Vodafone’s international arbitrations abuse of law: Government to High Court

By: | Updated: January 18, 2018 10:33 PM

The Centre today told the Delhi High Court that the Vodafone Group had abused the process of law by initiating two international arbitrations against India in connection with a tax demand of Rs 11,000 crore under a retrospective law of 2012.

Vodafone Group, India-United Kingdom, India-Netherlands, India-Netherlands Bilateral Investment Protection AgreementThe Centre today told the Delhi High Court that the Vodafone Group had abused the process of law by initiating two international arbitrations against India in connection with a tax demand of Rs 11,000 crore under a retrospective law of 2012. (Image: IE)

The Centre today told the Delhi High Court that the Vodafone Group had abused the process of law by initiating two international arbitrations against India in connection with a tax demand of Rs 11,000 crore under a retrospective law of 2012. Vodafone has initiated arbitration proceedings under the India-United Kingdom and India-Netherlands Bilateral Investment Protection Agreement (BIPA) in connection with the tax demand raised against the company in relation to its USD 11 billion deal acquiring the stake of Hutchison Telecom. Challenging the second arbitration, the government had said the two 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.

During the day, Additional Solicitor General Sanjay Jain, appearing for the Centre, argued before Justice Manmohan that the government has filed the plea with a “bonafide intention” and to prevent the abuse of law by Vodafone. He also countered the earlier submission of Vodafone’s counsel that Indian courts do not have the jurisdiction to stop the arbitration proceedings being conducted under international law. “Vodafone’s argument that any order by this court will not be binding on the arbitral tribunal is misconceived. If we are approaching court, it has to be under the Indian law. It is that Indian law which is equal for both the parties,” Jain contended.

The Centre’s submissions remained inconclusive and would continue on January 25. Senior advocate Harish Salve, appearing for the telecom major, had earlier told the court that it was agreeable to the consolidation of the two international arbitrations initiated by it against India. He had said that it will tell the second tribunal, under the India-UK BIPA, to consolidate the two proceedings if India consents to it. Salve had said this would be the company’s defence against India’s argument that the two proceedings under the different BIPAs was an abuse of the process of law. He had also said that since the Supreme Court had allowed appointment of a presiding arbitrator in the second arbitration under India-UK BIPA, nothing survives in the central government’s suit opposing the proceedings.

The apex court had on December 14 last year said that the chairman or presiding arbitrator can be appointed so that the tribunal is set up. The Centre had earlier argued that disputes encompassing tax demands raised by a host state were beyond the scope of arbitration provided under the BIPA as taxation is a sovereign function and can only be agitated before a constitutional court of the host state. It had also argued that laws passed by Parliament cannot be adjudicated by an arbitral tribunal and do not fall within the ambit of BIPA or any other international treaty. The government is of the view that the USD 11 billion Hutchison-Vodafone deal was liable for tax deduction at source (TDS) under the Income Tax (IT) Act.

As Vodafone had not deducted the tax at source, the government had raised the demand of Rs 11,000 crore which was subsequently quashed by the Supreme Court on January 20, 2012. Thereafter, the government made a retrospective amendment to the IT Act which re-fastened the liability on Vodafone. Aggrieved by the imposition of tax by the retrospective amendment, Vodafone International Holdings BV (VIHBV), Vodafone Group’s Dutch subsidiary, had invoked the arbitration clause under India-Netherlands BIPA through a notice of dispute of April 17, 2012 and notice of arbitration of April 17, 2014.

While the proceedings under the India-Netherlands BIPA was pending, the telecom major had initiated arbitration under the India-UK BIPA as well on January 24, 2017.

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