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.

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Table of Contents

TATA GROUP - 4 -TATA TELE SERVICES - 12 -ADITYA BIRLA GROUP - 16 -IDEA CELLULAR LTD. - 19 -THE CONTRACT ACT - 23 -ARBITRATION - 29 -CASE - 30 -STUDENT ANALYSIS - 46 -CONCLUSION

- 47 -

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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

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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

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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.

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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

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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.

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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.

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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:

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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

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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.

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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’

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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

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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.

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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.

The fourth largest producer of carbon black.

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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.

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

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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

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IDEA CELLULAR LTD.

Key Products and Brands Capacities Country

Idea Cellular

Cellular Services Idea Over 47.1 Million

Subscribers

India

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.

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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".

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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

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were awarded in December 1995, with network rollout and commercial

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.

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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

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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

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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.

31

The Birlas have cited a violation of this clause by the Tatas in the licences

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

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 on its website.

Sale of Tata shares was without prejudice to notices served on Birlas. 

Aditya Birla Nuvo is twisting statements to mislead DoT to force Tata

32

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

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

33

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

requested Idea Cellular to submit an undertaking that cross-holding norms

had not been violated. On non-receipt of the desired information, DoT issued

another letter on January 6, 2006 asking for the details to be submitted by

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,

RESPONSES

Tatas were informed about the application and it was a fallback option in case

Idea’s application was rejected. Birlas were to withdraw if Idea secured

Mumbai licence. 

 Information was not confidential and was provided by ABNL for disclosure and

public dissemination. 

 Tatas had abandoned their claim at the time of stake sale and no surviving

claim or dispute exits.

Birlas acted to protect Idea’s interests.

34

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.

CONTENTIONS 

No approval taken by Tatas; shareholders and authorities not informed on

acquiring Apex Investments in Mauritius and the 16.45% it held in Idea.

Tatas expanded operations of Tata Teleservices and obtained UAS licence in

direct competition with Idea. It thus violated clauses of the licensing norms of

cross-holding in same service area.

Idea’s Mumbai application was in jeopardy due to Tatas’ not furnishing details

of its shareholding as required by DoT.

Consequently on April 5, 2006, the Tatas informed the Birlas they had

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.

Exercising its right of first refusal, Birla offered to buy out the Tatas 48.14%

stake (TIL 31.69% + Apex 16.45%) on April 6, 2006. The Birlas completed the

acquisition in June 2006 for Rs 4,406 crore. However, in its purchase

agreement the Birlas indicated that this was "without prejudice" to the

outcome of an earlier termination notice filed by the Tatas for violation of the

shareholder agreement. And a verdict in Tatas’ favour can allow for a

buyback of the "defaulting founder’s" stake in Idea.

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

35

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

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.

36

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.

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

Sivasankaran 1.7%. To perhaps restore parity, and prevent the Birlas from

taking control of the company by buying out the third party, Kishore Chaukar

in a mail to Sanjeev Aga, then a Birla nominee on the Idea board, stated: "We

(Tata Industries) would like to reiterate here that going forward, we wish to

have equal shareholding with Birlas in Idea; and we wish to have the SHA to

facilitate complete freedom for exit/decrease in the shareholding of the

sponsors in Idea... this is 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

RESPONSES

There are no restrictions for a change of equity of an overseas company with

foreign shareholders, if there is no change in the register of members of Idea

Cellular in India. 

Tata Group is not a legal entity. Tata Industries does not hold any substantial

equity in TTSL and is not in breach of any clauses of Idea licences in Delhi. 

Issue of undertaking from Idea would arise only before the award of unified

access service licence.

37

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

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.

38

Consultation with DoT officials indicates that applications are examined on a

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

39

out in presentations made to China Mobile, UBS Investors Conference and

Jardine Matheson at Bombay House, corporate headquarters of Tata Group.

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

40

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

41

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

42

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.

43

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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