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The Delhi High Court yesterday dismissed the Centre’s petition seeking injunction against Vodafone from initiating arbitration proceedings in UK under the India-UK Bilateral Investment Protection Agreement.
The Single Judge Bench of Justice Manmohan pronounced the judgment after hearing lengthy arguments from both the sides for several months. The judgment assumes great significance as there is limited authority on the jurisdiction and approach of National Courts on the nature of arbitrations under such treaties.
The acquisition of a stake in Hutch (Hutchinson Essar Limited) by Vodafone was held to be liable for a tax deduction, and since Vodafone failed to honor its tax liability, a demand for non-deduction of tax was raised on it. However, the Supreme Court had quashed the said demand.
Subsequently, a retrospective amendment to the Income Tax Act read re-fastened the liability on Vodafone.
Aggrieved by the imposition of the tax, Vodafone initially invoked the arbitration clause provided under the Bilateral Investment Promotion and Protection Agreement (BIPA) between India and the Netherlands.
While the said arbitration proceedings were pending, Vodafone served another notice of arbitration upon the government for resolution of an alleged dispute under the India-United Kingdom BIPA, primarily in respect of the same income tax demand.
The Indian government moved the Delhi High Court against the second arbitration, submitting that the two claims are based on the same cause of action and seek identical reliefs from two different tribunals constituted under two different investment treaties against the same host state. It was contended that the second arbitration is an abuse of the process of law.
The Centre through the then ASG Sanjay Jain had also submitted that Vodafone issued a notice of arbitration under the India United Kingdom BIPA only after realizing that its chances in the arbitration proceedings under the India-Netherlands BIPA were bleak.
Representing Vodafone Group PLC, Senior Advocate Harish Salve (briefed by Anuradha Dutt and Fereshte D. Sethna of DMD Advocates) contended that the National (Domestic) Courts of India inherently lacked the jurisdiction to entertain any dispute arising out of a treaty between two sovereign countries.
He further submitted that as per the international law and various conventions, even when the obligations under a treaty overlapped with domestic law, the action of the Courts themselves could be considered as a violation of the treaty.
Salve also stated that the Union of India had elected to seek relief from the India-Netherlands BIPA tribunal, but without awaiting its orders, and without seeking its leave, moved the present Court for the same relief on the same grounds.
The amicus curiae in the matter, Sumeet Kachwaha submitted that the reason for Vodafone commencing the arbitration proceedings under the India-United Kingdom BIPA was the jurisdictional objection raised by the Union of India in the arbitration proceedings under the India-Netherlands BIPA.
He further stated that Vodafone merely sought one route to arbitration and did not seek double recovery and therefore there was no abuse of process.
What the Court held
With regard to the question as to whether the Court had jurisdiction over the subject matter of the dispute, the Bench answered in the affirmative. Justice Manmohan examined several landmark cases and observed that,
“…the cause of action for the present suit partly arose within the jurisdiction of this Court and Defendants had purposefully availed of Indian jurisdiction, inter alia, by making an investment in India, holding economic interests in India and carrying on business in India and from a reasonable and holistic perspective, Defendants have to be considered as working for gain within the jurisdiction of this Court.”
Regarding the jurisdiction to deal with BIT Arbitrations, the Court observed that there is no statutory bar or case law relating to treaty obligation which creates an ouster of jurisdiction or threshold bar for Indian courts in relation to a bilateral investment treaty arbitration. It was held that there is no explicit or implicit ouster of jurisdiction of National Courts.
It was also observed that if the argument of lack of jurisdiction is accepted, then the Court would be powerless to execute a BIPA award against the State, even if the foreign investor were to approach the Court for its enforcement and execution.
The Court also held that the National Courts in India do have and retain the jurisdiction to restrain international treaty arbitrations which are oppressive, vexatious, inequitable or constitute an abuse of the legal process.
However, the Court observed that the entire scheme of the BIPA is contractual and it is clear that Union of India consented to the international investment arbitration under principles of international law as the method of dispute resolution under the BIPA.
It was also observed that consolidated proceedings (India-Netherlands and India-UK) would ensure that no relief is granted twice over and there is no conflict of awards.
While dismissing the petition by the Centre, the Court stated that the cause of action for filing the suit was that the arbitral tribunal under the India-United Kingdom BIPA may be constituted without India being represented.
However, the Union of India has now appointed an arbitrator and after the orders of the Supreme Court of India, the Chairman stands appointed by the two party-appointed arbitrators. The tribunal is complete and the challenge to the invocation has, therefore, run its course.
The Court noted that the Centre still has the liberty to raise the issue of abuse of process before India-United Kingdom BIPA and vacated the ex parte interim order against Vodafone.