NEW DELHI The Supreme Court on Friday ordered Nokia NOK1V.HE to give a 35 billion rupee guarantee before it transfers one of its biggest handset plants to Microsoft Corp (MSFT.O).
The ruling upheld a lower court verdict over the plant in Chennai, which is the subject of a tax dispute, and had been challenged by the Finnish company.
Nokia's case is one of several high-profile tax disputes involving foreign companies in India. Vodafone Group (VOD.L), IBM (IBM.N) and Royal Dutch Shell (RDSa.L) are among foreign groups contesting local tax claims.
Nokia, which is selling its mobile phones business to Microsoft in a 5.4 billion euro deal, previously agreed to set aside 22.5 billion rupees in an escrow account while it fights the tax authority's claims in court.
But the Delhi High Court last month said that Nokia should also commit to paying an additional amount for any future tax claims and waive some of its rights to legal defence as a condition for transferring Indian assets to Microsoft.
The Microsoft deal, which will allow Nokia to shift its focus to network equipment, is expected to close by the end of this month and Nokia had been keen for a ruling before then.
Nokia said in a statement that it was disappointed by Friday's ruling and was considering its options.
If the plant is not allowed to be transferred, Nokia can run it as a contractor to Microsoft, but not for long, the Finnish company's lawyers have said in court hearings.
If Nokia chooses to shut down the Chennai plant, it would leave thousands out of work and Microsoft without a key manufacturing site. It could also mean that Nokia ends up with less money from the Microsoft deal.
The Chennai plant is one of Nokia's biggest phone-making factories and the company says it employs 8,000 people.
(Reporting by Suchitra Mohanty and Jussi Rosendahl; Writing by Devidutta Tripathy; Editing by Tom Heneghan and David Goodman)