SC allows appointment arbitrator in Vodafone tax dispute

Vodafone gets SC's nod to initiate second arbitration over $2 bn tax demand

Vodafone gets SC's nod to initiate second arbitration over $2 bn tax demand

India's top court on Thursday allowed Britain's Vodafone to initiate a second arbitration process under an India-UK investment pact over a long-running US$2 billion-plus tax dispute with New Delhi.

The court had said it was not in favour of stalling the process as both sides had already appointed an arbitrator each in the second arbitration.

To recap, seven months after starting its India operations, Vodafone was held liable for capital gains tax on the Hutch Essar deal and taxmen demanded Rs 11,000 crore.

The government is of the view that the United States dollars 11 billion acquisition of stake of Hutchinson Telecommunications International Limited (HTIL) in Hutchinson Essar Limited (HEL) by Vodafone was liable for tax deduction at source (TDS) under the Income Tax Act.

Vodafone had in 2014 initiated arbitration proceedings under the India-Netherlands Bilateral Investment Protection Agreement (BIPA) in connection with the tax demand raised against it, which are still going on. Thereafter, the government made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone, the high court order noted. And all three companies have initiated worldwide arbitration against India.

He told the bench that Delhi HC had in August, while restraining the Vodafone Group Plc and Vodafone Consolidated Holdings' Ltd, had rendered four prima facie conclusions - that there was duplication of purposes as well as the issues, India is the natural forum for litigation, the relief sought under India-UK BIPA and India-Netherlands BIPA were identical and that the entities in two arbitrations were different but prima facie seem to be a single economic entity.

Vodafone had claimed that the Centre had not disclosed to the court an undertaking it had given to the International Court of Justice (ICJ) to appoint an arbitrator. Furthermore, arbitration proceedings under the two BIPAs was an abuse of the process of law. With addition of interest and penalties, the tax demand has now surged to Rs 20,000 crore.

A two-judge panel of the apex court said a second arbitration tribunal may be set up and its proceedings can begin after the Delhi high court formally lifts a stay order on the move, which is expected in January. On October 26, the high court had allowed the telecom company to participate in the second arbitration against India on the same issue of tax demand.

The high court had asked Vodafone representatives to participate in the process of appointing a presiding arbitrator in its global arbitration process against India. Vodafone will be praying that the global arbitration proceedings wrap up soon, and in its favour.

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