The Supreme Court has allowed the appointment of a chairman to a second arbitral panel that’s hearing the Rs 11,000-crore Vodafone income tax dispute, but has directed that the proceedings not begin until the Delhi High Court has heard out any government objections
A bench of Justices AK Sikri and Ashok Bhushan gave the interim order after hearing from Vodafone counsel Mukul Rohatgi, and from additional solicitor general Maninder Singh for the government.
The next hearing is expected to be held on January 8.
The arbitral panel has been asked by the SC to not hold any hearing before January 10, so as to give the Indian government time to raise any concerns it may have to the second arbitration that has been initiated under the India-UK investment treaty.
Tax Dispute Arising From 2007 Acquisition of Hutchinson Telecom
The Income Tax department slapped a tax claim of Rs 11,000-crore on Vodafone’s Dutch unit for failing to pay appropriate tax when it acquired Hutchison Telecom’s stake in Hutchison Essar in 2007 for $11 billion.
Although Supreme Court ruled in favour of Vodafone, the UPA government introduced a retrospective amendment to supersede the ruling. The tax demand is now over Rs 20,000 crore, adding penalty and interest.
The tax department this year additionally issued a notice to Hutchison Telecommunications International (HTIL), asking it to pay taxes of around Rs 32,000 crore, on capital gains.
Vodafone Initiated Second Arbitration Proceedings After Five Years
Vodafone International Holdings BV initiated the first arbitration proceedings in the case under the  India-Netherlands Bilateral Investment Protection Agreement.
Five years later, two more Vodafone entities —Vodafone Consolidated Holdings and Vodafone Group Plc— initiated a second arbitration proceeding against the Indian government.
This was initiated under the India-UK Bilateral Investment Protection Agreement.
Indian Government Objects To Second Arbitration Panel
According to the Indian government starting the second arbitration proceeding was an abuse of the process of international arbitration since it involved the same economic entity and the same action.
The government has insisted that it was exercising its “sovereign functions,” adding that only Indian constitutional courts should handle the issue. Vodafone however claims that Indian courts do not have the jurisdiction to deal with the issue.
The high court initially restrained Vodafone from taking further steps after raising a dispute notice, but later changed its mind stating that the parties were free to take part in the proceedings involving the appointment of a presiding arbitrator.
