Firms have claimed protection of investments, post 2G licence cancellation

Foreign telecom investors cannot claim damages under the bilateral investment protection treaties because the decision to cancel 2G licences was made by the Supreme Court and not the Government, according to the Attorney-General of India Goolam E. Vahanvati.

“The claim of damages from Government is based on a complete misunderstanding of the constitutional position prevailing in this country. Under the Constitution, there is separation of powers between the legislature, the executive and the judiciary. The alleged loss which emanates out of orders passed by court does not constitute a cause of action against the Government,” the AG said in his opinion note.

Opinion sought

The Department of Telecom had sought AG’s opinion after several foreign players, including Telenor, Sistema, Axiata and Vodafone issued notice to the Government claiming protection of their investments under the various Bilateral Investment Promotion and Protection Agreements (BIPAs)

These operators’ telecom business has been severely impacted after the Supreme Court cancelled all licences issued on or after January 10, 2008. In Vodafone’s case, the issue is related to the multi-billion dollar tax claimed by the Finance Ministry.

In the case related to the 2G licences, the AG has said that when the Government undertakes to encourage and strengthen favourable conditions for investments, this can only apply to what the Government can itself do. This is in line with the view of the DoT which has been saying that there is no violation of the bilateral treaties.

“This issue depends on whether the foreign investors did a proper due diligence before investing in the domestic companies. This will be a matter of evidence. However, the fact that the promoters (of domestic companies) are being prosecuted under criminal law is certainly a relevant factor with regard to the maintainability of the claim for damages by foreign investors,” the AG’s opinion note stated.

Vodafone case

On the Vodafone tax case, Goolam Vahanvati said the tax may be collected and recovered and appropriated in accordance with the Income Tax Act not withstanding any judgment decree or order of any court. The Attorney General has said that notice can also be sent to Hutch immediately to initiate proceedings to recover the taxes due.

(This article was published on August 13, 2012)
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