Vodafone case: SC to hear Centre's plea challenging Delhi HC order today

Delhi High Court had given a nod to two entities of Vodafone to go ahead and participate in the process for the appointment of presiding arbitrator

The Supreme Court on Wednesday deferred for Thursday the hearing of the Central government's plea challenging Delhi High Court order allowing Vodafone Group to go ahead and participate in the process for appointing the presiding arbitrator in its international arbitration against India tax authorities demand of over Rs 11,000 crore tax.

The tax demand of Rs 11, 218 crore is rooted in Vodafone's $11 billion acquisition of 67 per cent stakes of in Hutchison-Essar in 2007. With addition of interest and penalties, the tax demand has now surged to Rs 20,000 crore.

Two entities of Vodafone have initiated the arbitration under the India-United Kingdom Bilateral Investment Protection Agreement (BIPA) which is being resisted by India on the grounds that the arbitration proceedings initiated by Vodafone International Holdings BV (VIHBV) in 2014 under the India-Netherlands BIPA were already underway.

VIHBV is a subsidiary of the Vodafone group.

Vodafone's two entities - Vodafone Group Plc and Vodafone Consolidated Holdings' Ltd - have moved for the initiation of another arbitration under the India-UK BIPA in January this year.

Challenging the October 26 order of Delhi High Court giving nod to two entities of Vodafone to go ahead and participate in the process for the appointment of presiding arbitrator, the Centre has told the top court that "claimant in the two arbitral proceedings is the same corporate group, the cause of action is identical and the reliefs sought in the two arbitration proceedings are also the same".

The government has contended that though the issue for second arbitration is sought to be projected as a disputed under the BIPA but in effect it is a challenge to the validity of 2012 amendment under the Finance Act by which the tax claim against Vodafone was given a retrospective basis.

"The question as to whether the amendment in Finance Act is in conformity with law or unconstitutional cannot be decided by an arbitral tribunals constituted under any BIPA ... The law made by the Parliament of any country can be tested in judicial review of that country alone," the government has contended.

The government had brought a retrospective amendment to the Income Tax Act, 1961 after the top court by its January 20, 2012 verdict had quashed the income tax order asking the telecom giant to pay Rs 11,218 crore tax, ruling that that Indian tax officials did not have jurisdiction over a deal between two global companies even if assets involved in that deal were located in India.

Ruling for the company, it had set aside an earlier Bombay High Court order that had upheld the tax demand on account of the said acquisition.

Former President Pranab Mukherjee, who was the Finance Minister when the amendment to Income Tax Act effective retrospectively was brought in, had then said they had "come to the conclusion that we will not be able to tax Indian assets purchased outside the country".