Adag`s Flag Wins Appeal Against Vsnl

[Arun 795]

Mumbai - April 8, 2008

Business Standard

In what is a significant victory for the Anil Dhirubhai Ambani Group (ADAG), a Netherlands-based district court in the Hague has upheld an order by the arbitration tribunal of the International Chamber of Commerce in 2006 directing Videsh Sanchar Nigam Ltd (VSNL, now Tata Communications) to permit Reliance Globalcom (formerly Flag Telecom) to upgrade its bandwidth capacity at the cable landing station in Mumbai.

The district court has also ordered the Tata group company to pay proceeding charges of euro 13,092 plus euro 12,844 for legal representation to ADAG.

The decision comes just ahead of a final verdict on the dispute in which Flag Telecom has separately sought $400 million (Rs 1,600 crore) in damages. Hearings for this issue have ended.

Under an agreement with VSNL, Flag terminated its undersea cable at the Tata group company’s landing station at Mumbai.

This meant Flag also required VSNL’s permission to upgrade cable capacity. In 2004, VSNL denied Flag this permission on various technical grounds.

ADAG filed for arbitration with the international tribunal in December 2004 against Tata Communications on two accounts. One, it had asked for directions to allow the company to upgrade the capacity of the Indian leg of the cable.

Two, it demanded compensation for the business opportunity it had lost due to its inability to upgrade the capacity.

While the tribunal had given a ruling in favour of Reliance in 2006, the Tatas had appealed against the decision in the district court in the Hague with a request to set aside the ruling.

“Given that none of the arguments advanced by VSNL is accepted by the court, its claims will have to be rejected,” the district court of the Hague said in its conclusion of the judgment.

“Given that VSNL is the party whose arguments have not been accepted, it will be ordered to pay the costs of these proceedings. In connection with the determination of the amount of costs to be awarded in favour of Flag, the court will consider the underlying substantive interest of the case. Both parties have indicated on the occasion of the oral argument that the underlying substantive interest amounts to around $400 million,” it added.

When contacted, a Reliance Globalcom spokesperson confirmed receiving a copy of the judgment.

A Tata Communications spokesperson said: “Tata Communications is disappointed with the decision of the Hague Court and is considering its options for appeal with its advisers.”

Flag Telecom was incorporated in 1997 and acquired by ADAG in January 2003. ADAG wanted to increase the capacity of the cable from 10 gigabytes to 180 gigabytes to cater to the growing demand for bandwidth in India.

However, with the international arbitration council ruling in its favour, it has upgraded the capacity to 80 gigabytes.

The group also announced a $400 million FALCON cable that connected 14 countries in West Asia to India and seamlessly integrated with Flag Global Network. Currently, the cable connects 39 countries across four continents.

The company had recently announced a $1.5 billion project under which it would be laying 50,000 km of fresh optic fibre, bringing in over 65 countries across six continents within its network.

COMMUNICATION GAP

(A brief history of the controversy)

December 22, 2004: Reliance Globalcom (then Flag Telecom) requests arbitration with the International Chamber of Commerce, which directs Tata Communications to grant access to Flag cable at the former’s landing station in Mumbai. It also asks for compensation

May 17, 2006: A three-member tribunal issues a final partial award in favour of Reliance Globalcom

September 7, 2006: Tata Communications approaches the Hague District court seeking the award be set aside