Delhi High Court Rejects Centre’s Plea Against Vodafone’s U.K. Arbitration

The Delhi High Court today allowed the second arbitration initiated by Vodafone Plc. under the India-U.K. Bilateral Investment Protection Agreement in the over Rs 20,000-crore retrospective tax case.

Justice Manmohan, who was hearing the case in the high court, said the Centre can approach the U.K. arbitration tribunal under the India-U.K. Bilateral Investment Protection Agreement for its grievance.

‘‘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 judgement delivered by Justice Manmohan said. “The said Tribunal will decide this issue on its own merit, without being influenced by any observation made by this Court,” it added.

Vodafone has initiated two arbitration proceedings under the India-United Kingdom and India-Netherlands Bilateral Investment Protection Agreements in connection with the tax demand raised against the company by the Indian government in relation to its $11-billion deal to acquire the stake of Hutchison Telecom.

While proceedings under the India-Netherlands BIPA were pending, the telecom major initiated a second arbitration under India-U.K. BIPA as well on Jan. 24, 2017.

The Centre had told the Delhi High Court that the Vodafone Group had abused the process of law by initiating two international arbitrations. 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.

The second arbitration was stayed by Delhi High Court in August last year, but the Supreme Court allowed the process of appointment of arbitrators for the second arbitration in December. It had, however, barred the start of proceedings until the Delhi High Court decided on the validity of the second arbitration.

‘'It is a matter of practice that national courts will exercise great self restraint and grant injunction only if there are very compelling circumstances and the court has been approached in good faith and there is no alternative efficacious remedy available,” the Delhi High Court said in today's order. “Such a restrictive approach and jurisdiction is in consonance with any international obligation India may have under VCLT or any other treaty,” the court added.

The Bone Of Contention

The UPA-II government had imposed a tax liability on Vodafone to the tune of Rs 11,000 crore claiming that the telecom major had failed to deduct the tax at source under the Income tax Act.

The Supreme Court in 2012 quashed the demand made by the government. The government had then amended the income tax laws retrospectively and reinstated the tax liability, which had by then swelled to Rs 20,000 crore, including interest and penalties.

Watch this interview with Vodafone Counsel Anuradha Dutt.

(With PTI inputs)