The finance ministry on Monday moved the Supreme Court seeking a stay on the Delhi High Court’s October order that allowed the Vodafone Group to go ahead with its second arbitration proceedings against India under a treaty with the UK in connection with a tax demand, Rs 20,000 crore when last reported, on the company over its $11-billion acquisition of Hutch’s stake in Hutchison-Essar in 2007.
The finance ministry on Monday moved the Supreme Court seeking a stay on the Delhi High Court’s October order that allowed the Vodafone Group to go ahead with its second arbitration proceedings against India under a treaty with the UK in connection with a tax demand, Rs 20,000 crore when last reported, on the company over its $11-billion acquisition of Hutch’s stake in Hutchison-Essar in 2007. It contended that the high court order amounted to “an abuse of process (since another arbitration in the same case was already under way) and, therefore, (is) null and void”. The multinational firm, the ministry alleged, was trying forum shopping, while it was essentially contesting a 2012 retrospective tax amendment over indirect transfers in both cases.
Dutch firm Vodafone International Holdings had initiated the arbitration process under the India-Netherlands tax and investment treaty in April 2014. While the proceedings were under way, two other group firms initiated another arbitration under the India-UK bilateral investment promotion and Protection Agreement (BIPA) in January 2017.
A bench led by Chief Justice Dipak Misra posted the matter for hearing on Tuesday.
The government in its appeal before the apex court stated that “claimant in the two arbitral proceedings is the same corporate group, the cause of action is identical and the reliefs sought in the two arbitration proceedings are also the same”. The government has asked the apex court to examine whether the HC was correct in allowing the parties to participate in the proceedings for appointment of a presiding arbitrator, thereby rendering ineffective its earlier order restraining Vodafone from going ahead with the second arbitration under under the India-UK BIPA. It further said that Vodafone without waiting for the decision on jurisdictional issues in the first tribunal has now initiated the second arbitration on the ground India has resisted the tribunal’s jurisdiction.
While Vodafone had not deducted the tax at source in the 2007 deal, the government had slapped it with a demand of Rs 11,000 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. Although the tax amount surged with interest and penalties — it was Rs over 20,000 crore when the government last computed it but must have risen since — the government later indicated that it is willing to forgo the interest and penalty if the principal amount is fully paid. In fact, in March this year, the Central Board of Direct Taxes (CBDT) issued a circular for waiver of interest in disputed tax demand in different scenarios; in cases where the tax liability arose because of a retrospective amendment or court ruling, the interest will be waived, it said. “However, no reduction or waiver of such interest shall be ordered unless the principal demand…stands fully paid or satisfactory arrangements for payment of the principal demand have been made,” CBDT said. Vodafone has however shown no intention to comply.
According to the government, “the subject matter of the arbitration though has been given a colour of dispute arising out of BIPA is nothing but a challenge to the validity of the 2012 amendment in the Finance Act by an International Arbitral Tribunal. The question as to whether the amendment in Finance Act is in conformity with law or unconstitutional cannot be decided by an arbitral tribunals constituted under any BIPA. Such disputes by their very nature do not fall in the ambit of BIPA or for that matter any international treaty. The law made by the Parliament of any country can be tested in Judicial Review of that country alone.”