Vodafone's New Arbitration Request Blocked By Indian Court

Mary Swire, Tax-news.com, Hong Kong

28 August, 2017

India's Delhi High Court has issued an injunction restraining telecoms giant Vodafone Group Plc from proceeding with international arbitration in its USD2.2bn tax dispute with India.

The injunction was granted on August 22, 2017, in the case of Union of India vs. Vodafone Group Plc (UK) and another.

Vodafone has long been locked in a dispute with the Indian tax authorities over its 2007 acquisition of Hutchison Essar. It has consistently maintained that it is not liable for a USD2.2bn bill in back taxes and penalties relating to the deal. Although the Supreme Court ruled in Vodafone's favor in January, 2012, retrospective changes to the tax laws were introduced just months later, casting the ruling into doubt.

In April 2014, Vodafone's subsidiary, Vodafone International Holdings B.V, launched international arbitration proceedings under the bilateral investment treaty (BIT) between India and the Netherlands in an effort to bring its long-running dispute with the Indian tax authorities to a close. While the arbitration proceedings were still pending, Vodafone Group Plc (UK) launched arbitration proceedings under the India-UK BIT in respect of the same income tax demand in January 2017.

Subsequently, the Indian Government filed a suit in the Delhi High Court seeking injunction against Vodafone from continuing with international arbitration under the India-UK BIT.

Ruling in favor of the Government, the court said: "As the claimants in the two arbitral proceedings form part of the same corporate group [and are] being run, governed, and managed by the same set of shareholders, they cannot file two independent arbitral proceedings as that amounts to abuse of process of law… There is a risk of parallel proceedings and inconsistent decisions by two separate arbitral tribunals in the present case. In the prima facie opinion of this court, it would be inequitable, unfair, and unjust to permit the defendants to prosecute the foreign arbitration."

The court granted Vodafone time until October 26 to respond to the Government's suit.

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