The Tatas have sought arbitration on the issue of compensation to be paid by the government to Videsh Sanchar Nigam Ltd for premature termination of its monopoly in providing international long-distance services.

In a letter written to Communications Minister Arun Shourie on September 5, Tata Group chairman Ratan Tata suggested setting up of a three-member panel of arbitrators, which would include one member each nominated by the government and VSNL.

These two members would decide on the third member, who would be the chairman, Tata said, adding that both parties would have to agree that the decision of the tribunal would be binding.

Shourie has forwarded Tata's proposal to the finance ministry since the "outcome of the arbitration may have fiscal consequences."

A Tata spokesperson told Business Standard: "The communications minister had requested the Tatas to write a letter to him providing the background on the issue and outlining possible ways to settle it. The Tatas are awaiting the government's feedback on the same. The discussion between the Tatas and the government on the issue of compensation to VSNL is being conducted in a spirit of mutual co-operation and understanding."

In his letter, Tata has pointed out that the only way to resolve the issue is through negotiations, failing which VSNL will have to take legal recourse.

"Considering the fact that litigation on this issue will be a prolonged affair, it will not enhance the credibility of the government if VSNL, an erstwhile public sector company in which the government continues to hold a 26.12 per cent stake, takes the latter to court," said Tata.

"Unilateral action on the part of the government, which has deprived the company's shareholders of their fair value, will be a major deterrent when it seeks to raise capital by way of divestment in foreign markets in the near future," he pointed out.

"An alternative solution will be to refer this dispute to arbitration by an eminent panel of arbitrators," Tata added.

VSNL was granted an exclusive licence by the government to provide international long-distance services till March 31, 2004, but this agreement was terminated two years ahead of schedule.

The government, therefore, agreed to compensate VSNL for the same.

According to the Tatas, the government sought to unilaterally close the issue of compensation on the eve of divestment in January 2002 by stating that Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd would route their international calls for two years after VSNL was privatised. This was not acceptable to VSNL.