Date: 27 Sept, 2020
by Parul Dhingra, UILS, Panjab University
TIMELINE OF THE CASE
May, 2007: British Telecom Vodafone’s Dutch unit - Vodafone International Holdings BV bought 67% stake in Hutchison Essar ( Indian telecom Company) from Hong Kong-based Hutchison Group .
September, 2007: Indian govt. demanded Rs. 7990 cr. from Vodafone in capital gains and withholding tax.
The dispute went to the court.
September, 2010: Bombay HC ruled in favour of the IT department.
January, 2012: SC set aside the HC’s decision and held that as per Income Tax Act, 1961, the transfer from a non-resident to a non-resident, of shares of foreign company which is holding an Indian subsidiary company, is not to be taxed.
Finance Act, 2012: It amended Section 9(1)(i) of Income Tax Act, 1961 which allowed retrospective taxation of the income deemed to be accruing or arising to non-residents either directly or indirectly through transfer of any capital asset situated in India.
VODAFONE WAS AGAIN MADE LIABLE TO PAY TAX OVERTURNING THE DECISION OF THE SUPREME COURT.
April, 2014: Vodafone initiated arbitration by invoking Clause 9 of the Bilateral Investment Treaty (BIT) signed between India and the Netherlands in 1995.
Also, in 2016, Vodafone approached ICJ due to lack of consensus between the parties’ arbitrators in finalising a judge for the dispute. Thereafter, a tribunal was constituted in June, 2016.
January, 2017: While the first arbitration was ongoing, Vodafone (along with its UK subsidiary) initiated second UNCITRAL arbitration against India under the India-UK BIT. It challenged the tax demand of Rs. 22,100 crores (including penalty and interest) by India.
May, 2018: Delhi HC dismissed the plea of Indian govt. seeking anti-arbitration against Vodafone for initiating two parallel arbitral proceedings and upheld the principle of ‘kompentz kompentz’.
DECISION OF PERMANENT COURT OF ARBITRATION (PCA) AT THE HAGUE
September 25, 2020 – The tribunal gave a unanimous decision in investment treaty arbitration–
As per Article 4(1) of the Agreement, Vodafone is entitled to fair and equitable treatment and Government of India’s conduct through the amendment is breach of the said guarantee provided in the agreement.
It directed to cease the tax demand along with penalty and interest against the company.
It also directed the government to reimburse 60% of Vodafone’s legal costs and 50% of the cost which has been paid by the company to the appointing authority which in total amounts to over Rs. 40 crores.
The already collected tax of about Rs. 45 crores from Vodafone has to be refunded.
The Finance Ministry of India has said that it would carefully study the award and then take a decision on any further course of action.
ENFORCEMENT OF BIT AWARDS IN INDIA UNDER UNCERTAINTY
In Union of India v. Vodafone Group PLC United Kingdom & Anr, CS (OS) 383/2017 as well as in Union of India v Khaitan Holdings (Mauritius) Ltd & Ors, CS (OS) 46/2019, the Delhi High Court has held that BIT awards are not commercial in nature and therefore, not governed by Arbitration and Conciliation Act 1996.
The future decisions by the courts might clear the air about the enforcement of BIT awards in India.