In a well-reasoned judgement, the Delhi High Court, has whilst dismissing the Government of India's (GOI) application for an anti-arbitration injunction against Vodafone PLC, provided welcome judicial guidance on the approach of Indian courts to Bilateral Investment Protection Agreements.
The present controversy arose out of the long running feud between Vodafone and GOI on retrospective taxation of capital gains on a transfer of shares when Hutchinson's Indian telecom business was sold to Vodafone.
Vodafone initially invoked arbitration against GOI under the Indo-Netherlands BIPA. Upon GOI raising a jurisdictional objection to this arbitration, Vodafone subsequently commenced arbitration under the Indo-UK BIPA.
GOI being aggrieved by the new arbitration under the Indo-UK BIPA, filed a declaratory suit in the Delhi High Court and contended that Vodafone's conduct was an abuse of process, vexatious and oppressive, warranting the grant of an anti-arbitration injunction.
Whilst declining to grant GOI injunctive relief, the court decided several important questions of law relating to the interpretation and interaction of domestic courts and municipal law with international treaty arbitration. The judgement in particular, provides good guidance to the approach to be adopted by Indian courts when confronted with challenges to BITS arbitration.
The judge after analysing the mechanics of BITS arbitration, found that such arbitrations were sui generis and outside the purview of the Indian Arbitration & Conciliation Act, 1996. The Court nevertheless ruled that municipal courts in India did under their inherent powers have the jurisdiction to restrain an investor from commencing or continuing investor treaty arbitration, if its conduct was vexatious or oppressive.
It however cautioned that domestic courts should as a matter of self-restraint, not exercise such jurisdiction where the investment treaty had its own dispute resolution mechanism, except in very limited and compelling circumstances. The Delhi High Court accordingly held that any challenge to the invocation of arbitration due to abuse of process would lie within the ken of the arbitral tribunal. This is in accordance with the principle of Kompetenz Kompetenz – which is recognised and accepted even under Indian domestic law.
More significantly, the Court ruled that investment protection treaties were to be interpreted in accordance with international law and not municipal law. And that the host state could not invoke municipal law to justify non-performance of its treaty obligations.
This recent judgement is a continuation of the pro-arbitration trend adopted by the Indian courts. The decision burnishes the Indian judiciary's credentials of supporting international treaty arbitration. And helps allay investor concerns on the credibility and reputation of the Indian judiciary as an independent and impartial arbiter even in cases where the host state is a litigant before it.
Posted on 11 June 2018 by Zarir Bharucha
The above is a generic analysis and should not be regarded as a substitute for specific advice based on the facts of a client's objectives and specific commercial agreements reached. Please do reach out to us at firstname.lastname@example.org for any queries.