By TIOL News Service

NEW DELHI, AUG 23, 2017: THE ghost of Rs 20000 Crore tax demand against Vodafone continues to make headlines. In the latest development, the Delhi High Court has described the Vodafone's audacious pursual of arbitral proceedings under BIPA before two different forums under two different BIPAs as an abuse of process of law. The HC has also held that it would be unfair and unjust to allow the defendant company to proceed with foreign arbitration when India is the natual forum for such litigation. The High Court found that when the claimants in two parallel proceedings constitute single economic entity being run, governed and managed by the same set of shareholders, it makes no sense to litigate the same set of issues before two different tribunals which may end up giving conflicting rulings. In this background, the HC held that such a form of litigation strategy is nothing but an abuse of the process of law.

After the Income Tax Department fastened fresh demand on Vodafone International Holdings BV by resorting to retrospective amendment in Section 9(1), the UK telecom giant had invoked the arbitration clause provided under the Bilateral Investment Promotion and Protection Agreement (BIPA) between the Republic of India and the Kingdom of Netherlands for the promotion and protection of investments through a notice of dispute dated 17th April, 2012 and subsequent notice of arbitration dated 17th April, 2014. While the arbitration proceedings were pending, the claimants served a notice of dispute dated 15th June, 2015 and notice of arbitration dated 24th January, 2017 upon India for resolution of an alleged dispute under the India-UK BIPA primarily in respect of the same income tax demand that VIHBV had identified as protected investment under the India-Netherlands BIPA and which was already under adjudication before the Arbitral Tribunal constituted under BIPA.

Though India had raised preliminary objections to the jurisdiction of the arbitral tribunal constituted under the India-Netherlands BIPA yet the tribunal vide order dated 19th June, 2017 ruled that the issue of jurisdiction and merits shall be heard together.

The ASG stated in the plaint that the two claims were based on the same cause of action and sought identical reliefs but from two different tribunals constituted under two different investment treaties against the same host state. He contended that the arbitration proceedings now initiated by the defendants was an abuse of law. He further submitted that disputes encompassing tax demands raised by a host state were beyond the scope of arbitration provided under the bilateral investment treaty as taxation was a sovereign function and the same can only be agitated before a constitutional court of the host state. He also stated that under the constitutional scheme of India, laws passed by the Parliament cannot be adjudicated by an arbitral tribunal and did not fall within the ambit of BIPA or any other international treaty.

The High Court has restrained Vodafone Group's agents & attorneys 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 Investment Protection Agreement or continuing with it as regards the dispute mentioned in the Notice of Arbitration dated 24th January, 2017. The next hearing will be conducted in October, 2017.

(See 2017-TII-01-HC-BIPA)