Rs 20,000 cr Vodafone tax case: Way cleared for second arbitration

By: | Published: December 15, 2017 4:58 AM

The Supreme Court on Thursday allowed the telecom major to appoint a presiding arbitrator/chairman in connection with a tax demand of Rs 20,000 crore on the company.

Vodafone, Hutch, Hutchison Essar, Supreme Court, Hutchison-EssarThe Supreme Court on Thursday allowed the telecom major to appoint a presiding arbitrator/chairman in connection with a tax demand of Rs 20,000 crore on the company (Image: IE)

Paving the way for the Vodafone group’s second arbitration proceedings under an India-United Kingdom treaty, the Supreme Court on Thursday allowed the telecom major to appoint a presiding arbitrator/chairman in connection with a tax demand of Rs 20,000 crore on the company over its $11-billion acquisition of Hutch’s stake in Hutchison-Essar in 2007. However, it restrained the arbitral tribunal from going ahead with the proceedings till January 10. In the meantime, the SC asked the Delhi High Court to hear the matter on merits on January 8, the scheduled date for hearing. A bench headed by justice AK Sikri, while refusing to stay the HC order, said: “We are of the opinion that the order of October 26 passed by single judge of HC is without prejudice to the rights of petitioners (government).”

The order came on an appeal by the Ministry of Finance challenging the Delhi High Court’s October order that had allowed the company to appoint a presiding arbitrator in its second arbitration under the India-UK treaty. Additional solicitor general Maninder Singh and counsel DL Chidanand, appearing for the government, argued that the same dispute can not be referred to two different arbitration panels by two companies of the same group. They contended that the HC 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.

However, senior lawyer Mukul Rohatgi and counsel Anuradha Dutt, appearing for Vodafone, submitted before the court that the tax dispute does not come under the jurisdiction of Indian courts. Rohtagi alleged that the Indian government had unsuccessfully approached an ICJ judge to defer action and had withheld other important documents from the high court.  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 – Vodafone Group Plc and Vodafone Consolidated Holdings’ – initiated another arbitration under the India-UK bilateral investment promotion and protection agreement (BIPA) in January 2017. The government in its appeal before the apex court said 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”.

It also said Vodafone without waiting for the decision on jurisdictional issues in the first tribunal has now initiated the second arbitration on the ground that the government has resisted the tribunal’s jurisdiction. 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 to the Finance Act by an international arbitral tribunal. The question as to whether the amendment to the Finance Act is in conformity with law or unconstitutional cannot be decided by an arbitral tribunal constituted under any BIPA.

Such disputes by their very nature do not fall under the ambit of BIPA or for that matter any international treaty. The law made by Parliament of any country can be tested in the judicial review of that country alone.”While Vodafone had not deducted the tax at source in the 2007 deal, the government had slapped it with 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.

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