The Supreme Court on Friday ordered Nokia to give a Rs 35 billion guarantee before it transfers one of its biggest mobile phone plants and other assets in the country to Microsoft Corp.
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 Plc, IBM and Royal Dutch Shell Plc are among foreign firms contesting local tax claims.
Nokia, which is selling its mobile phones business to Microsoft in a €5.4 billion deal, last month appealed to the Supreme Court saying the Delhi high court had imposed new conditions over the transfer after previously lifting a freeze.
The 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 did not immediately comment after the Supreme Court verdict on Friday.
Nokia had agreed at the Delhi high court to set aside Rs 22.5 billion in an escrow account while it fights the tax authority's claims in court.
But it was also asked to give a guarantee for 35 billion rupees more, which the company has said will restrict its ability to contest the tax claims locally and internationally.
The Chennai plant is one of Nokia's biggest phone-making factories and the company says it employs 8,000 people.
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 previously said in court hearings.
Nokia was served with a tax demand of about Rs 20.8 billion last year in March. Including the anticipated liability, interest and penalty, the bill could total Rs 210 billion, a lawyer representing the tax office said in December.