The Centre has told the Delhi High Court that the Vodafone Group was abusing the process of law by starting two international arbitrations against India regarding the retrospective tax demand of Rs 11,000 crore.
Vodafone has filed for arbitration under two international agreements – the India-United Kingdom plus the India-Netherlands Bilateral Investment Protection Agreement (BIPA) – with respect to the tax payment demand raised under a retrospective law of 2012 in connection with its $11 billion acquisition of a stake in Hutchison Telecom.
The government has challenged the arbitration, stating that both claims are based on the same “cause of action” and seek identical reliefs, but from two separate tribunals constituted under two different investment treaties against the same host state.
Case To be Reviewed Under Indian Law
Appearing for the Centre, Additional Solicitor General Sanjay Jain argued before Justice Manmohan that the government’s plea had been filed with a “bonafide intention” to prevent the abuse of law by Vodafone.
He also disputed Vodafone’s submission that Indian courts don’t have the jurisdiction to halt arbitration proceedings being conducted under international law.
Calling Vodafone’s argument ”misconceived”, Jain said that the matter must be addressed under “Indian law which is equal for both the parties”.
The Centre will continue its submission on January 25.
Vodafone Agreeable To Consolidation Of Cases
Senior advocate Harish Salve, who is appearing for the telecom major, had informed the court earlier that it was open to the consolidation of the two international arbitrations initiated against India by it.
He said that the company will inform the second tribunal, under the India-UK BIPA, to consolidate the two proceedings if India consents, adding that this was the company’s defence against India’s allegation that the two proceedings under the different BIPAs was an abuse of the process of law.
He pointed out that as the Supreme Court has allowed the appointment of a presiding arbitrator for the second arbitration proceedings under India-UK BIPA, the Central Government’s suit opposing the proceedings had no standing.
The apex court had allowed in December last year for the appointment of the chairman or presiding arbitrator so that the tribunal can be set up.
Tax Dispute Not Under Scope Of Arbitration
The Centre has contended that all disputes regarding tax demands raised by a host state don’t come under the scope of arbitration provided under the BIPA since taxation is a sovereign function and they can be raised only before a constitutional court of the host state.
The government has also argued that laws passed by Parliament cannot be adjudicated in an arbitral tribunal and does not come under the ambit of any international treaty included the BIPA.
According to the government the USD 11 billion Hutchison-Vodafone deal continues to be liable for tax deduction at source (TDS) under the Income Tax (IT) Act. Since Vodafone failed to deduct the tax at source, the government raised the demand of Rs 11,000 crore which was subsequently set aside by the Supreme Court in 2012.
The government then passed a retrospective amendment to the IT Act which reintroduced the tax liability.
In response, the Dutch subsidiary of Vodafone Group, Vodafone International Holdings BV (VIHBV), invoked the arbitration clause under India-Netherlands BIPA via a notice of dispute in 2012 and a notice of arbitration in 2014. Even as the arbitration under the Netherlands BIPA remained pending, the company started arbitration under a separate BIPA agreement with UK in January 2017
