Idea that changed the

equations…

Tata V/S Birla

 ACKNOWLEDGEMENT

We would like to thank our supervisor of this project,

Ms. Monica Suri for the valuable guidance and advice. She inspired us
greatly to work in this project. Her willingness to motivate us
contributed tremendously to our project.

We also would like to thank her for showing us some valuable points
that relate to the topic of our project.

2
Table of Contents
Table of Contents.................................................................................................................3
TATA TELE SERVICES..................................................................................................12
ADITYA BIRLA GROUP.................................................................................................16
THE CONTRACT ACT ...................................................................................................23
ARBITRATION................................................................................................................29
CASE.................................................................................................................................30

Arbitration: War or Peace?................................................................................................42

STUDENT ANALYSIS....................................................................................................45
CONCLUSION..................................................................................................................46
- 47 -

3
 TATA GROUP

Leadership with Trust

Tata companies operate in seven business sectors: communications and

information technology, engineering, materials, services, energy, consumer
products and chemicals. They are, by and large, based in India and have
significant international operations. The total revenue of Tata companies,
taken together, was $62.5 billion (around Rs251,543 crore) in 2007-08, with
61 per cent of this coming from business outside India, and they employ
around 350,000 people worldwide. The Tata name has been respected in
India for 140 years for its adherence to strong values and business ethics.

Every Tata company or enterprise operates independently. Each of these

companies has its own board of directors and shareholders, to whom it is
answerable. There are 27 publicly listed Tata enterprises and they have a
combined market capitalization of some $60 billion, and a shareholder base
of 3.2 million. The major Tata companies are Tata Steel, Tata Motors, Tata
Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Tea, Indian
Hotels and Tata Communications.

Tata Steel became the sixth largest steel maker in the world after it acquired
Corus. Tata Motors is among the top five commercial vehicle manufacturers
in the world and has recently acquired Jaguar and Land Rover. TCS is a
leading global software company, with delivery centres in the US, UK,
Hungary, Brazil, Uruguay and China, besides India. Tata Tea is the second
largest branded tea company in the world, through its UK-based subsidiary

4
Tetley. Tata Chemicals is the world’s second largest manufacturer of soda
ash and Tata Communications is one of the world’s largest wholesale voice
carriers.

In tandem with the increasing international footprint of Tata companies, the

Tata brand is also gaining international recognition. Brand Finance, a UK-
based consultancy firm, recently valued the Tata brand at $9.92 billion and
ranked it 51st among the world's Top 100 brands. Businessweek magazine
ranked Tata 13th among the '25 Most Innovative Companies' list and the
Reputation Institute, USA, recently rated it 11th on its list of world's most
reputable companies.

Founded by Jamsetji Tata in 1868, Tata’s early years were inspired by the
spirit of nationalism. It pioneered several industries of national importance in
India: steel, power, hospitality and airlines. In more recent times, its
pioneering spirit has been showcased by companies such as TCS, India’s first
software company, and Tata Motors, which made India’s first indigenously
developed car, the Indica, in 1998 and recently unveiled the world’s lowest-
cost car, the Tata Nano.

Tata companies have always believed in returning wealth to the society they
serve. Two-thirds of the equity of Tata Sons, the Tata promoter company, is
held by philanthropic trusts that have created national institutions for science
and technology, medical research, social studies and the performing arts. The
trusts also provide aid and assistance to non-government organisations
working in the areas of education, healthcare and livelihoods. Tata
companies also extend social welfare activities to communities around their
industrial units. The combined development-related expenditure of the trusts
and the companies amounts to around 4 per cent of the net profits of all the
Tata companies taken together.

Going forward, Tata is focusing on new technologies and innovation to drive

its business in India and internationally. The Nano car is one example, as is
the Eka supercomputer (developed by another Tata company), which in 2008

5
was ranked the world’s fourth fastest. Anchored in India and wedded to
traditional values and strong ethics, Tata companies are building
multinational businesses that will achieve growth through excellence and
innovation, while balancing the interests of shareholders, employees and civil
society.

Core Values

Tata has always been values-driven. These values continue to direct the
growth and business of Tata companies. The five core Tata values
underpinning the way we do business are:

•Integrity: We must conduct our business fairly, with honesty and

transparency. Everything we do must stand the test of public scrutiny.
•Understanding: We must be caring, show respect, compassion and
humanity for our colleagues and customers around the world, and
always work for the benefit of the communities we serve.
•Excellence: We must constantly strive to achieve the highest possible
standards in our day-to-day work and in the quality of the goods and
services we provide.
•Unity: We must work cohesively with our colleagues across the group
and with our customers and partners around the world, building strong
relationships based on tolerance, understanding and mutual
cooperation.
•Responsibility: We must continue to be responsible, sensitive to the
countries, communities and environments in which we work, always
ensuring that what comes from the people goes back to the people
many times over.

6
Business Excellence

Business excellence has been embedded in Tata through processes and

methodologies that enable companies to heed the call of quality.

The quality movement in the Tata group is defined by a framework known as

the Tata Business Excellence Model (TBEM), which has been adapted from
the renowned Malcolm Baldrige archetype. The model works under the aegis
of Tata Quality Management Services (TQMS), an in-house organisation
mandated to help different Tata companies achieve their business objectives
through specific processes. These processes which have come to characterise
the Tata way of enhancing and conducting its business endeavours -
essentially relate to two factors: business excellence and business ethics.

TQMS plays the role of supporter and facilitator in the journey that Tata
enterprises undertake to reach the peaks of business eminence while, at the
same time, adhering to the highest ethical standards. There are, primarily,
two tools that define the pathways and scope of this journey. The first of
these is TBEM and the other is the Tata Code of Conduct.

While quality has always been one of the cornerstones of the Tata way of
business, the need to introduce a formal system that calibrated how different
group companies were faring on this scale began being felt in the early
1990s. That led to the institution, in 1995, of the JRD Quality Value Awards,
the forerunner to TBEM. Named after JRD Tata, the late chairman of the
group and a crusader for the cause of business excellence in Tata companies,
the awards have now been incorporated in TBEM.

There is a formal arrangement that governs the relationship between

individual Tata companies and the superstructure that is the Tata group. In
order to use the Tata nomenclature, a group company has to sign a contract
called the Brand Equity and Business Promotion (BEBP) Agreement. This

7
places an obligation on the company signing on to adopt TBEM as a means to
attaining business leadership.

TQMS

TQMS helps Tata companies gain insights on their strengths and their
opportunities for improvement. This is managed through an annual process of
'applications and assessments'. Each company writes an application wherein
it describes, in the context of the TBEM matrix, what it does and how it does
it. This submission is then gauged by trained assessors, who study the
application, visit the company and interact with its people. The assessors
map out the strengths and improvement opportunities existing in the
company before providing their feedback to its leadership team.

TQMS trains and certifies assessors, who are selected from across the group,
and it designs and administers an assessment apparatus that helps them
evaluate different Tata companies. The point person in each company is the
'corporate quality head', nominated by the CEO as the business excellence
process owner. Typically, each company has a network of business
excellence people from a variety of functions and locations.

The commitment a company makes when it signs the BEBP contract compels
it to attain explicit business excellence scores over specific time periods. A
result-driven scoring mechanism enables the company to track its progress
over time, and ensure that it keeps improving. There is also an annually
administered, group-wide recognition system for companies that exceed a
certain score, thereby reflecting excellence, industry leadership and
consistent improvement.

Implicit in the TQMS approach is the belief that its wide-ranging methodology
will enable Tata companies to become exemplars - on business as well as
ethical parameters - in their respective spheres.

8
TBEM

The TBEM methodology has been moulded to deliver strategic direction and
drive business improvement. It contains elements that enable companies
following its directives to capture the best of global business processes and
practices. The model has retained its relevance thanks to the dynamism built
into its core. This translates into an ability to evolve and stay in step with
ever-changing business performance parameters.

The TBEM matrix is used for the organisational self-assessment of Tata

companies, recognition and awards, and for providing feedback to applicants.
In addition, TBEM plays three important supportive roles in strengthening the
competitiveness of Tata companies:

• It helps improve business excellence practices, capabilities and

results.
• It facilitates communication and sharing of best practices among
Tata companies.
• It serves as a working tool for understanding and managing
performance, for providing planning guidance, and for
identifying learning opportunities.

The TBEM methodology comprises a set of questions that applicant Tata

companies have to answer. Its main objectives are to enhance value to
customers and contribute to marketplace success; maximise enterprise-wide
effectiveness and capabilities; and deliver organisational and personal
learning. The methodology is built on the following set of interrelated core
values and concepts: visionary leadership; customer-driven excellence;
organisational and personal learning; valuing of employees and partners;
agility; future focus; managing for innovation; management by fact; social
responsibility; results and value creation; and systems perspective.

9
The core values and concepts of TBEM are embodied in seven categories:
leadership; strategic planning; customer and market focus; measurement,
analysis and knowledge management; human resource focus; process
management; and business results. The TBEM system focuses on certain key
areas of business performance: customer-focused results; product and
service results; financial and market results; human resource results;
organisational effectiveness results; governance and social responsibility
results.

JRD QV Award

Jehangir Ratanji Dadabhoy Tata, or JRD, as he was popularly known in

business circles, guided the destiny of India’s largest business house for well
over half a century. Over the years that he was at the helm of affairs of the
group, JRD Tata helped establish many new enterprises.

He was always conscious about the importance of quality, and ensured that
this quality consciousness prevailed in all the organisations that belonged to
the Tata group. He was proud that the companies within the group were
known, domestically and internationally, for the quality of their products and
services. As a tribute to his quest for perfection in every sphere of activity,
the JRD Tata Quality Value Award was instituted in his memory.

The JRD QV Award is modelled on the lines of the Malcolm Baldrige National
Quality Award, integrating beneficial attributes from other national quality
awards. The award recognises a company within the Tata group, which excels
in quality management and has achieved the highest levels of quality. This is
an annual award presented to the winning company on the 29th day of July,
the birth anniversary of Mr JRD Tata.

The objectives of the award are:

10
 • This award is given to group companies in order to create awareness
on the importance of the value of quality and the need for total
customer satisfaction in all areas of operations within the Tata group
companies.
• To achieve and sustain continuous excellence and consequently
leadership in the marketplace through perfection and the achievement
of quality which will be recognised as being the best and ahead of
competition.

Evaluation Process

Tata companies participate in a bi-annual process of external assessments.

The idea is to subject them to an assessment, based on the excellence
parameters embedded in the Tata Business Excellence Model (TBEM). Each
company writes an application in which it describes what job it does and how
it does the job in the context of the criteria set by TBEM. This application is
then "assessed" by trained TBEM assessors who study the document, visit the
company and interact with its people, draw out the strengths and the
improvement opportunities, and then provide feedback to the leadership
team. An in-built scoring mechanism enables the company to track its
progress over time, and ensure that it keeps improving. Criteria for
recognition:

* JRD QV Award: 600+ for the first time

* Leadership in Excellence: 700+ for the first time
* Sustained Excellence: 3 successive improvements beyond 600
* Active Promotion: 500 to 600 for the first time
* Serious Adoption: 450 to 500 for the first time
* High Delta: High improvement in one year min 75 for 500-
* High Delta 500+: High improvement in one year min 50
* High Delta 600+: High improvement in one year min 25

11
 TATA TELE SERVICES

Tata Teleservices Limited spearheads the Tata Group’s presence in the

telecom sector. The Tata Group had revenues of around US $62.5 bn in
Financial Year 2007-08, and includes over 90 companies, around 350,000
employees worldwide and more than 3.2 million shareholders.

TATA TELESERVICES LTD

Tata Teleservices Limited spearheads the Tata Group’s presence in the

telecom sector. The Tata Group had revenues of around US $62.5 bn in
Financial Year 2007-08, and includes over 90 companies, around 350,000
employees worldwide and more than 3.2 million shareholders.

Incorporated in 1996, Tata Teleservices is the pioneer of the CDMA 1x

technology platform in India. It has embarked on a growth path since the
acquisition of Hughes Tele.com (India) Ltd [renamed Tata Teleservices
(Maharashtra) Limited] by the Tata Group in 2002. It launched mobile
operations in January 2005 and today enjoys a pan-India presence through
existing operations in all of India’s 22 telecom Circles. The company is also
the market leader in the fixed wireless telephony market. The company’s
network has been rated as the ‘Least Congested’ in India for last four
consecutive quarters by the Telecom Regulatory Authority of India through
independent surveys.

12
Tata Teleservices Limited now also has a presence in the GSM space, through
its joint venture with NTT DOCOMO of Japan, and offers differentiated
products and services under the TATA DOCOMO brand name. TATA DOCOMO
arises out of the Tata Group’s strategic alliance with Japanese telecom major
NTT DOCOMO in November 2008. TATA DOCOMO has received a pan-India
license to operate GSM telecom services and has also been allotted spectrum
in 18 telecom Circles and will roll out its services shortly, starting with South
India.

TATA DOCOMO marks a significant milestone in the Indian telecom

landscape, as it stands to redefine the very face of telecoms in India. Tokyo-
based NTT DOCOMO is one of the world’s leading mobile operators in the
Japanese market, the company is the clear market leader, used by over 50
per cent of the country’s mobile phone users.

Today, Tata Teleservices Ltd, along with Tata Teleservices (Maharashtra) Ltd,
serves over 36 million customers in more than 320,000 towns and villages
across the country, with a bouquet of telephony services encompassing
Mobile Services, Wireless Desktop Phones, Public Booth Telephony and Wire
line Services. Other services include value-added services like Voice Portal,
Roaming, Post-paid Internet Services, Three-way Conferencing, Group Calling,
Wi-Fi Internet, USB Modem, Data Cards, Calling Card Services and Enterprise
Services. Some of the other products launched by the company include Pre-
paid Wireless Desktop Phones, Public Phone Booths, Mobile Handsets and
Voice & Data Services such as BREW Games, Voice Portal, Picture Messaging,
Polyphonic Ring Tones, and Interactive Applications like news, cricket,
astrology, etc.

In December 2008, Tata Teleservices announced a unique reverse equity

swap strategic agreement between its fully-owned telecom tower subsidiary,
Wireless TT Info-Services Limited, and Quippo Telecom Infrastructure Limited
- with the combined entity kicking off operations with 18,000 towers, thereby
becoming the largest independent entity in this space. Tata Teleservices’

13
bouquet of telephony services includes mobile services, wireless desktop
phones, public booth telephony and wire line services.

Board of Directors

Mr. Ratan N. Tata

Designation: Chairman,
Company: Tata Teleservices Ltd.

Mr. K. A. Chaukar
Designation: Managing Director,
Company: Tata Industries Ltd.

Mr. Anil Kumar Sardana

Designation: Managing Director,
Company: Tata Teleservices Limited

Mr. I. Hussain
Designation: Director,
Company:Tata Sons Ltd.

Mr. N. S. Ramachandran
Designation: Director,
Company: Tata Teleservices Ltd.

Mr. N. Srinath
Designation: CEO & MD,
Company: Tata Communications Ltd.

Dr. Mukund Govind Rajan

14
Designation: MD,
Company: Tata Teleservices Maharashtra Ltd.

Mr. Anuj Maheshwari

Designation: Director,
Company: Temasek Holdings Advisors India Pvt Ltd., ("THAIPL")

Mr Toshinari Kunieda
Designation: Senior Vice President, Managing Director Global Business Division,
Company: NTT Docomo, INC.

Mr. Kiyoshi Tokuhiro

Designation: Senior Vice President, Managing Director of Network Department
Company: NTT Docomo, INC.

Mr. Kazuto Tsubouchi

Designation: Executive Vice President, Chief Financial Officer,
Company: NTT Docomo, INC.

15
 ADITYA BIRLA GROUP

GLOBAL VISION, INDIAN VALUES

A US $29.2 billion corporation, the Aditya Birla Group is in the league of

Fortune 500. It is anchored by an extraordinary force of 130,000 employees,
belonging to 30 different nationalities. In India, the Group has been adjudged
"The Best Employer in India and among the top 20 in Asia" by the Hewitt-
Economic Times and Wall Street Journal Study 2007. Over 50 per cent of its
revenues flow from its overseas operations.

The Group operates in 25 countries - India, UK, Germany, Hungary, Brazil,

Italy, France, Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China,
Thailand, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar,
Bangladesh, Vietnam, Malaysia and Korea. Globally the Aditya Birla Group is:
A metals powerhouse, among the world's most cost-efficient aluminium and
copper producers. Hindalco-Novelis is the largest aluminium rolling company.
It is one of the three biggest producers of primary aluminium in Asia, with the
largest single location copper smelter.

Factfile

• The 11th largest cement producer globally, the seventh largest in Asia
and the second largest in India.
• No.1 in viscose staple fiber.

• The fourth largest producer of insulators.

16
 • The fourth largest producer of carbon black.

• Among the world's top 15 BPO companies and among India's top four.

• Among the best energy efficient fertilizer plants.

The Aditya Birla Group Logo

The name “Aditya Birla” evokes all that is positive in business and in life. It
exemplifies integrity, quality, performance, perfection and above all
character Our logo is the symbolic reflection of these traits. It is the
cornerstone of our corporate identity. It helps us leverage the unique Aditya
Birla brand and endows us with a distinctive visual image.

Depicted in vibrant, earthy colours, it is very arresting and shows the sun
rising over two circles. An inner circle symbolising the internal universe of the
Aditya Birla Group, an outer circle symbolising the external universe, and a
dynamic meeting of rays converging and diverging between the two. Through
its wide usage, we create a consistent, impact-oriented Group image. This
undoubtedly enhances our profile among our internal and external
stakeholders.

Our corporate logo thus serves as an umbrella for our Group. It signals the
common values and beliefs that guide our behaviour in all our
entrepreneurial activities. It embeds a sense of pride, unity and belonging in
all of our 130,000 colleagues spanning 25 countries and 30 nationalities
across the globe. Our logo is our best calling card that opens the gateway to
the world.

17
 - Dr. Pragnya Ram as the Chief Custodian of the Aditya Birla logo.

Management Team

The Aditya Birla Management Corporation Private Ltd. Is the Group’a apex
decision making body and provides strategic to Group companies. Its Board
of Directors comprises:

• Mr Kumar Mangalam Birla, Chairman

• Mr. S. Aga
• Mr. D Bhattacharya
• Mr. S.K.Jain
• Dr. S. Misra

• Dr. B. K. Singh

• Mr. K. K. Maheshwari

• Mr. Vikram Rao

• Mr. Ajay Srinivasan

18
 IDEA CELLULAR LTD.

Key Products and Brands Capacities Country

Idea Cellular
Cellular Services Idea Over 47.1 Million India
Subscribers

IDEA Cellular Limited was incorporated in 1995 and is one of the leading GSM
mobile services operators. Headquartered in Mumbai, it has licenses to
operate in all 22 service areas across the country, though commercial
operations are currently in 16 services areas. With a customer base of over
47.1 million subscribers, the operations cover the states of Maharashtra, Goa,
Gujarat, Rajasthan, Delhi, Haryana, Himachal Pradesh, Uttaranchal, Uttar
Pradesh, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Kerala, and Bihar.
Orissa, and Tamil Nadu will become operational during 2008-09, and Idea will
then cover approximately 90 per cent of the country’s telephony potential.

IDEA enjoys a market leadership position in many of its operational areas. It

offers GPRS on all its operating networks for all categories of subscribers, and
was the first company in India to commercially launch the next generation
EDGE technology in Delhi in 2003. As a pioneer in technology deployment, it
has been in the forefront through the adoption of bio fuels to power its base
stations, and by employing satellite connectivity to reach inaccessible rural
areas in Madhya Pradesh.

19
IDEA has been a leader in the introduction of value added services, and there
are several firsts to its credit, including a voice portal ‘Say Idea’, Idea TV,
voice chat, instant messenger, and many more. Tariff plans have been
customer friendly, catering to the unique needs of different customer
segments, where ‘Women’s Card’ caters to the special needs of the woman
on the move, and ‘Youth Card’ covers the emerging youth segment. IDEA has
won numerous awards and is the only Indian GSM operator to win the
prestigious GSM Association Award consecutively in the best mobile
technology category for the ‘Best Billing and Customer Care Solution’ both in
2006 and in 2007 in the face of international competition.

In 2007 IDEA was listed on the National Stock Exchange (NSE) and the
Bombay Stock Exchange (BSE).

Company Information

IDEA Cellular is a publicly listed company, having listed on the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE) in March 2007. IDEA
Cellular is a leading GSM mobile service operator with pan India licenses.
With a customer base of over 47 million in 17 service areas, operations are
soon expected to start in Kolkata & West Bengal, North East & Assam, and
J&K. A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has
the distinction of offering the most customer friendly and competitive Pre
Paid offerings, for the first time in India, in an increasingly segmented
market. From basic voice & Short Message Service (SMS) services to high-end
value added services such as Mobile TV, Games etc - IDEA is seen as an
innovative, customer focused brand. IDEA 'Women's Card' caters to the
special needs of women on the move, and 'Youth Card' covers the emerging
youth segment. IDEA 'My Gang' - the widely popular community user group
product recently bagged the prestigious 'Golden Peacock Award 2008' under
the Most Innovative Product category at the "19th World Congress on Total
Quality".

20
A brand known for many firsts, IDEA was the first to launch GPRS and EDGE in
India. IDEA has partnered with Research in Motion (RIM) to offer Blackberry
services on its network. IDEA 'NetSetter'- Plug & Play, EDGE enabled USB
Data Card offers affordable data connectivity with faster speed and
consistency. IDEA offers seamless coverage to roaming customers traveling
to any part of the country, as well as to international traveling customers
across over 200 countries. IDEA Cellular has partnership with over 400
operators worldwide to ensure that customers are always connected while on
the move, across the globe.

IDEA has received several national and international recognitions for its path-
breaking innovations in mobile telephony products & services. It won the
GSM Association Award for "Best Billing and Customer Care Solution" for 2
consecutive years. It was awarded "Mobile Operator of the Year Award -
India" for 2007 and 2008 at the Annual Asian Mobile News Awards. IDEA
Cellular is part of the Aditya Birla Group, India's first truly multinational
corporation. The group operates in 25 countries, and is anchored by over
1,25,000 employees belonging to 25 nationalities. The Group has been
adjudged 'The Best Employer in India and among the Top 20 in Asia' by the
Hewitt-Economic Times and Wall Street Journal Study 2007.

Service Areas

The Indian telecommunications market for mobile services is divided into 22

"Service Areas" classified into "Metro", Category "A", Category "B" and
Category "C" service areas by the Government of India. These classifications
are based principally on a Service Area's revenue generating potential. Our
17 operational Service Areas are broken up into Established and New Service
Areas.
Established Service Areas: The established service areas are Delhi,
Andhra Pradesh, Gujarat, Maharashtra, Haryana, Kerala, Madhya Pradesh and
Uttar Pradesh (West). Licenses for the Maharashtra and Gujarat Service Areas
were awarded in December 1995, with network rollout and commercial

21
launch achieved in 1997. In January 2001 the mobile operations in Andhra
Pradesh Service Area were integrated with IDEA through a merger with Tata
Cellular Limited. In June 2001, the mobile operations in Madhya Pradesh
Service Area were fully integrated with IDEA through an acquisition of RPG
Cellcom Limited. In October 2001, the license for Delhi Service Area was
acquired during the fourth mobile license auction, with network rollout and
commercial launch in November 2002. In January 2004, Escotel Mobile
Communications Private Limited ("Escotel"), was acquired with its original
licenses in the Service Areas of Haryana, Uttar Pradesh (West) and Kerala. All
these Service Areas were re-branded and integrated with IDEA in June 2004

New Service Areas: The New Service Areas are Uttar Pradesh (East),
Rajasthan, Himachal Pradesh, Bihar, Mumbai, Karnataka, Punjab, Orissa and
Tamil Nadu & Chennai. Licenses for Uttar Pradesh (East), Rajasthan and
Himachal Pradesh were acquired through the acquisition of Escotel (Escorts
Telecommunications Limited). Brand Idea was launched in Karnataka and
Punjab, through the acquisition of Spice Communications. Idea launched its
services in Mumbai and Bihar in 2008. The Mumbai launch was the largest
Metro City launch in India. In Bihar, Idea acquired 500,000 subscribers in just
over 100 days. The company has now expanded its services in Orissa and
Tamil Nadu & Chennai in FY10.

22
THE CONTRACT ACT

The law of contract in India is contained in the Indian contract act 1872. It
extends to the whole of India except for the state of Jammu and Kashmir.

According to section 2(b) of the Indian contract act “an agreement

enforceable by is a contract” a contract therefore is an agreement the object
of which is to create a legal obligation that is a duty enforceable by law.

A Contract Essentially Consists of Two Elements:

(1) An Agreement:
As per section 2(e) “every promise and every set of promises forming the
consideration for each other is an agreement.” When a person to whom a
proposal is made signifies his assent thereto, the proposal is said to be
accepted. A proposal when accepted becomes a promise. An agreement
therefore comes into existence only when one party makes a proposal or
offer to the other party and the other party signifies his assent thereto. What
is important is that:
(a) Plurality of Persons: there must be two or more persons to make an
agreement and,
(b) Consensus - Ad – Idium: both the parties to an agreement must
agree about the subject matter of the agreement in the same sense
and at the same time.

(2) A Legal Obligation:

An agreement to become a contract must give rise to a legal obligation that
is a duty enforceable by law. If an agreement is incapable of creating a duty
enforceable by law it is not a contract. Thus an agreement is a wider term
than a contract.” All contracts are agreements but all agreements are not
contracts. Agreements of moral nature for example a promise to lunch

23
together at friend’s place or to take a walk together are not contracts as they
do not have any legal bindings.

Essentials of a Valid Contract:

1. Offer and Acceptance: There must be a lawful offer and lawful

acceptance of the offer thus resulting in an agreement.
2. Intention to Create Legal Agreement: There must be an intention
among the parties that the agreement should be attached by legal
consequences and create legal obligations.
3. Lawful Consideration: Consideration has been defined as the price
paid by one party for the promise of the other.
4. Capacity of Parties: The parties to an agreement must be competent
to contract; otherwise it cannot be enforced by a court of law.
5. Free Consent: Free consent of all the parties to an agreement is
another essential element of a valid contract. Consent means that the
parties must have agreed upon the same thing in the same sense.
6. Lawful Object: For the formation of a valid contract it is also
necessary that the parties to an agreement must agree for a lawful
object. The object for which the agreement has been entered into must
be fraudulent or illegal or immoral or opposed or to public policy or
must not imply injury to the person or property of another.
7. Writing and Registration: According to the Indian contract act, a
contract may be oral or in writing. But in certain special cases it lays
down that the agreement to be valid must writing or/and registered.
8. Certainty: Agreements the meaning of which is not certain or capable
of being made certain, are void.
9. Possibility of Performance: “An agreement to do an act impossible
in itself I void.”

Discharge of Contract

24
When the rights and obligations arising out of the contract are extinguished
the contract is said to be discharged or terminated. A contract may be
discharged in any of the following ways. A contract may be discharged in any
one of the following ways:

1. By Performance - Actual or Attempted

2. By Mutual Consent or Agreement
3. By Subsequent or Supervening Impossibility
4. By Lapse of Time
5. By operation of Law
6. By Breach of Contract

Discharge by Performance

Performance of the contract is principal and most usual mode of discharge of

contract. Performance may be actual performance or attempted
performance.

1. ACTUAL PERFORMANCE - When each party to a contract fulfils his

obligation arising under the contract within the time and in the manner
prescribed, it amounts to actual performance of the contract and the contract
comes to an end or stands discharged.

2. ATTEMPTED PERFORMANCE OR TENDER - When the promisor offers to

perform his obligation under the contract, but is unable to do so because the
promise does not accept the performance, it is called “attempted
performance” or “tender”.

Discharge by Mutual Consent or Agreement

25
Since a contract is created by means of an agreement, it may also be
discharged by another agreement between the same parties. Sections 62 and
63 deal with this subject and provide for the following methods of discharging
a contract by mutual agreement.

1. NOVATION - Novation is when a new contract is substituted for an

existing contract, either between the same parties or between
different parties, the consideration mutually being the discharge of the
old contract.

2. ALTERATION - Alteration of a contract means change in one or more of

the material terms of a contract. If a material alteration in a written
contract is done by mutual consent, the original contract is discharged
by alteration and the new contract in its altered form takes place.

3. RECISSION - A contract may be discharged before the date of

performance by agreement between the two parties to the effect that
it shall no longer bind them such an agreement amounts to “recission”
or cancellation of a contract, the consideration for mutual promises
being the abandonment by the respective parties of their rights under
the contract.

4. REMISSION - Remission may be defined “as the acceptance of a lesser

sum than what was contracted for or a lesser fulfillment of the promise
mode”.

5. WAIVER - Waiver means the deliberate abandonment or giving up of a

right which a party is entitled to under a contract, whereupon the other
party to the contract is released from his obligation.

Discharge by Subsequent or Supervening Impossibility or Illegality

26
There is no question of discharge of a contract which is entered into to
perform something that is obviously impossible for example an agreement to
discover treasure by magic.
“A contract to do an act which, after the contract is made, becomes
impossible, or, by the reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful”.

Discharge by Lapse of Time

The limitation act lays down that in case of breach of contract legal action
should be taken within a specified period, called the period of limitation,
otherwise the promise is debarred from instituting a suit in the court of law
and the contract stands discharged.

Discharge by the Operation of Law

The contract terminates by operation of law in the following cases:

• Death of the person.

• Insolvency of one of the parties.
• Unauthorized material alteration that is the alteration made by one
party without the consent of the other.

Discharge by Breach of Contract:

27
Breach of contract by a party thereto is also a method of discharge of a
contract, because “breach” also brings to an end the obligations created by a
contract on the part of each of the parties. Breach of contract may be of two
kinds:

• Anticipatory Breach: An anticipatory breach of contract is a breach

of contract occurring before the time fixed for performance has
arrived.
1. Expressly by Words spoken or written: Here a party to the
contract
communicates to the other party, before the due date of
performance, his intention not to perform it.
2. Impliedly by the Conduct of One of the Parties: Here a
party by his own voluntary act disables himself from performing
the contract.

• Actual Breach: Actual breach may also discharge a contract .it occurs
when a party fails to perform his obligation upon the date fixed for
performance by the contract as for example where on the appointed
day the seller does not deliver the goods or the buyer refuses to
accept the delivery.

28
ARBITRATION

Arbitration, a form of alternative dispute resolution (ADR), is a legal

technique for the resolution of disputes outside the courts, wherein the
parties to a dispute refer it to one or more persons, by whose decision they
agree to be bound. It is a settlement technique in which a third party reviews
the case and imposes a decision that is legally binding for both sides. A
business contract, lease or other written contract may contain an arbitration
clause. By using such a clause, the parties to the contract agree to arbitrate
any future disputes. As with any clause, all parties must agree to its use in
the contract before the contract is signed. The following arbitration clause
language may be modified to suit the needs of the parties:

• Arbitration provides distinct advantages over the court system in many

different types of disputes. Because arbitration is a private method of
settling disputes, parties can tailor the arbitration proceeding in almost
any manner they choose. For example, parties involved in arbitration
can agree to limit the number of witnesses each side will present, set
parameters on the amount and type of evidence that will be presented.
• Arbitration hearings are attended by the parties involved, their
attorneys, the arbitrator, and the parties' witnesses. Each party makes
an opening statement, presents evidence, questions and cross
examines witnesses, and makes a closing statement. During this
presentation, formal rules of evidence generally do not apply.
• Arbitration awards are final and binding on all parties to the arbitration,
and may not be appealed except under very limited circumstances
provided by statute.
• Arbitration is a way of resolving these disputes without lawyers or the
court system, thus saving you a substantial amount of money in legal
fees.

29
CASE

Introduction

This story in the telecom sector seems to be straight from a Bollywood

potboiler. The plot has intrigue, vengeance and a story of romance gone sour.

An unpretentious cabin in a corner building in Defence Colony, Delhi’s up-

market residential area, would easily give the slip to an outsider. Under its
roof sits Raian Karanjawala, of Karanjawala & Company, advocates for Tata
Group, tangled up in a legal tussle involving two corporate giants—Birlas and
Tatas—both accusing each other of violations of a Shareholders Agreement
(SHA) for the management of Idea Cellular. The mood here is not overly
upbeat, but Karanjawala, who is Tatas’ counsel, is confident the matter will
go into arbitration—though insiders say it could be 12-18 months before a
verdict is delivered. While the Supreme Court hearing on this case by Justice
VS Sirpurkar is expected on September 24, there is clearly some bitterness in
the way the two groups are conducting themselves on this issue.

For, in all these years, the Aditya Birla Group, despite being one of the
promoters of Idea Cellular, had been keeping a low profile in the telecom
sector, even during the time when the players were at each other's throat
fighting out the Wireless in Local Loop controversy. And true to the
expectation, the meeting has sparked off one of the biggest corporate battles
between the Birlas and the Tata Group, the other promoter of Idea Cellular.
During the meeting, Kumarmangalam Birla sought the intervention of the
Government in getting their joint venture partner for more than five years -
the Tata Group - to exit Idea Cellular. The reason given by the Birla Group for
such a demand was that the Tatas were frustrating the expansion plans of
Idea Cellular. To understand the issue, let's do a quick flashback.

30
Birth of an Idea

The bonhomie between the Birlas and Tatas saw them pool their interests in
the cellular space in October 2001—Birla AT&T Communications and Tata
Cellular were merged—to form Idea Cellular. The three founders—AT&T, Birla
and Tata—then pledged to abide by a shareholders agreement, the bone of
contention now. The three unequivocally agreed to put their best foot forward
for Idea and "not engage in directly, indirectly... any activity that would
constitute business of the merged company within the territorial telecom
circles... any opportunity outside... unless the opportunity has first been
offered to the merged company.

What followed was a series of letters from the Birla Group. The missives
raised a number of issues. First they sought a probe into Tata's acquisition of
AT&T's stake in Idea through the Mauritius Company since it had no prior
approval of the Government. Second, they termed the Tatas' holding in Idea
Cellular as `illegal' and wanted the DoT's intervention in ousting it from the
GSM cellular company.

"Anyone familiar with the Indian business knows that the Tata Group is a
single management entity. It is totally inconsistent with the national telecom
policy that a business group while maintaining its own telecom operation,
should first build and continue for two years with the impermissible holdings
in another competing company, further augment these holdings through
impermissible means, compromise competition and erode competitiveness of
the second company, impede investment, cause loss to government
revenues and then seek protracted time to encash maximum value for
holdings which were irregular in the first place," says a Birla letter. The Tatas
were quick to respond with their own letters to DoT countering every claim
made by the Birlas. They said that the allegations raised by the Birlas were
misconceived and asked DoT to stay away from the controversy.

CONTENTIONS

• Filing of the application for an UAS licence for the Mumbai circle by Aditya Birla
Telecom violated the SHA.
• Aditya Birla Nuvo breached the SHA by disclosing confidential information of Idea
31
on its website.
• Sale of Tata shares was without prejudice to notices served on Birlas.
subsequently acquired by Tata Teleservices. The Tatas have, on their part,
accused the Birlas of violating the same in filing an application for the
Mumbai circle through their company, Aditya Birla Telecom (ABTL). The Tatas
also pointed to breaches by the Birlas in publicly disclosing "confidential
information" about Idea by including its "financial data" in the investor
presentations of Aditya Birla Nuvo in September and December 2005. That
happened later.

What triggered problems between the founders was rather the regulatory
regime; precisely the introduction of the Unified Access Service (UAS) licence
in November 2003. Tata Teleservices, by migrating to the new regime, now
morphed from a fixed-line services provider to a fixed-cum-mobile services
player, was pitting itself against Idea Cellular in five circles - Madhya Pradesh,
Andhra Pradesh, Maharastra, Gujarat and Delhi. All those who migrated got
immunity from a regulatory clause that bars shareholding in any two licence
companies by a promoter and restricts holding to 10% by any legal entity.
But the consequent licence acquisitions by Tata companies and Idea Cellular
fired the dispute.

Riding Two Horses

While the jury is out on whether the Tatas did or did not violate licence
conditions—as they exited Idea before a verdict became necessary—the
conflict of interest question arose, first, over Tata Teleservices’ acquisition of
licences for Kerala, Haryana, UP (East and West), Himachal Pradesh and
Rajasthan on January 30, 2004. This was around the time (January 15, 2004)
Idea Cellular entered into an agreement to acquire two companies: Escotel
Mobile Communications—having licences for Kerala, Haryana and UP (West)
—and Escorts Telecommunications—with licences for Himachal Pradesh, UP
(East) and Rajasthan. As the acquisition of the first was concluded on March
29, 2005, it could have placed Idea Cellular in violation of the cross-holding
regulation. The penalty for this could have been a charge of Rs 50 crore per
licence, or worse still, cancellation of these licences. The second possible
conflict arose in 2005 when New Cingular Wireless, which had acquired the

32
AT&T stake in Idea, indicated it had received an offer to purchase its stake by
C Sivasankaran-owned India Televentures. (He had 1.7% stake in Idea
through Goodison Investments, Mauritius).

The $300-million offer at Rs 17.55 per share was, insiders say, higher than
the price being negotiated by the two founders with Cingular - estimated at
about Rs 14. The offer provided for Birlas and Tatas to respond within 45
days. The Birlas responded with their acceptance on July 29, 2005 - within
three days of the offer—presumably to prevent a third party from acquiring a
stake and foil an upward revision in the sale price.

It is speculated that an unofficial bidding involving European, South East

Asian, Indian and even African telecom operators jacked up the price. Also,
the Birlas expressed a willingness to buy Cingular’s entire 32.9% stake, if the
Tatas did not exercise their right. This could have placed the Tatas in a
piquant situation - either they exercised the right or allowed themselves to
become a minority partner. The Tatas decided to exercise the right, but
instead of acquiring the 16.45% equity stake from Cingular, Tata Industries
acquired the holding company AT&T Cellular Private Limited in Mauritius and
renamed it Apex Investments. Was this a more convenient option or a less
visible one? One interpretation of the cross-holding norms might show this to
be a violation - acquisition of more than 10% stake in another licensee
company. Also, it happened after the UAS migration date. Tata counters this
argument, saying Tata Industries, the stakeholder in Idea Cellular, was not a
promoter of Tata Teleservices and its stake in the latter has come down
significantly below 10%.

The third big conflict arose over the Mumbai circle application for Idea. On
August 1, 2005, the company submitted its application with the Department
of Telecommunication (DoT). In a letter dated August 26, 2005, DoT
RESPONSES
requested Idea Cellular to submit an undertaking that cross-holding norms
had• not beenwere
Tatas violated. On about
informed non-receipt of the desired
the application and it information, DoT
was a fallback issued
option in
another letter
case on application
Idea’s January 6,was
2006 askingBirlas
rejected. for the
weredetails to be ifsubmitted
to withdraw by
Idea secured
Mumbai licence.
• Information was not confidential and was provided by ABNL for disclosure
and public dissemination.
• Tatas had abandoned their claim33
at the time of stake sale and no surviving
claim or dispute exits.
• Birlas acted to protect Idea’s interests.
January 23, "failing which the application will be treated as cancelled without
any further correspondence."

Regulatory Fiat

As the Mumbai application process was proceeding for Idea, Tatas had
received a query from the Telecom Regulatory Authority of India on August 5,
2005, asking them to explain how they were "complying with the licence
agreement" in the light of the group’s holdings in Tata Teleservices and Idea
Cellular. The Tatas maintained that Tata Industries was not a promoter of
Tata Teleservices, and, in fact, in April 2004 Tata Teleservices had bagged
the Madhya Pradesh licence after Tata Industries had reduced its stake in the
company to below 10%. Sailing in two telecom boats was possibly becoming
too cumbersome for the Tata Group. On January 19, 2006, following the
ultimatum from DoT, Kishore Chaukar, Managing Director of Tata Industries,
in a note to Vikram Mehmi, CEO of Idea Cellular, indicated that the
undertaking from the Tatas would be needed only on award of the licence to
Idea. He added that given restrictions imposed by the lenders on stake
dilution, the group would apply for reducing the holding to less than 10% by
June 30, 2006.

Consequently on April 5, 2006, the Tatas informed the Birlas they had
CONTENTIONS
received an offer from Global Communications Services, a subsidiary of Maxis
Communications of Malaysia, to buy their stake as well as the Birlas’ in Idea.
• No approval taken by Tatas; shareholders and authorities not informed on
Exercising its right of first refusal, Birla offered to buy out the Tatas 48.14%
acquiring Apex Investments in Mauritius and the 16.45% it held in Idea.
stake (TIL 31.69% + Apex 16.45%) on April 6, 2006. The Birlas completed the
• Tatas expanded operations of Tata Teleservices and obtained UAS licence in
acquisition
direct in June 2006
competition with for
Idea.Rs 4,406
It thus crore.clauses
violated However,
of the in its purchase
licensing norms of
agreement the Birlas
cross-holding indicated
in same that this was "without prejudice" to the
service area.
outcome of an earlier termination notice filed by the Tatas for violation of the
• Idea’s Mumbai
shareholder application
agreement. And was in jeopardy
a verdict due to Tatas’
in Tatas’ favournot
canfurnishing details
allow for a
of its
buyback of shareholding as required
the "defaulting by DoT.
founder’s" stake in Idea.

34
While the sequence of events here provides a broad indication of the key
issues, it does not give a feel of how the relationship soured. This is revealed
by the correspondence between the partners during the phases of conflict of
interest. One doesn’t know who fired the first salvo, but the seeds of
suspicion did perhaps implant themselves in the minds of key executives in
both camps sometime in 2005. The offer for Cingular’s stake that threw up
the option of a third stakeholder, as well as the possibility of a change in the
current equations, was perhaps a cause of concern for both. Consequently,
Tatas’ acquisition of AT&T Cellular, and not formally informing Birlas about
the transaction, seemed to have caused some discord.

Initially the Birlas, the Tatas and AT&T Wireless each held one-third equity in
the company. But following AT&T Wireless' merger with Cingular Wireless in
2004, Cingular decided to sell its 32.9% stake in Idea. This stake was bought
by both the Tatas and Birlas at 16.45% each. Tata's foray into the cellular
market with its own subsidiary, Tata Indicom, a CDMA-based mobile provider,
cropped differences between the Tatas and the Birlas. This dual holding by
the Tatas also became a major reason for the delay in Idea being granted a
license to operate in Mumbai. This was because as per Department of
Telecom (DOT) license norms, one promoter could not have more than 10%
stake in two companies operating in the same circle and Tata Indicom was
already operating in Mumbai when Idea filed for its license.

It is also said that only Tata Industries had shares in both Idea Cellular and
Tata Teleservices but since the holding in the second company was only
about 4 per cent, it did not violate the DoT's licence condition on a single
entity holding more than 10 per cent stake in two different companies. The
Birlas alleged that the Tata Group was holding back vital information. They
said that the Tatas did not have to declare shareholding in 80 companies but
only five Tata companies - Tata Power, Tata Steel, Tata Chemicals, Tata
Motors and Tata Industries. "These five companies hold direct and indirect
stake in Tata Tele and Idea and a break-up of their shareholding would prove
that the Tatas, through Tata Sons, is the common promoter of the two
telecom ventures," said a Birla executive. The Birlas have produced a number

35
of documents, including the Shareholders Agreement of Idea Cellular, old
communication from DoT and Tata itself where the `Tata Group' is listed as
one of the promoters of Idea Cellular.

The DoT asked the Tatas to declare the shareholding of Idea Cellular, Tata
Teleservices and other Tata Group companies that had a direct or indirect
stake in the telecom ventures. This started a fresh round of letter warfare.
The Tatas, replying to DoT's enquiry, said that there were 80 different
companies using the brand name Tata and it did not have information on the
stake holding in all the companies.

After a dozen letters exchanged between the two sides and more accusations
and claims flowing thick and fast almost every day, this story, even as it is
being written, awaits a decision from the Department of Telecom. Either way,
this potboiler seems to be heading for a courtroom climax.

RESPONSES
The post-acquisition shareholding had also resulted in the Birlas owning
50.15% of the company. This, even as the Tatas held a lesser 48.14% and C
• There are no restrictions for a change of equity of an overseas company
Sivasankaran 1.7%. To perhaps restore parity, and prevent the Birlas from
with foreign shareholders, if there is no change in the register of
taking control of the company by buying out the third party, Kishore Chaukar
members of Idea Cellular in India.
in a mail to Sanjeev Aga, then a Birla nominee on the Idea board, stated: "We
• Tata Group is not a legal entity. Tata Industries does not hold any
(Tata Industries) would like to reiterate here that going forward, we wish to
substantial equity in TTSL and is not in breach of any clauses of Idea
have equal shareholding
licences in Delhi. with Birlas in Idea; and we wish to have the SHA to
facilitate
• Issue complete freedom
of undertaking fromforIdea
exit/decrease in the
would arise only shareholding
before the award of
of the
sponsors in Idea...
unified this is licence.
access service also to reiterate that further processing of Idea
related issues other than normal operations will be taken up only when the
re-drawn SHA incorporating the above two points are in place."

Tatas refused to comment or clarify their motives for seeking an equalisation

of the shareholding with the Birlas. The Birlas, on their part, could have been
anxious about the possibility of losing control, if post-equalisation Tatas
decided to acquire the third party’s 1.7% equity in Idea. Sanjeev’s e-mail
response on November 7, 2005 bears this out: "We find it strange that wishes
devoid of basis are cast as preconditions... Once again, we repeat we cannot

36
accept your wish for equality...We are disturbed by the inexplicable delay in
obtaining details relevant to the incremental holding in Idea you acquired
from Cingular."

Chasm Widens

Having got off to this bad start, the situation turned more acrimonious in the
following months. On January 3, 2006 Aditya Birla Telecom applied to DoT for
a licence for the Mumbai circle, a few days before the ultimatum from DoT on
Idea’s application and Chaukar’s assurance to Mehmi to bring down Tatas’
stake to less than 10% by June 30. While the Birlas claimed this was done as
a buffer against a rejection of Idea’s application and to ensure the company
did not lose out if other prospective entrants entered the fray, the Tatas cited
this as a violation of the SHA.

Consultation with DoT officials indicates that applications are examined on a

37
first-come, first-served basis. It is not concerned about the arrangements
between the applicants if it doesn’t violate the crossholding norms. There is
no clause that if one application gets accepted, another would expire or get
nullified in favour of the first one. Further, one cannot ignore the fact that if
ABTL’s application was approved over Idea’s, Birlas would have been in a
position to demand good valuation for the same.

Following this, Tatas issued a termination notice to the Birlas under the SHA
on January 31, 2006. In a counter-offensive, Birlas raked up the licence
violation issues by the Tatas with DoT on February 8, 2006. The Tatas
responded, citing the Birla arguments to be motivated and baseless.

In a letter to DoT, Chaukar accuses the Birlas of "twisting statements made in

entirely different contexts only with a view to mislead the DoT to somehow or
the other persuade the DoT to take some action to force Tata Industries and
Apex to totally divest their stake in Idea Cellular under duress." And as if in
retaliation, Tatas issued yet another termination notice under SHA to the
Birlas on February 27, 2006 for disclosing confidential financial information
on their website. The Birlas responded saying similar information was given
out in presentations made to China Mobile, UBS Investors Conference and
Jardine Matheson at Bombay House, corporate headquarters of Tata Group.

38
Caught In Crossfire

Were the Tatas holding up Idea’s progress for their own interests? Were they
trying to play two cards at the same time? Or did the Birlas rake up issues
that would ensure the ouster of the Tatas? These are some unanswered
questions. However, what the infighting surely did do is to push back Idea’s
growth by some years. Telecom analysts claim shareholder squabbles had hit
Idea’s operations. Its expansion plans were affected due to a lack of funds
and the customer acquisition rate had slowed down. It is indicated that a Rs
4,000-crore debt restructuring proposal was stuck in the tussle between the
shareholders and Idea was losing Rs 10 crore every month due to the higher
interest rate it was paying. Analysts say shortage of funds and a lack of
management direction adversely affected Idea as it failed to chalk out a good
growth strategy.

While Tata Teleservices migrated to the UAS in November 2003 and

expanded operations to establish a pan-India presence, Idea was reduced to
a regional player and is still crying foul over the delay in allotting new
licences and spectrum. The Tatas have maintained that there has been no
restriction on Idea’s operations and expansion.

Even when TTSL, which was a CDMA operator, was rolling out its services
there was no problem in operational movements of Idea. There might not
have been any intentional hindrances in the Idea operations, but analysts say
the aggressiveness and confidence, which Idea is showing now, was missing
earlier. Though some see Idea as a good buy to enter the Indian telecom
market, there have been reports of Aircel being a likely target for the Birla
company. However, the ongoing arbitration proceedings might cast some

39
uncertainty over its prospects in the near-term. Even as a judgement is
awaited, the indication from the Tatas camp is that theirs is a fight on
principles, not an attempt to wrest control of Idea. However, if Tatas had
retained their stake in Idea, at current market price its value would have
crossed Rs 8,500 crore. The Birlas would sure hope the proceedings don’t go
the other way.

Latest Development:

The two year-old dispute between the Tata Industries and the A.V. Birla
Group over Idea Cellular took a fresh turn on July 9, 2008 with the Supreme
Court deciding to set up an arbitrator to resolve the issue. The apex court’s
decision is in favour of the Tatas’ plea seeking arbitration on the dispute,
wherein it had alleged that the Birla Group had violated the shareholders’
agreement. If the arbitration is settled in Tata Group’s favour, it will have the
right to buy out Birla’s stake in Idea Cellular.

Govt rules
The dispute dates back to 2006 when the Tata Group was holding 48.14 per
cent stake in Idea Cellular. However since the Tatas were also having another
mobile venture under Tata Teleservices, the Birla Group sought the
Government intervention in getting the Tatas to exit from Idea Cellular. The
Birlas claimed that the Tata Group was not allowing Idea Cellular to grow and
was more focused on Tata Teleservices. The Tatas had to finally exit Idea
Cellular because the Government rules do not allow a company to hold more
than 10 per cent stake in two different telecom companies offering services
in the same area. The Aditya Birla Group acquired the entire 48.14 per cent
stake of the Tata group in Idea Cellular for Rs 4,406 crore.

Two notices
However, the confrontation between the two companies did not end; before
selling its stake in Idea Cellular, the Tatas served two termination notices to
the Birla Group citing violation of the shareholders agreement. In the first
case, the Tatas took the Birlas to court claiming that the latter had violated

40
the shareholders’ agreement by disclosing sensitive information relating to
Idea Cellular on the A.V. Birla Group Web site. Tata Industries served another
notice to the Birla Group for applying for a telecom licence for offering mobile
services in Mumbai.

The Tatas claimed that as per the shareholders agreement between the two
companies, any new licences should be taken through Idea Cellular, and in
case the Birla Group wanted to apply for a licence on its own, it should have
taken the clearance from the Tatas. The Tatas have claimed that as per the
shareholders’ agreement, they can buy out Birla’s stake in Idea Cellular for
the alleged violation.

Tatas’ plea
While the Tatas had sought arbitration on the issue, the Birlas had taken a
stance that there was no offence committed that needs an arbitrator. Based
on the Tatas’ plea, the Supreme Court has now appointed former Chief
Justice, Mr A. S. Anand, former Supreme Court judges Mr Arun Kumar and Mr
P. K. Balasubramanian as arbitrators.

Arbitration: War or Peace?

Arbitration is an alternate dispute resolution mechanism where a
disagreement between two parties is settled outside court by one or more
neutral third parties. It promises speed, efficiency and decision making by
consensus. To put it into simple terms, if litigation is the village road to
dispute resolution, arbitration is the highway but in India this highway is
riddled with potholes. Isha Dalal recounts the experiences of a few companies
that have been embroiled in lengthy arbitration processes.

It's a dispute that turned old friends Ratan Tata and Kumar Mangalam Birla
into foes. And the battle has continued for three long years. It started as a
fight to control mobile telephony company Idea. The Tata group, eventually,
sold its stake to Birla but not before serving a notice to its former partner for
violating the shareholder agreement. The parties could have solved their

41
dispute swiftly and amicably through arbitration as laid out in their contract.
However, the Birlas chose not to appoint an arbitrator. Group’s legal head MR
Prasanna did not comment on the still pending dispute but he did explain
how the court got involved in this out-of-court process.

MR Prasanna, Group General Counsel, Aditya Birla

Group: The first involvement of the court is when parties
disagree on the appointment of an arbitrator and in that
case the court has to supply the vacancy and the court
does entertain an application. If both parties are Indian
parties, it is typically done by the relevant High Court or the state. If it is an
international arbitration - one party is international - it has to go to the
Supreme Court for appointment of an arbitrator.

Our interpretation: It took over a year for the court to appoint an arbitrator
and six months later, the stand-off continues. But that's not the only reason
for courts to intervene in the arbitration processes.

According to the 1996 Arbitration Act, courts must also intervene in

arbitration to enforce interim measures of relief or entertain appeals against
arbitral awards.

Mukesh Bhavnani, Group President-Legal, Essar: Let

us say I were to receive an award for an arbitration in India.
There is no gainsaying if my counter party, who is a litigant
will not be in a position to file an appeal in the appeal court,
have it admitted for the asking and my award will get
stayed. And because of the sheer load of work that courts have in India, it’s
virtually impossible for appeals to be heard except in several years.

Interpretation: Several years, compared to other jurisdictions where

disputes in arbitration are usually closed within six months—and that's if they
reach court at all.

42
Bhavnani: Even in England, for example, there are in certain circumstances
a possibility of going to appeal—but it’s in the rarest of rare cases. Appeal on
the grounds of public policy and those kinds of nuances don’t exist in the UK
law, for instance. Therefore, there is a lot more certainty you see in
arbitrations. The purpose of arbitration is to unburden courts and try and find
less hostile proceedings but unfortunately is not the case in India.

Narration: Well let’s take the more optimistic view-which no reason arises
for court intervention during arbitration. Is swift resolution possible then? Not
really! India’s arbitration council ICA has been in place since 1965. It does
have rules and regulations in place, but its panel of over 2100 arbitrators just
isn’t enough.

Prasanna: We don’t have a dedicated group of legal professionals who

actually practice arbitration exclusively. We are dependent on people of
eminence on people from different bars, Supreme Court and High Court who
have to juggle between their commitments to litigation and arbitration. So it
becomes challenging to find time.

Narration: On the other hand, international arbitration centers like in London

or Singapore have a dedicated panel of trained arbitration experts and well
defined rules that govern the arbitration process and that are universally
accepted. No wonder India Inc. much prefers to take its fights overseas.

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 STUDENT ANALYSIS

Initially Tata, Birla, AT & T jointly held IDEA CELLULAR. Cingular sold 39.9%
stake to Tata and Birla at 16.45% each. When IDEA applied for a license in
Mumbai, DoT asked them to submit an affidavit saying that it compiled with
all the regulatory guidelines including one which stated that the promoters
cannot hold more than 10% stake in two competing businesses at the same
time and providing the same services whereas Tata already had Tata Indicom
as a separate entity operating in Mumbai and at the same time also had
more than 10% stake in IDEA Cellular. Plus Birla’s alleged that Tata group
was holding back vital information.

Birla’s claimed that the Tata group was more focused on Tata Teleservices
and was not allowing Idea to grow. Finally Tata’s had to exit Idea and they
sold of their entire 48.14% stake to the Aditya Birla group for Rs. 4406 crore.
However the confrontation between the two companies did not end. Before
selling its stake in Idea, Tata served two termination notices to the Birla
group citing violation of shareholders agreement.

- The 1st case Tata claimed that Birla disclosed sensitive information
relating to Idea cellular on the AV Birla group website.
- The 2nd notice to the Birla group from applying for telecom license
for offering mobile service in Mumbai.

Tata claimed that any new license should be taken through Idea cellular and
in case the Birla group wanted to apply for a license on its own, it should
have taken clearance from the Tata.

Therefore Tata’s claimed that they can buy out Birla’s stake in idea cellular
for the alleged violation. So the Supreme Court now has appointed
arbitrators.

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It is a case of discharge of contract by mutual consent or argument. Tata’s
gave up its stake to Birla’s.

CONCLUSION

No verdict has been given till date.

Therefore in our opinion, Tata is right and just in what it claims. This is
because,
- Tata held only 4% stake in Tata Teleservices, which was less than
the limit of 10 % as set by the government.
- It was a violation of shareholders agreement (SHA) on the part of
Birla group.

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