New Delhi: In a setback for the Modi government, the Delhi high court on Monday (May 7) dismissed the Centre’s plea challenging Vodafone’s move to initiate two international arbitrations against India over a retrospective tax liability imposed on the telecom company for its $11 billion acquisition of Hutchison Telecom.
Specifically, the court dismissed the government’s plea to halt Vodafone’s arbitration proceedings under the India-United Kingdom Bilateral Investment Protection Agreement (BIPA).
In the order, Justice Manmohan, however, noted that the Centre could approach the UK arbitration tribunal under the BIPA for its grievances.
The India-Vodafone tax liability tussle has seen a number of twists and turns over the last six years. After the Rs 22,000 crore tax liability was imposed by the UPA-II government in 2012, the telecom major intiatited arbitration proceedings under the India-Netherlands BIPA through a notice of dispute (in April 2012) and then a notice of arbitration (in April 2014).
Even as arbitration under the India-Netherlands BIPA was pending, it invoked a similar process under the India-UK BIPA in January 24, 2017.
As The Wire reported last month, the second arbitration was viewed unfavourably by India’s bureaucrats in the finance and law ministries, with senior government officials in favour of not participating in the process.
Consequently, the Centre moved the Delhi high court in August 2017, seeking an anti-arbitration injunction on the ground that both cases by Vodafone effectively revolved around the same issue – whether the controversial amendment to India’s Income Tax Act, which allowed the government at the time to impose a retrospective liability, violated the bilateral investment agreement.
The Delhi high court granted the stay, which was eventually revoked by the Supreme Court in December 2017. The apex court allowed Vodafone to appoint an arbitrator in the second case but also added that the actual process could not start until the Delhi high court completed its hearings.
Writing for The Wire, South Asian University assistant professor of law Prabhash Ranjan had noted at the time that the Indian government believed that by initiating a parallel BIT, Vodafone’s actions resulted in an “abuse of process”.
Vodafone, on the other hand, has primarily advanced the argument that there was nothing under the conditions of the UK and Netherlands bilateral investment treaty that prevented it from initiating two proceedings and, more importantly, Indian courts could not restrain an aggrieved party from seeking such remedy.
In particular, Vodafone’s lawyer Harish Salve pointed out that “National Courts of India inherently lacked the jurisdiction to entertain any dispute arising out of a Treaty between two
The Delhi high court appears to have weighed in on the side of Vodafone, noting that it could take its grievances over abuse of process to the UK tribunal.
“The present suit and application are dismissed with liberty to the Plaintiff-Union of India to raise the issue of abuse of process before India-United Kingdom BIPA, that now stands
constituted. The said Tribunal will decide this issue on its own merit,without being influenced by any observation made by this Court,” the judgement notes.
“This court is further of the view that the Plaintiff-Union of India after having elected its remedy of agitating the issue of abuse of process before the Netherlands-India BIPA Tribunal could not have approached the National Court on the same ground and, that too, without waiting for the award being rendered by the India-Netherlands BIPA Tribunal,” it added.
According to legal sources aware of the matter, there is still a chance that the Centre will approach the Delhi high court over merging or consolidating the two international arbitrations initiated by Vodafone.
In January 2018, Harish Salve, the lawyer for the telecom company, informed the Delhi high court that it would agree to such a consolidation if India also were to agree.
Sources told The Wire that if the Modi government moved the Delhi high court with such a plea, then Vodafone would also tell the UK tribunal to merge the two proceedings.