India may contest award, but options limited, say experts

India may choose to pursue legal remedies in the Vodafone tax case, but the options may be limited, according to experts.

“It will not be easy for India to challenge this award, primarily, because it was pronounced unanimously by all arbitrators including the one nominated by India,” said Neerav Merchant, Partner, Majmudar & Partners.

The International Arbitration Tribunal at The Hague last week ruled in favour of British telecom major Vodafone Group Plc and said India must stop seeking dues from the company and, in fact, pay it over ₹40 crore as partial compensation for legal costs. The tax department should also refund about ₹45 crore that was collected as tax from Vodafone.

The Finance Ministry in a statement had said the government would take a decision on the further course of action including legal remedies before appropriate fora.

“If India wants to challenge the award, it can do so before the court of the seat of arbitration on the grounds of lack of substantive jurisdiction or serious procedural irregularity. But taking either of these grounds seems an adventurous task. Alternatively, India might be preparing to raise objections, including that of public policy, when Vodafone brings the award for enforcement,” Merchant further said.

Two options

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, noted that India has two options — either to accept and pay the arbitration award or to contest it before the Singapore High Court, which is the seat of arbitration under the India-Netherlands Bilateral Investment Treaty.

“Banking on public policy of India, the government would certainly contest the concurrence with the latest arbitral award on the retrospective tax in favour of Vodafone Plc. Retrospective tax, in this case, clearly qualifies to be public policy of the country since the house of law makers — that is, Parliament — had given its consent to the legislative amendments that introduced this tax, making it a law of the country,” he noted.

The case will also have significant repercussion on other similar cases such as the tax dispute with Cairn Energy.

Experts noted that while a foot-dragging approach has customarily been taken towards the enforcement of international arbitral awards on the argument of violation of public policy of the country, the government should this time consider accepting the decision and using it as an opportunity to attract investments.

“The BALCO versus Kaiser Aluminium case in September 2012, followed by significant amendments to the Arbitration and Conciliation Act, on December 31, 2015, was a sincere attempt by the legislature to restrict award-debtors from abusing the court process and or to obstruct the smooth enforcement of foreign awards in Indian courts. India is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and this fact should also extend to the Vodafone award, notwithstanding that the award is pronounced under Bilateral Treaty Investment,” Merchant noted.

“Defying such arbitral awards would unquestionably attract international pressure on the country’s international investment and foreign affairs strategy asking the authorities to re-evaluate their stand,” Jhunjhunwala said.