India: Vodafone Case: A Bit More Arbitration-Friendly

Last Updated: 15 May 2018
Article by Alipak Banerjee and Moazzam Khan

In turn, the Union government filed a civil suit before the Delhi High Court seeking an anti-arbitration injunction against Vodafone from initiating arbitration proceedings under the India-UK BIT, i.e. the second arbitration.

In a setback for the Union government, the Delhi High Court has dismissed the government's proceedings seeking anti-arbitration injunction against Vodafone, i.e. continuing with the proceedings under the India-UK bilateral investment treaty (BIT). To give reference to context, a BIT is a treaty between two sovereign states for protection and benefit of investors from one state which has invested in the other state. The first example of a BIT was the one entered into between Germany and Pakistan in 1959. India signed the first BIT with the UK in 1994. Since then, India has entered into several such treaties with other sovereign states.

The investors from such sovereign states are frequently considering suing the government of India for failing to protect their investments in India or breach of other treaty provisions. Recently, White Industries had sued India under the India-Australia BIT claiming, inter alia, denial of justice, which culminated in an award against the government of India, directing it to pay approximately $4 million to White Industries—interest and other costs not included.

In a similar vein, in April 2017, Vodafone invoked the India-Netherlands BIT and filed a claim against the government of India, challenging the infamous retrospective tax amendment which had led to a tax demand of Rs 11,000 crore plus interest against Vodafone on its 2007 acquisition of a 67% stake in Hutch-Essar in India. Importantly, the retrospective amendment was carried out by the Union government after the Supreme Court decided this issue in favour of Vodafone, i.e. quashed the tax demand in 2012. While the first investment treaty arbitration proceeding under the India-Netherlands BIT was pending, Vodafone initiated a fresh arbitration, invoking the India-UK BIT. It appears that the second arbitration was commenced due to a jurisdictional objection raised by the Union government in the first arbitration.

In turn, the Union government filed a civil suit before the Delhi High Court seeking an anti-arbitration injunction against Vodafone from initiating arbitration proceedings under the India-UK BIT, i.e. the second arbitration. The Union government contended that this is an abuse of process, insofar as Vodafone has maintained two identical claims under two different bilateral investment treaties against the same subject matter. The Delhi High Court, on August 22, 2017, passed an interim order in favour of the Union government, and held that multiple claims cannot be filed by Vodafone against the same measure of the host state—under different bilateral investment treaties. The ruling restrained Vodafone from taking any further action on the second arbitration filed under the India-UK BIT. However, on October 26, 2017, the Delhi High Court allowed the parties to participate in the appointment of the arbitral tribunal pending final disposal of the proceedings filed by the Union government.

This order was subsequently challenged by the Union government before the Supreme Court, which, in turn, allowed the parties to proceed as per the Delhi High Court's order dated October 26 and participate in the appointment of the arbitral tribunal. Notably, the Supreme Court did not express any observations on the merits of the contentions in view of the fact that the final arguments were due earlier this year. The Delhi High Court has disposed of the suit filed by the Union government and granted liberty to raise the issue of abuse of process before the arbitral tribunal constituted under the India-UK BIT.

The interim order issued in September last year—which had restrained Vodafone from continuing with the proceedings under the India-UK BIT—has been vacated. The Delhi High Court reasoned the judgment on the basis that: (1) it is not an absolute proposition of law that national courts are divested of their jurisdiction in an investment treaty arbitration; (2) investment treaty arbitration is fundamentally different from commercial disputes as the cause of action is premised on state guarantees and assurances; (3) it is unknown for courts to issue anti-arbitration injunction under their inherent power in a situation where neither the seat of arbitration or the curial law has been agreed upon; and (4) national courts will exercise great self-restraint and grant injunction only if there are very compelling circumstances, the court has been approached in good faith, and there is no alternative efficacious remedy available.

This is a well-reasoned judgment by the Delhi High Court and is a step forward in improving India's image as a pro-arbitration jurisdiction. When the Delhi High Court had restrained Vodafone last year from continuing with the second arbitration under the India-UK BIT, it was perceived that the Delhi High Court acted overtly harsh in a subject matter which was to be governed under the international investment arbitration. However, the subsequent order wherein the Delhi High Court allowed the parties to continue with the process and constitute the tribunal, and finally, the decision dismissing the civil suit, is praiseworthy.

Although the civil suit has been rejected, the Delhi High Court has opined that the jurisdiction of the national courts is not completely ousted in investment treaty arbitration. This is also in line with a recent decision of the High Court of England and Wales where a partial arbitral award on jurisdiction was set aside. As sovereign states crumble with claims from investors, the courts are increasingly finding a way to retain the jurisdiction, or supervisory control even in case of investment treaty arbitration which is fundamentally different from commercial arbitration.

There appears to be a tension between the legislature and the judiciary; while the judiciary has always supported the investor in this case, i.e. Vodafone, the government is vehement on their tax demand so much so that they had to retrospectively amend the tax law to make Vodafone accountable to pay a hefty sum of money.

The United Nations Conference on Trade and Development (UNCTAD) estimates that India has BIT protection with about 50 countries, and many have been terminated or are currently not in force. The model BIT narrows the scope of the protection available and has not been perceived well as sovereign states are reluctant to agree to renegotiate the existing treaty framework. Also, the model treaty proposed, and being negotiated with several sovereign states, is not a solution especially as outbound investments from India increase, as does the need to secure adequate protection for Indian investors who invest abroad.

One may recall that last year a petition was filed before the Madras High Court restraining Nissan from continuing with investment arbitration proceedings against the Union government. There are at least 13 cases pending against the Union government arising out of several bilateral investment treaties, and perhaps many more disgruntled investors will follow soon. Rather than advocating the model treaty, the Union government needs to look at these cases seriously, and form a committee, which would then advise on the strengths of each case and ultimately take a decision to settle them as soon as possible, or defend them with the best lawyers, as also suggested in a recent document allegedly authored by finance minister Arun Jaitley.

Originally published in the 10th May 2018 edition of Financial Express

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alipak Banerjee
Moazzam Khan
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions