SC allows appointment of presiding arbitrator in Vodafone tax dispute case

New Delhi, Dec 14 : In a victory of sorts for Vodafone, the Supreme Court on Thursday said that the process for appointing a presiding arbitrator in the second arbitration in tax demand of Rs 11,218 crore initiated by two entities of Vodafone Group will go on but the actual proceedings would not commence till Delhi High Court decides the matter.

The tax demand of Rs 11,218 crore is rooted in Vodafone's $11 billion acquisition of 67 per cent stakes of in Hutchison-Essar in 2007. With addition of interest and penalties, the tax demand has now surged to Rs 20,000 crore.

The order by the bench of Justice A.K.Sikri and Justice Ashok Bushan has come on a plea by the Central government challenging Delhi High Court's October 26 order allowing the two entities of Vodafone group - Vodafone Group Plc and Vodafone Consolidated Holdings' Ltd - to participate in the process for the appointment of the presiding arbitrator.

The two entities initiated the second arbitration under India-UK Bilateral Investment Protection Agreement (BIPA) in January this year.

Prior to this, Vodafone International Holdings BV (VIHBV) had initiated in 2014 arbitration proceedings under the India-Netherlands BIPA and these were already underway.

Refusing to interfere with Delhi High Court order, Justice Sikri asked Additional Solicitor General Maninder Singh, appearing for the government, as to what its grievance is.

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.

Maninder Singh said that without any change in the prima facie conclusion, the high court varied its August 22 interim order and allowed Vodafone to participate in the process of appointing presiding arbitrator.

Meeting the argument that India has already appointed its arbitrator, he told the court that India received four communications from ICJ President asking it to appoint its arbitrator and the fifth communication, which was in the nature of an ultimatum, had asked India to make an appointment, failing with ICJ President would do so. It was due to this, India had appointed an arbitrator on September 7.

The government had contended in its plea before the top court that though the issue for second arbitration is sought to be projected as a disputed under the BIPA but in effect, it is a challenge to the validity of 2012 amendment under the Finance Act by which the tax claim against Vodafone was given a retrospective basis.

"The question as to whether the amendment in Finance Act is in conformity with law or unconstitutional cannot be decided by an arbitral tribunals constituted under any BIPA ... The law made by the Parliament of any country can be tested in judicial review of that country alone," it said.

The government had brought a retrospective amendment to the Income Tax Act, 1961 after the top court by its January 20, 2012 verdict had quashed the income tax order asking the telecom giant to pay Rs 11,218 crore tax, ruling that that Indian tax officials did not have jurisdiction over a deal between two global companies even if assets involved in that deal were located in India.

Ruling for the company, it had set aside an earlier Bombay High Court order that had upheld the tax demand on account of the said acquisition.