Sunday, April 22, 2012

A bit too much of BIT? Vodafone's turn to seek investment arbitration with India

Vodafone International Holdings, BV ("VIH"), the Dutch subsidiary of Vodafone, UK has served the Indian government with a notice of arbitration (called a Notice of Dispute) under the India - Netherlands Bilateral Investment Treaty ("BIT").

This is in response to proposals in the Indian Finance Bill 2012, which will apply certain taxation provisions with retrospective effect and overturn the Supreme Court's decision that was in favour of Vodafone.

Vodafone 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.

India’s Finance Secretary RS Gujral has stated that there is no provision for tax arbitration under the Netherlands India BIT.  From reading the text of the BIT, this inference cannot be clearly drawn. A taxation exception is only clearly mentioned with respect to National Treatment and Most Favoured Nation clauses, in Article 4 of the BIT. 

Another argument of the Indian government is that the BIT is inapplicable since the contract was signed in the Cayman Islands. This is clearly not a ground for inapplicability of a Bilateral Investment Treaty. If the dispute is regarding investment by an investor belonging to one State in the other State, then the clauses of the BIT are applicable. 

A more fundamental question at this stage, however, is whether VIH can, at all, send the notice of arbitration to India, at a stage when no legislation has been passed violating its rights under the BIT. It is indeed questionable whether VIH can send a notice of arbitration in light of the Finance Bill, which is yet to be enacted into binding law.

More reports on this dispute can be found on ILcurryhere, here  and here.

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