Supreme Court allows Vodafone to initiate second arbitration process

Vodafone, whose local unit is India's second-largest mobile carrier, has repeatedly said it was not liable to pay any tax over the Hutchison acquisition.

The Supreme Court on Thursday allowed Britain's Vodafone to initiate a second arbitration process under an India-UK investment agreement over a long-running Rs 11,000 crore tax dispute with the union government.

A bench of Justices AK Sikriand Ashok Bhushan, however, said the second tribunal will not start proceedings in the matter till the Delhi High Court decides on the issue by January 10.

The apex court order came on the Centre's plea challenging the October 26 high court order by which allowed the Vodafone Group representatives to go ahead with the process of appointing a presiding arbitrator in its second arbitration.

However, in an interim order the high court restrained the group or its subsidiaries from going ahead with arbitration under the India-UK Bilateral Investment Protection Agreement (BIPA) as the company had initiated similar proceedings on the same issue under the India-Netherlands BIPA.

Vodafone had in 2014 initiated arbitration proceedings under the India-Netherlands Bilateral Investment Protection Agreement (BIPA) in connection with the tax demand raised against it and the proceedings in it is still going on.

In the second arbitration started this year, Vodafone had initiated the process under the India-United Kingdom BIPA in connection with the tax demand.

The union government had claimed that laws passed by Parliament do not fall within the ambit of any international treaty. It had also claimed that arbitration proceedings under the two BIPAs was an abuse of the process of law.

Vodafone, the world's second largest mobile operator, entered India in 2007 by acquiring Hutchison Whampoa's wireless assets. It is contesting a tax bill of more than Rs 11,000 crore relating to that acquisition.

Vodafone, whose local unit is India's second-largest mobile carrier, has repeatedly said it was not liable to pay any tax over the Hutchison acquisition.

Vodafone India is in the process of merging its operations with smaller rival Idea Cellular to potentially create the biggest Indian telecom carrier. The UK company has been making a loss on its Indian operations due to the fierce price war unleashed by new entrant Reliance Jio and sees the merger with Idea Cellular as the only way to survive in the local market.

Earlier this year, Indian tax authorities issued a penalty order to a unit of CK Hutchison Holdings Ltd for not paying taxes on the 2007 transaction.

The original tax demand has ballooned to over Rs 22,000 crore as Income Tax Department has slapped penalties and interest on the delayed payments.