Mistry that the Tata Trustees have been informed of all major decisions taken by the Tata Sons board with regard to potentially touchy issues.
“As far as I know, we have been pre-consulting/informing them on all important issues like application for bank license, Docomo, Piaggio divestment, Telecom restructuring, major capital raising etc,” the email said (emphasis added).
While the Docomo affair came into mainstream attention in 2016, it was 2014 (the year before Vasani’s e-mail) that set into motion the eventual chain of events. In 2014, the RBI made its changes to FEMA regulations and in 2014 it was Docomo that staunchly rejected the need for central bank approval.
Jump forward one year. The next email that Mistry’s documents show us is on July 26, 2016, roughly a month after the London court of arbitration ruled against the Tata Group.
In an e-mail sent to Mistry and Tata veteran Ishaat Hussain, Vasani notes that as legal counsel while he was “carefully thinking” about the Tata Group’s legal strategy with regard to Docomo, much of the issue had been taken out of his hands.
“Unfortunately, with the Trustees directly taking charge of the matter and giving direct instructions to Darius and showing extreme anxiety to unconditionally deposit the money, my view became irrelevant,” Vasani’s email reads.
Darius Khambata’s frustration
Darius here refers to Darius Khambata, a trustee of the Sir Dorabji Tata Trust and a lawyer who represented the Tatas in the Docomo litigation. Darius reportedly resigned shortly before Mistry sent in his resignation letter, saying that he “resigned due to increasing professional commitments”.
Darius’ resignation becomes important, as the rest of Vasani’s email shows. According to Vasani, Darius had “become increasingly fed up with multiple instructions” coming his way in the Docomo matter. Multiple instructions here likely refers to the orders given to him by Ratan Tata (and the Tata trustees) and Mistry (and the Tata Sons board).
“Darius told me last night over dinner that he is completely fed up with the multiple instructions to him in this matter and would like to have a joint meeting with all of us plus RNT [Ratan Tata] and NAS [N.A Soonawala] for the next steps after today’s hearing. He asked me how do I work in this kind of environment!!,” Vasani’s email reads.
Today’s hearing (July 26, 2016) refers to the exparte order that Docomo succeeded in getting from a London court, which sought to enforce the arbitration award granted in June 2016.
Ratan Tata wanted to sue
Most importantly, Mistry’s document include a summary brief prepared by AZB & Partners, a top corporate law firm, on July 30, 2016. This meeting, the brief shows, centred mainly around Tata Docomo legal strategy.
It was attended by Ratan Tata and Soonawala as well as top Tata Sons brass including Mistry, Vasani, chief operating officer Farokh Subedar, Mukund Rajan and Samir Oak. Counsel Darius Khambata also attended.
Much of this AZB brief has been redacted, including a crucial section entitled “Settlement Discussions”. Mistry’s team does leave unredacted one sentence in between as well as the final, concluding section.
The one sentence reads: “Mr Ratan Tata felt that since Docomo was clearly looking to tarnish the reputation of the group, we should explore the possibilities of suing Docomo for defamation”. This would suggest the argument that Mistry’s handling of the Docomo affair as not being “in the spirit of the Tata Group”, as one leading business daily put it, may be mistaken.
The final concluding section however states that two decisions were taken with regard to how the Tatas should approach the Docomo dispute. Firstly, Tata Sons would “file an application in London and Mr Khambata would review it”. And secondly, Tata Sons would file “for resisting the award in India”.
Both these developments ended up happening over the next few months.
To what extent were Ratan Tata and the Tata Trusts involved in TTSL’s operations?
The documents show two instances of the Tata Trust intervening in Tata Teleservices’ operations. The first was in June/July 2016, when Tata Sons needed to approve an investment proposal that would help the company bid for spectrum in the September auctions. The second, was with regard to the “acct closure” of Tata Teleservices Maharashtra (TTML) – in 2016, it was reported it may shut down CDMA operations in the 850 Mhz band.
An email from Subedar to Mistry on June 7, 2016 noted that Ratan Tata had disapproved of any investment proposal to be taken up at the Tata Sons board meeting.
“NAS had called this morning and alerted me that RNT had objected to any investment proposal for TTSL proposed to be taken at the bd [board] meeting. He asked me for the Note, which he offered to take to RNT and refresh the decisions at our last Fri [Friday] meeting, especially considering the acct closure of TTML,” Subedar’s email reads.
“In the evening, he [NAS] called back,” the email continues, “and mentioned that Mr RNT felt the note was not correctly captured and he redid the Note.”
“It does not mention re 800 spectrum as a fallback, which I again checked with him but he felt RNT did not mention. Incorporating the NAS note I have prepared the BD agenda note. If you agree, will send to the directors,” Subedar wrote.
A buyer for Docomo?
One of the initial allegations levelled by Japanese partner NTT was that the Tatas simply failed and perhaps didn’t try hard enough to find a buyer, both for Docomo’s stake as well as for the whole company.
The documents show that this is not the case. Two things perhaps held Mistry and Tata Sons back from doing so. In a letter to Soonawala in January 2016, Mistry gives him an analysis of all Tata Group companies.
In the section under TTSL, Mistry notes that while EBITA has improved from 700 crores in 2014 to 2,400 crores in 2016, “the sustainability of this performance is questionable”. However, when Mistry did try to sell the telecom business in the past, the figure “was close to a negative equity value of 14,000 crores or more”.
“This would mean a write-down of at least 26,000 crores, besides the potential liability of 7,200 crores to Docomo,” Mistry wrote. To put this write-down in perspective, the current market cap of Tata Sons is around 1,74,000 crore – which means that the Docomo writedown would be a little over 10% of the overall’s market cap.
Despite this, in January 2016, Mistry confirms that Vodafone was an interested and active potential buyer. However, Vodafone felt that “the transaction is too complicated”. Other “less palatable” options would include a writedown of about Rs 35,000 crores.
Why did Vodafone think the acquisition would be too complex? Mistry lists a few reasons in a separate affidavit: “In TTSL, the ongoing litigation regarding 2G dual technology, delisting of TTML contingent liability of several thousand crores with respect to contracts entered into with Viom and outstanding litigation with Docomo would stand in the way of closing a deal with Docomo”.
Was the original deal between the Tatas and Docomo legitimate?
One of the more interesting details to come out of the documents that Mistry presented to the National Company Law Tribunal is that is that the controversial “put-option” was never disclosed to the Foreign Investment Promotion Board at the time of the deal in 2009.
This may have worked against both Tata Sons and Docmo. As Mistry notes, “the non-disclosure of the put option in the Docomo transaction has been interpreted by the Government of India as default on behalf of Docomo and Tata Sons”.
It is unclear whether in 2011, when Docomo subscribed to a rights issue worth Rs 800 crore, and insisted that these shares also come under the earlier protection clause, the put-option was disclosed to Indian authorities. Nevertheless, at the time, the RBI rules hadn’t been changed.
Resource: https://thewire.in
Resource: http://grandiose.org.in/
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