International arbitration: Delhi High Court dismisses government’s plea against Vodafone

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New Delhi | Updated: May 8, 2018 5:53:46 AM

The Delhi High Court on Monday dismissed the government’s petition challenging the Vodafone Group’s move to initiate two international arbitrations against India in connection with a retrospective tax liability imposed on the telco for its $11-billion acquisition of Hutch’s stake in Hutchison-Essar in 2007.

delhi high court, vodafoneThe court said the Centre can approach the UK arbitration tribunal under the India-UK Bilateral Investment Protection Agreement. (PTI)

The Delhi High Court on Monday dismissed the government’s petition challenging the Vodafone Group’s move to initiate two international arbitrations against India in connection with a retrospective tax liability imposed on the telco for its $11-billion acquisition of Hutch’s stake in Hutchison-Essar in 2007.

The court said the Centre can approach the UK arbitration tribunal under the India-UK Bilateral Investment Protection Agreement (BIPA).

“The tribunal while deciding the said issue will take into account the defendants’ (Vodafone) undertaking to this court that if the Union of India gives its consent, it would agree to consolidation of the two BIPA arbitration proceedings before the India-United Kingdom BIPA Tribunal,” the court said.

Quoting Sundaresh Menon, Chief Justice of Singapore on International Arbitration, the HC said that where there is an investment treaty arbitration between a private investor and the state, national courts are divested of their jurisdiction.

It said that investment arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature).

After the tax liability of over Rs 22,000 crore was imposed in 2012, Dutch firm Vodafone International Holdings had initiated the arbitration process under the India-Netherlands BIPA on April 17, 2014.

While the proceedings were pending, two other group firms — Vodafone Group and Vodafone Consolidated Holdings — initiated second arbitration under India-United Kingdom treaty as well on January 24, 2017.

The Centre then moved the HC alleging that the Vodafone Group had abused the process of law by initiating two international arbitrations. The second arbitration was stayed by the HC in August 2017, after the Centre sought an injunction on the ground that the two arbitration claims were based on the same cause of action and they seek identical reliefs, but from two different tribunals constituted under two different investment treaties against the same host state and this was an abuse of process aimed at multiplying arbitration proceedings to maximise the chances of success. The government argued that the multinational firm was trying forum shopping as it was essentially contesting a 2012 retrospective tax amendment over indirect transfers in both cases.

However, the Supreme Court on December 14 last year allowed Vodafone to appoint a presiding arbitrator/chairman arbitrator in the second arbitration but added that the proceedings would not start until completion of hearings in the case before the Delhi High Court.

Vodafone, on the other hand, had argued that the tax dispute does not come under the jurisdiction of the Indian courts and it was entitled to protection against “unfair measures against investors” under the two bilateral investment treaties and no domestic court could restrain an aggrieved party from seeking such remedy.

Senior counsel Harish Salve, appearing for the company, submitted that the Union of India was a party to the BIPA and the obligations under such treaties were not subject to domestic laws and disputes arising out of such treaties were not subject to the jurisdiction of the national courts.

While Vodafone had not deducted the tax at source in the 2007 deal, the government had slapped it with a demand of Rs 11,200 crore later. The deal, it said, involved indirect transfer of Indian assets. After the Supreme Court quashed the tax demand in January 2012, the government amended the tax laws retrospectively to stick to its ground, drawing criticism from global business groups.

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