 "Rakesh Nangia")
Under the Bilateral Investment Protection and Promotion Agreement (BIPA) between India and the Netherlands, Vodafone issued arbitration notice to the Indian government in April 2014, under the UNCITRAL (The United Nations Commission on International Trade Law) rules. According to BIPA, the arbitral award shall be final and binding, and the parties are required to abide by and comply with the same. The case of Vodafone arbitration proceeding is still under way, and so is the tax dispute with the tax department.
Arbitration is an adjudicatory process where a decision is reached by a neutral third-party arbitrator(s). Once a dispute is referred to arbitration, it is not referred back to the court by the parties involved, unless the process fails. The arbitration award is binding on the two parties, and is enforceable as a decree delivered by a court. The arbitration process is akin to the judicial process without it being that formal and rigorous in legal detail.
One must note that the arbitration does not curtail national legal proceedings and domestic tax proceedings may continue simultaneously. The Supreme Court, in the case of Swiss Timing Limited v. Organising Committee, Commonwealth Games 2010, Delhi, has recently held that arbitration and criminal proceedings may continue simultaneously. However, under the convention between Italy and Lebanon, it is provided that an arbitration board can only be established if the parties concerned previously have waived, without any reservation or conditions, the pending legal proceedings before the domestic courts. It must be noted that the tax proceedings may be at different stages when the arbitral award is issued, and the enforcement of award shall be relatively simple where the tax proceeding is still open.
Considering the time such arbitration proceedings are likely to take, stalling the tax proceedings would not be fair to the revenue authorities. But recovery of tax demand by issuing a tax recovery notice where government has also initiated the arbitration process by appointing its own arbitrator comes as an unpleasant surprise. Providing a stay of demand in such cases would improve the business sentiment in India by instilling the confidence of investors in Indian judiciary.
The author is managing partner, Nangia & Co
