Solicitor General Tushar Mehta recommends Indian government to challenge PCA award in Vodafone tax case

Solicitor General for India Tushar Mehta has submitted an opinion to the Government of India advising it to challenge the arbitral award recently passed by the Permanent Court of Arbitration (PCA) in the Vodafone tax case.

. The opinion rendered by SG Mehta reads,

"The question of law — the power of an arbitral tribunal to virtually and substantially declare a parliamentary legislation of a competent Parliament of a sovereign nation to be non est and unenforceable — itself is an issue which needs to be challenged. I therefore, opine that the Union of India must challenge the said award and must file all available proceedings to challenge the award and/or to protect the interest of Union of India.”

. Mehta has further advised that India approach a forum in Singapore to challenge the award, and not the Delhi High Court or the Supreme Court. The seat of the Vodafone arbitration being Singapore, any challenge to the award will have to be brought before the courts of Singapore. As Promod Nair and Shivani Singhal write, the courts of Singapore have not hesitated to set aside BIT awards in cases where an investment tribunal has exceeded its jurisdiction.

.Why India should challenge the Vodafone-India BIT award. As reported by TOI , Attorney General KK Venugopal had recused from giving his opinion to the Union Law Ministry, since he had advised Vodafone on the same dispute in 2012, before he was appointed as the country's top law officer.

. This has come to light after it was initially reported that Venugopal was not in favour of challenging the award. The Union Finance Ministry, however, later clarified that the report was factually incorrect.

. In September, the PCA ruled in favour of Vodafone with respect to the Indian government's retrospective tax claim of approximately USD 5.5 billion (approximately Rs. 40,000 crore) stemming from the company's acquisition of the Indian assets of Hutch back in 2007.

. While doing so, the Tribunal held that Vodafone is entitled to fair and equitable treatment under the Bilateral Investment Treaty (BIT) signed between India and The Netherlands.

It also held that the Indian government's insistence on the Rs. 40,000 crore claim, despite the Supreme Court's 2012 judgment, was in breach of the terms of the BIT.

. In 2012, the Supreme Court had held that the tax department had no jurisdiction to impose obligations on Vodafone for a transfer of shares of a foreign company between two non-residents.

Thereafter, Parliament retrospective amendments to the Income Tax Act, which in effect rendered the 2012 Supreme Court judgment ineffective. Thus, Vodafone's tax liability, as well as penalties and interest on the same, were upheld.

This prompted Vodafone to invoke the Netherlands-India BIT for wrongful actions of the Indian government.

Solicitor General Tushar Mehta recommends Indian government to challenge PCA award in Vodafone tax case

Bar & Bench

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