By K. B. Bhujle, Advocate
UOI vs. Vodafone Group PLC UK; [2017] 84
taxmann.com 224 (Delhi):
Hutchinson Telecommunications International
Limited (HTIL) earned capital gains on the sale of stakes to Vodafone
International Holdings B.V. (VIHBV) in an Indian company by the name of
Hutchinson Essar Limited (HEL) for a certain consideration. The acquisition of
stake in HEL by VIHBV was held liable for tax deduction at source u/s. 195 and
since VIHBV failed to honour its tax liability, a demand u/s. 201(1)(1A)/220(2)
for non-deduction of tax was raised on VIHBV. However, the Apex Court quashed
the said demand. Subsequently, a retrospective amendment to section 9(1) and
section 195 read with section 119 of the Finance Act, 2012 re-fastened the
liability on VIHBV.
It was stated in the plaint that aggrieved
by the imposition of tax, VIHBV, the subsidiary of defendants invoked the
arbitration clause provided under the Bilateral Investment Promotion and
Protection Agreement (BIPA) between the Republic of India and the Kingdom of
Netherlands for the promotion and protection of investments through a notice of
dispute and subsequent notice of arbitration. While the said arbitration
proceedings were pending, the defendants served a notice of dispute and notice
of arbitration upon the plaintiff for resolution of an alleged dispute under
the India-UK BIPA primarily in respect of the same income tax demand that VIHBV
had identified as protected investment under the India-Netherlands BIPA and
which was already under adjudication before the Arbitral Tribunal constituted
under BIPA. It was stated in the plaint that though the plaintiff had raised
preliminary objections to the jurisdiction of the arbitral tribunal constituted
under the India-Netherlands BIPA yet the tribunal ruled that the issue of
jurisdiction and merits should be heard together.
On an application made by the Union of India
challenging the jurisdiction of the Arbitral Tribunal, the Delhi High Court
held as under:
“i) This Court is of the prima
facie view that in the present case, there is duplication of the parties
and the issues. Prima facie, this Court is also of the view that India
constitutes the natural forum for the litigation of the defendants’ claim
against the plaintiff. In fact, the reliefs sought by the defendants under the
India-UK BIPA and by the VIHBV the subsidiary of defendants under the
India-Netherlands BIPA are virtually identical.
ii) This Court in Pankaj
Aluminium Industries (P.) Ltd. vs. Bharat Aluminium Company Ltd., 2011 IV AD
(Delhi) 212 after relying upon DHN Food Distributors Ltd. vs. London
Borough of Tower Hamlets [1976] 3 ALL ER 462 at Page 467 has recognised the
doctrine of single economic entity. Consequently, the defendants as well as
their subsidiary VIHBV, prima facie, seem to be one single economic
entity.
iii) This Court is of the prima
facie opinion that as the claimants in the two arbitral proceedings form
part of the same corporate group being run, governed and managed by the same
set of shareholders, they cannot file two independent arbitral proceedings as
that amounts to abuse of process of law. This Court is further of the prima
facie view that there is a risk of parallel proceedings and inconsistent
decisions by two separate arbitral Tribunals in the present case. In the prima
facie opinion of this Court, it would be inequitable, unfair and unjust to
permit the defendants to prosecute the foreign arbitration.
iv) Consequently, defendant,
their servants, agents, attorneys, assigns are restrained from taking any
action in furtherance of the notice of dispute and the notice of arbitration
and from initiating arbitration proceedings under India-UK Bilateral Investment
Protection Agreement or continuing with it as regards the dispute mentioned by
the defendants.”
