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Delhi High Court stops Vodafone from seeking arbitration in Rs 20,000-crore tax dispute case

Justice Manmohan restrained Vodafone or its subsidiaries from going ahead with arbitration under the India-UK Bilateral Investment Protection Agreement.

ET Bureau & Agencies|
Updated: Aug 23, 2017, 01.07 AM IST
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NEW DELHI: The Delhi High Court has “restrained” Vodafone Group Plc from going ahead with its arbitration proceedings against India under a treaty with the UK, in the Rs 20,000-crore tax dispute related to the telco’s $11-billion deal to buy the stake of Hutchinson Telecom back in 2007.

In his interim order on Tuesday, Justice Manmohan restrained Vodafone or its units from proceeding with arbitration under the India-UK Bilateral Investment Protection Agreement (BIPA), saying the UK telecom major had already started similar proceedings on the same tax dispute under the India-Netherlands BIPA.

“In the prima facie opinion of this Court, it would be inequitable, unfair and unjust to permit the defendants to prosecute the foreign arbitration. Consequently, defendant No. 1 and 2, their servants, agents, attorneys, assigns are restrained from taking any action in furtherance of the notice of dispute dated 15th June, 2015 and the notice of arbitration dated 24th January, 2017 and from initiating arbitration proceedings under India-UK Bilateral,” the order said.

The court said it is of the prima facie view that in the present case, there is duplication of the parties and the issues. In fact, the reliefs sought by the defendants under the India-UK BIPA and by the Vodafone International Holdings BV (VIHBV), the subsidiary of defendants (Vodafone group), under the India-Netherlands BIPA are virtually identical.

“This court is further of the prima facie view that there is a risk of parallel proceedings and inconsistent decisions by two separate arbitral tribunals in the present case,” the court said.

It also issued a notice to Vodafone, seeking its response by October 26 on India’s plea seeking a permanent injunction against the mobile phone operator from proceeding with the arbitration under the India-UK BIPA. Vodafone didn’t reply to an emailed query seeking comment. But a lawyer familiar with the telco’s legal tussles said it was an exparte order.

“Vodafone will have to see how to respond as this deals with an international arbitration,’ the person said. In its interim order, the court was also of the prima facie view that “India constitutes the natural forum for the litigation of the defendants' (Vodafone and its subsidiaries) claim against the plaintiff (Centre)”.

At the heart of the issue was the government view that the $11-billion acquisition of stake of Hutchinson Telecommunications International Ltd (HTIL) in Hutchinson Essar Ltd (HEL) by Vodafone was liable for tax deduction at source (TDS) under the Income Tax Act.

As Vodafone had not deducted the tax at source, the government had raised the demand of Rs 11,000 crore — which rose to over Rs 20,000 crore including penalties and interest — which was subsequently quashed by the Supreme Court in January 2012. Thereafter, the government made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone, the high court order noted.

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