Delhi HC rejects government’s plea challenging Vodafone’s move to approach India-UK BIPA
08 May 2018
The Indian government’s plea challenging Vodafone’s move to initiate international arbitrations in connection with the tax demand of Rs11,000 crore under a retrospective 2012 law was rejected by the Delhi high court on Monday.
The telecom major had initiated arbitration proceedings under the India-UK and India-Netherlands Bilateral Investment Protection Agreements (BIPAs) relating to the tax demands by the government following its $11 billion deal to acquire the stake of Hutchison Telecom (See: Vodafone seeks arbitration as tax talks with government collapse)
Vodafone, which had taken up the matter with the India-Netherlands BIPA earlier, also initiated the second arbitration under the India-UK BIPA last year.
The Indian government told the Delhi high court that Vodafone had abused the process of law by initiating two international arbitrations against it.
But the court informed the government that it could approach the UK arbitration tribunal under the India-UK BIPA.
According to Vodafone, the Indian government was a party to the BIPA with the UK and such treaties were not subject to domestic laws. Disputes arising out of such treaties were also beyond the jurisdiction of national courts.
In 2007, Vodafone International Holdings, a Dutch unit of the British telecom firm, bought the Indian business operations of Hutchison Telecommunications International Ltd through the purchase of a Cayman Islands-based firm called CGP Investments Ltd, a unit of Hutchison.
The Indian tax department estimated that Vodafone should have withheld part of the amount as tax while paying Hutchison. Vodafone and the tax authorities went to court to resolve the issue.
The Supreme Court, in its judgement in January 2012, said the deal was not taxable in India (See: Vodafone wins tax case in Supreme Court).
Subsequently, the government introduced retrospective amendments to laws to bring such indirect transfer of shares under the tax net. It also introduced a validation clause that made Vodafone liable to pay tax in India despite the apex court's judgment.
Vodafone then proceeded with initiating arbitration under the bilateral investment protection agreement signed by the Netherlands and India. It argued the retrospective amendment amounted to a denial of justice and a breach of the Indian government's obligations to accord fair and equitable treatment to investors.