India Legal News: Accusing the government of ‘denial of justice’, and threatening to take the Rs.11,000 Crore tax matter to international court of arbitration, Vodafone has today finally served the Indian government with a notice of dispute (“Notice”). The notice pertained proposals in the Indian Finance Bill 2012. The said bill violates the international legal protections granted to Vodafone and other global players having investment interests in India. The HC in its verdict in September 2010 ordered Vodafone to to pay a tax of Rs. 12,000 cr on its purchase, in 2007, of majority shares in Hutchison Essar. Read the story here.
According to a Press Note Issued by group’s Dutch subsidiary Vodafone International Holdings BV (“VIHBV”), said that it is the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty (“BIT”) between India and the Netherlands.
Vodafone bought a 66.98% stake worth $1.2 billon (about Rs 52,300 crore today) in May 2007 and struck a deal with Cayman Island based Hutchison Telecom. The TT reported that Vodafone closed the deal on May 8, 2007 for about $11.08 billion. That was a day after transaction got its approval by the Foreign Investment Promotion Board (FIPB), subject to compliance with applicable laws and regulations in India.
The retrospective tax legislation proposed by the government (Central) which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences, the official press statement for Vodafone read. The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007.
Under the BIT, the Indian government is obliged, amongst other things, to:
• Accord fair and equitable treatment to investors
• Provide full protection and security
• Not breach the legitimate expectations of investors in making investments
• Not deny justice or breach previously provided assurances
• Not take steps to indirectly expropriate the investment
The press note also reiterated Vodafone’s stand on ‘denial of justice.’ It read, "Vodaphone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors."
The Indian government’s retrospective tax proposals have also raised significant and widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 250,000 companies across the US, Europe and Asia.
Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter. The company has threatened to take harsh steps to protect shareholders’ interests, including commencing investment treaty arbitration proceedings under the bilateral investor treaty against the Indian government.
With over 398 million plus customers Vodafone currently has equity interests in over 30 countries across five continents and more than 40 partner networks worldwide.
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