Delhi HC allows Centre and Vodafone to appoint Chairman for UK tax arbitration

The Delhi High Court has observed that the central government and Vodafone Group UK are free to participate in the proceedings for appointment of a Presiding Arbitrator for the UK panel set up to arbitrate the tax dispute between the two parties..Brief Background.The acquisition of stake in Hutch (Hutchinson Essar Limited) by Vodafone was held to be liable for tax deduction, and since Vodafone failed to honour its tax liability, a demand for non-deduction of tax was raised on it. However, the Supreme Court had quashed the said demand..Subsequently, a retrospective amendment to the Income Tax Act read re-fastened the liability on Vodafone..Aggrieved by the imposition of tax, Vodafone initially invoked the arbitration clause provided under the Bilateral Investment Promotion and Protection Agreement (BIPA) between India and the Netherlands..While the said arbitration proceedings were pending, Vodafone served another notice of arbitration upon the government for resolution of an alleged dispute under the India-United Kingdom BIPA, primarily in respect of the same income tax demand..The Indian government subsequently moved the Delhi High Court against the second arbitration, submitting that the two claims are based on the same cause of action and seek identical reliefs from two different tribunals constituted under two different investment treaties against the same host state. It was contended that the second arbitration is an abuse of the process of law..The High Court, in its order dated August 22 this year, stated that it is of the prima facie view that there is a risk of parallel proceedings and inconsistent decisions by two separate arbitral tribunals. It therefore restrained Vodafone from initiating arbitration proceedings under the India-UK Bilateral Investment Protection Agreement..Latest Development.Appearing for Vodafone, Senior Counsel Harish Salve submitted that the claims of the Centre that the invocation of the second arbitration (the UK Arbitration) is an abuse of process was put before the Dutch Tribunal (first arbitration tribunal), which has directed that the issue be raised before the UK Tribunal, when constituted..Salve contended that the first matter that the UK Tribunal may have to consider would relate to India seeking dismissal or permanent stay of the arbitration, on the ground of abuse of process. The option of allowing the challenge and closing the arbitration proceeding would be open to the Tribunal..He further submitted that,.“At present, the parties’ nominees (for the UK Tribunal) stand appointed, and the nominee arbitrators are now due to appoint a Chairman.”.It was also stated that in order to achieve procedural efficiency and simplify co-ordination, Vodafone is agreeable to the same arbitrators who constituted the Dutch Tribunal being appointed as the arbitrators of the UK Tribunal. It was also suggested that the Centre agree to Sir Franklin Berman chairing the Tribunal for the UK Treaty arbitration..Additional Solicitor General Sanjay Jain sought time to obtain instructions from the government regarding submissions made by Vodafone, and the same was allowed by the Single Judge Bench of Justice Manmohan..The matter will be next heard on November 17, 2017..Read Order dated October 26:.Read August 22 Judgment:.Click here to download the Bar & Bench Android App