Cyrus Mistry, sources close to him say, has high regard for Softbank. So when Masayasi Son, the founder of the $68 billion tech investment behemoth, chose Bharti Airtel ’s Sunil Bharti Mittal as his ally in India, the senior leadership in Bombay House, the corporate headquarters of the Tata Group , was not amused. As the most respected and staggeringly diversified Indian multinational conglomerate, the 148-year-old salt-to-software group is used to being a lodestar for most global corporations looking to enter or consolidate in India.Several Tata companies as diverse as TCS and Tata Steel already have deep-rooted business links with Japanese counterparts. Mistry, chairman of Tata Sons, the promoter of major Tata companies is keen on a deeper engagement with Japan Inc, according to Tata insiders. Japan is among the 12 global markets that the $100 billion group wants to tap into.But those ambitions might have to be put in the backburner because of a series of disconcerting events that have followed the meltdown of its most high-profile alliance with a Japanese company —NTT DoCoMo — in its telecom business. On June 24, DoCoMo won a ruling by an international arbitration court that ordered Tata Sons to pay it $1.3 billion to buy its stake in the mobile phone joint venture, Tata Teleservices. The company, Japan’s largest telecom operator, said in a statement the award was for Tata Sons' breach of their shareholders' agreement after it was denied exit of the loss-making Tata Teleservices at a pre-agreed price of half the original $2.7 billion investment.A nasty public fight ensued. DoCoMo dragged the Tatas to the Delhi High Court seeking enforcement of the arbitration ruling. It accused its erstwhile partner of making excuses not to honour the arbitral award.Tata Sons told the court that it is being maligned by DoCoMo. News reports suggested that the Tatas’ overseas assets like Jaguar Land Rover or Tata Steel could be attached.These events prompted, according to people familiar with the matter, Mistry and his predecessor Ratan to Tata meet the Japanese ambassador Kenji Hiramatsu in Mumbai to seek diplomatic intervention and reinitiate a dialogue.Both Tata Group and NTT DoCoMo spokesmen declined to comment for this article, saying the matter is sub judice.“Such Japanese aggression is unheard of,” says a senior investor with close ties with the Tatas. “Something must have gone horribly wrong. “Tata Sons arguably has never defended such high profile litigation other than tax. That’s what is worrying.”But the bigger worry is the wide ramifications the spat holds for the group as well as for India.Japan has always been strategic for the Tatas. Several group companies as diverse as TCS to Tata Steel or Tata Capital to Tata Realty and many others already have deep rooted business links with Japanese counterparties.Tokyo has also been a key economic ally for India. Government statistics show, between April 2000 and June 2015, Japanese corporations have made actual investments of $18.81 billion to India, accounting for 7% of total FDI inflow into India and made Japan the 4th largest investor in India.Yet, for many Japanese companies the experience in India has been nothing short of turbulent, frayed by warring Indian partners and unscrupulous Indian employees.Take DoCoMo’s case. In April 2014, it announced plans to exit the joint venture. Since then it has been feuding with the Tatas over payment linked to its exit.DoCoMo’s announcement to exit happened just a month after drugmaker Daiichi Sankyo ended its disastrous association with Indian pharma company Ranbaxy by selling it to Sun Pharma. In June this year, the Indian unit of Japanese imaging and electronics major Ricoh detected massive financial irregularities and fraud in the company, prompting it to lodge a police complaint. The company’s three top India executives – including MD & CEO, the then CFO and chief operating officer -- have all been sent on leave pending investigations.“Events like Daiichi or Docomo have reconfirmed Japan Inc’s fears about India. They are far more conscious and careful about partnerships,” feels Sanjeev Sinha, a former Tata Group representative in Tokyo. “Instead of committing large cheques like before, they are now diversifying their risks and making much smaller investments.”Fujisaki Terruo, former CEO Honda Siel Cars in India, says big disputes involving big names will make Japanese companies even more cautious. “Many of them are already in under stress, so a lot is at stake here.”Global media were more scathing. “DoCoMo debacle is a depth of dumb,” screamed a headline from Bloomberg. Referring to the Tata-DoCoMo fight, a recent Washington Post editorial said, “Once again, India is in danger of sabotaging its own efforts to raise foreign investment to China-like levels.”Seasoned bankers working with large Japanese financial houses however remain far more optimistic but even they admit that Japanese deal sizes are going down if not the total volumes. “Big bang, $500 million plus M&As/JVs are rare. Appetite for large cheques has gone down significantly. The sweet spot is now $50-$200 million,” feels an MD with a Japanese investment bank.“Corporate memory is far shorter, motivated and selfish. Japanese companies may be cautiously optimistic but access to Indian market is still a huge jewel that these MNCs are chasing for,” quips another. “Even the Tatas have several JVs with Japanese companies. They are flourishing without any issues.”Why did the DoCoMo partnership turn out to be different?In early 2009, ending almost a year and half of negotiations, DoCoMo invested $2.7 billion in Tata’s wireless business Tata Teleservices (TTSL) on the understanding that if certain targets – number of subscribers and towers, financial milestones like EBITDA and profits — weren't met in five years, the Tatas would either find a buyer for the Japanese company's 26.5% stake at fair market value, or pay half the original investment, whichever was higher.“The DoCoMo board was reluctant to put money. This contract gave them a downside protection,” recalls a person aware of the original discussions.TTSL fared badly (see Dial T…) and when DoCoMo decided to exit, there was no taker for the unprofitable company. The Tatas then sought RBI’s permission to pay DoCoMo $1.3 billion.By then, RBI had framed new rules that banned the exit by a foreign equity investor at an assured price. Still, the central bank sought the finance ministry’s permission to make an exception because it was a question of an Indian company honouring a contract. This was also the rare example of an investor agreeing to a 50% haircut after five years. Moreover, this wasn't a case of foreign-currency debt masquerading as equity, an arrangement RBI always had frowned upon.But the ministry decided against granting an exemption, deeming that it would set a bad precedent. It has tossed the ball back to the RBI’s court, insisting that the central bank administers FEMA, or forex, regulations and ergo, it has to take a call.But the finance ministry is willing to review the rule that led to the rejection of DoCoMo's proposal to sell shares to Tata Sons at a pre-agreed price. It is looking to allow greater pricing flexibility for securities with an exit valuation clause at a rate set beforehand, technically known as a 'call and put option.'RBI has since written to the ministry to apply the policy retrospectively. But FDI policies are usually prospective and not applied retrospectively as they could have wide ramifications for investors. So the ministry declined RBI's request. The cabinet is due to decide on this policy.A senior government official says the Tatas can seek approval of their transaction from the RBI once this policy is in place. But the government stand is clear — any decision on Tata-DoCoMo is RBI’s remit.Nevertheless, the impasse comes at a time when global corporations like Vodafone and Cairn have alleged their assets have been wrongly expropriated by the Indian government. Some have even invoked bilateral investment treaties that India has signed world over.As for the Tatas and DoCoMo, neither partner imagined that the equity value of Tata Teleservices would halve in five years. Actually it now is half of half. So while the Tatas say they are willing to buy out DoCoMo, they argue it has to be at a revised Rs 23.34/share price and not the pre-agreed price of Rs 58.045/share, using a discounted cash flow (DCF) valuation method done by PricewaterhouseCoopers. The Tatas contend that they were forced to follow the method because DoCoMo’s application came a day before valuation methods were relaxed by RBI for calculation of fair value. DoCoMo says this was done to suppress pricing.The Tatas also maintain that it is willing to pay DoCoMo money, but it is the RBI rule that prevents the payment. It deposited the money with the Delhi court as a “gesture of good faith”.But at the heart of the problem remain RBI guidelines that no money can be paid to DoCoMo if the price is pre-fixed and higher than fair value. The Tata group on their part has always maintained that this money is due to DoCoMo and even deposited the money with the Delhi court as a “gesture of good faith,” but said they cannot pay until a further Indian ruling is obtained.DoCoMo has called the deposit a lip service. As while presenting to the arbitration court, they maintain there are many ways for the Tata group to work around the matter.The contention stood on article 5.7.2 of the Tata and DoCoMo contract, that says Tata “shall” find a buyer or “shall” buy the shares or provide “indemnity” – pay as protection against loss – to DoCoMo should it not meet certain parameters of business. In 2014 it had not met the profitability targets, but met subscriber addition and telecom tower targets, when DoCoMo exercised its right to exit the joint venture.At the time the Tata group informed DoCoMo that it will need RBI approval is a must for making such a big foreign exchange transfer. DoCoMo believed and still does that there are alternate routes available for payments. Tatas only focussed on finding an overseas buyer. Apart from Indian operations, Tata group companies have assets world over so funds from those offshore entities could have been deployed to buyout DoCoMo, said the Japanese company in a timeline mentioned on the arbitration award.For its part, the arbitration panel set aside the RBI requirement and insisted on honouring the contract while ruling in favour of DoCoMo. Even Justice Lord Hoffman, Tata’s nominee on the arbitration panel, concluded that Tata's commitment was binding because there was an option to find a buyer, according to a partner at a leading law firm. “He is an authority on contractual law. No one in any international court will go against what he has decided.”"I think eventually the Supreme Court will grant enforcement of the award," said Hiroo Advani, founding partner of Advani & Co and eminent arbitration lawyer. "If India doesn't enforce an award, it would amount to appropriation and then proceedings can be initiated against India under bilateral treaties for unfair treatment of foreigners." India is a signatory of the New York convention of arbitration that makes honouring an award an imperative.A legal expert familiar with Tata’s perspective said the group will now argue for a policy exemption, a clause built into the same NY convention that allows a country’s court to turn down an international award if the award conflicts with “public policy.” The Supreme Court in 1993 ruled that FERA, which was the prevailing RBI policy on foreign exchange, was tantamount to public policy, and therefore overturned an international award in the Renu Sagar versus General Electric case.Another lawyer concurring with the Tata view pointed at the Indiabulls Financial Service case against Amaprop, in which the Delhi High Court Judge toyed with the idea of overturning the award, forcing the parties to settle out of court at fair value rather than an agreed price.DoCoMo isn’t ready to be caught unawares either. Four out of five senior lawyers not appointed on the case and interviewed by ET, on condition of anonymity, hold the view that the Tata DoCoMo award doesn’t come under a policy exemption.They point out that there are other ways of paying. For one, overseas units could be used for payouts, although the Tatas say the move is illegal. For another, dilution of shares could be pursued. Tata Sons and other group companies which together own around 60.75% in Tata Teleservices could have issued bonus shares or a rights issue at par to allow DoCoMo to substantially hike its shareholding and bring down its average acquisition costs. The Tatas could thereafter have bought them out entirely, according to them.Sources close to DoCoMo have said the representation to RBI after the award had been granted was unilateral and misrepresented. Tata refutes that, the company says at every occasion it has communicated and sought participation of DoCoMo.“This is not an award for purchase of shares,” explained a source familiar with Docomo’s viewpoint, “but an award for damages for breach of contractual obligation. Tatas promised something and the shareholder agreement was drafted accordingly and now they cannot renege on that. The permission from RBI should be for that commitment obligation only. ”In a case on a family dispute among the Hiranandanis’ – a leading Mumbai based real estate developer family -- RBI had allowed payment of Rs 300 crore as indemnity, in a situation similar to that of DoCoMo, a lawyer said.DoCoMo will leave no stones unturned, said people familiar with the case. The company has already filed in the London Court of Justice to enforce the award. There they say, it has identified assets on which it may “lift the corporate veil” and demonstrate those companies belong to Tata Sons, even though they are held through other group companies.News reports had suggested that assets like Jaguar Land Rover or Tata Steel could be attached, which both sides agree may be difficult, being part of separately listed companies. Japan's Nikkei says Docomo might also ask a UScourt to seize Tata assets;"If any company fails to honour an award, the successful party will have an opportunity to enforce the award in all the 152 signatory countries that are party to the New York Convention including countries UK and US. To the extent the unsuccessful party has assets in those juridistictions, then the counterparty can enforce against those assets in those countries," says Singapore based Nish Shetty, Singapore based Partner Clifford Chance Asia, a specialist in dispute resolution and international arbitration.But the person familiar with Tata perspective quoted earlier said, Tata Sons is a separate legal entity. Tata Sons has a minority shareholding in Tata Motors in India which in turn owns Jaguar Land Rover. Similarly Tata Sons has a minority shareholding in Tata Steel in India which in turn owns Tata Steel Europe via through Singapore and Netherlands arms. “The UK assets of Tata Steel and Jaguar Land Rover are not owned by Tata Sons. These are subsidiaries of Indian public listed companies of which Tata Sons is a promoter with a minority shareholding of not more than 30% to 35%. These overseas entities are separate corporate personalities which legal principle is internationally recognized. These companies are not party to the arbitration proceedings, and no award has been issued against them. It follows that the award cannot be enforced against those companies,” he explained further.NTT DoCoMo is further jaded because during the course of discussions, it felt that Tata kept issuing ultimatum. From the records in the arbitration award, DoCoMo believes that Tata attempt to appoint Standard Chartered Bank as a sell side investment banker that reportedly approached 17 potential buyers, none of whom came through “was self-serving.”“If we do not receive a communication from your end indicating your willingness to transfer the sale shares on the above terms (fair value found by PwC) within 15 days from this letter, TSL will apply to RBI for a special permission to pay a value of Rs 58.045 a share to NTT DoCoMo in consideration of purchase of the sale shares by TSL,” read a letter from Tata to DoCoMo, after a couple of letters from the other side asking Tata to explore alternate routes. The award talks of a set of alternates without elaborating them, all of which were rejected by the Tata group, a person quoted earlier said.DoCoMo has also suggested that Tata manipulated the outcome from the Finance Ministry after RBI approved the exemption to give full exit to the Japanese.The moot point now is will the Delhi High Court will take note of the arbitration panel's lack of decision on FEMA – “The Tribunal expresses no view on the question whether or not special permission of the RBI is required before Tata can perform its obligation to pay DoCoMo damages in satisfaction of this Award.” Or it will uphold the arbitration award and ask the Tatas to to pay and find an appropriate route to do so because the contract is binding. The ruling will not only impact the Tata-DoCoMo struggle but also the overall business sentiment in India.“The award is not an indictment of government policies, but highlights the uncertainties that businesses operating in India are confronted with," says Tony Nash, CEO of data analytics firm Complete Intelligence. “How much control does even large conglomerates like Tatas have over changing policy environment in India is the biggest concern for global investors.”Additional reporting by Deepshikha Sikarwar in New Delhi