$2-bn tax dispute: SC allows Vodafone to hire chairman for 2nd arbitration

The Supreme Court on Thursday allowed the government and Vodafone to appoint a chairman for the second arbitration initiated by the UK-based telecom major in connection with the $2 billion (approximately Rs 11,000-crore) tax dispute. The apex court, however, clarified that the proceedings shall wait till the final decision of the Delhi High Court on the matter by January 10.

The order of the Supreme Court came on an appeal by the Centre challenging the High Court order that asked it to participate in the second arbitration. The Vodafone Group had in 2014 initiated arbitration proceedings under the India-Netherlands Bilateral Investment Protection Agreement (BIPA) regarding the tax dispute and the proceedings in it are still going on.

The company initiated a second arbitration earlier this year under the India-United Kingdom BIPA regarding the tax demand.  Arguing before a bench presided over by Justice A K Sikri, additional solicitor general Maninder Singh submitted that the cause of action arose from a single economic activity.

Allowing another arbitration would be abuse of the legal process, counsel said. He said the company waited for five years to raise the new demand.

Mukul Rohatgi, counsel for the company, countered the government's arguments and asserted that the high court order did not decide any issue and merely set the hearing for January. 

 He narrated the history of the case and alleged that the government had suppressed certain vital facts. The counsel further submitted that Indian courts have no jurisdiction in this matter.

The court observed that the same chairman can deal with both the arbitrations and waiting for the high court order till next month will not affect the interest of the parties. The court added that nobody is going to work during the year-end either.

The government had initially slapped a tax demand of Rs 7,990 crore on Vodafone for failing to deduct tax on capital gains made over its $11-billion acquisition of 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007. While the basic demand was Rs 7,990 crore, the total outstanding, including interest and penalty, is estimated to have risen to Rs 20,000 crore. 

The Supreme Court had ruled in Vodafone's favour in 2012, saying the company was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.

The government, however, amended the tax laws with retrospective effect to undo the Supreme Court judgement and claim taxes.