The Reserve Bank of India on Thursday told the Delhi High Court that the agreement between Tata Sons and NTT DoCoMo on buying back the latter’s shares in Tata Teleservices was against Foreign Exchange Management Act (FEMA) Regulations.

In April 2014, NTT DoCoMo announced plans to sell its entire stake in TTSL, exiting India five years after entering the country. The exit came after TTSL failed to achieve certain performance targets.

Under the terms of the shareholder agreement, Tata Sons had to find a buyer by December 2014, failing which it had to buy the DoCoMo stake. But RBI regulations prohibit sale of equity at a pre-determined price. Tata Sons had applied to the RBI to purchase NTT DoCoMo’s stake, but the central bank ruled that when the Put Option is exercised, it should be based on the prevailing return on equity at the time the option is exercised, and not based on a pre-determined valuation.

However, a London court had asked Tata to pay $1.17 billion to the Japanese major as compensation.

While the Tatas have defended their position stating that the deal with NTT DoCoMo was legal, they are ready to pay the money, within the constraints of the law.

The court has issued notice to DoCoMo and Tata seeking a response to the RBI’s plea seeking intervention and listed the matter for December 21.

According to analysts tracking the dispute, the RBI’s position can be seen as a vindication of Cyrus Mistry’s stand on the issue. It also strengthened Tata Sons’ view that it cannot make payments under Indian laws.

Tata Sons has already deposited the money with the court to prove its intent. DoCoMo, on the other hand, has questioned the Tatas’ intent in the matter.

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