Hearing of India's appeal against Vodafone arbitration award scheduled in September

By - Nuttida Doungwirote*

Indian Government has filed an appeal against a ruling of an international arbitration tribunal rendered on September 25th, 2020. The ruling states that India has breached “the guarantee of fair and equitable treatment” and therefore is obligated to reimburse Vodafone Group Plc for Rs 22,100 crore (£4,327,294.50)

Background of the dispute

In 2007, Hutchison Telecommunications International Limited, a Hong Kong entity (HTIL) sold its stock in Hutchison Essar Limited, an Indian company (HEL) to Vodafone International Holdings B.V., a Netherlands entity (Vodafone)

Under Section 195 of the Income Tax Act 1961, any person paying to a non-resident or a foreign company is obligated to deduct taxes at source. Vodafone, being a payer to a Hong Kong entity, must therefore comply with Section 195 of the Income Tax Act 1961. Vodafone did not comply and was sued by the Indian revenue authorities.

However, the Supreme Court of India held that stocks were excluded from the definition of a capital asset and therefore Section 195 of the Income Tax Act 1961 did not cover the sale of stock in question. Vodafone was not obligated to deduct the taxes at source.

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After the judgement, Vodafone started an arbitration process against India under the India-Netherlands BIT. The Tribunal ruled in favor of Vodafone, ordering India to reimburse Rs 22,100 crore (£4,327,294.50) for the legal costs and arbitrator appointment borne by the Claimant. The reason given by the Tribunal is that by demanding retrospective payment, India had breached a fair and equitable treatment guaranteed by the India-Netherlands BIT.

Indian government has challenged this arbitral award before a Singapore Court as the arbitration was seated in Singapore. The hearing is scheduled in September 2021.

*Nuttida Doungwirote is a 4th year student pursuing LL.B. from Chulalongkorn University, Bangkok.