L’Affaire Vodafone & BIPA: Ministry’s Press Release

The Ministry of Commerce & Industry has issued a press release dated 14.05.2012 on issue of BIPA which makes interesting reading.

Vodafone’s invocation of the BIPA (“Bilateral Investment Promotion and Protection Agreement”) between India and the Netherlands to challenge the proposed retrospective amendments to nullify the verdict of the Supreme Court has met with hostile reaction from the Inter-Ministerial Group which has been set up to draft an appropriate reply to Vodafone’s notice. The group is headed by Finance Secretary R S Gujral and comprises secretaries of the department of economic affairs, the law ministry, the telecom ministry and the exter
nal affairs ministry.

Broadly, the Government’s defense is that the Netherlands BIPA does not apply as Vodafone (the assessee) is not a “resident” of Netherlands even if the investments were made “indirectly” through that Country. Reliance is also placed on Article 4(4) of BIPA which excludes taxation disputes in the following words:

The provisions of paragraphs 1 and 2 in respect of the grant of national treatment and most favoured nation treatment shall also not apply in respect of any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation or arrangements consequent to such legislation relating wholly or mainly to taxation.

Press Release dated 14.5.2012 by the Ministry of Commerce & Industry

Till date, India has signed Bilateral Investment Promotion and Protection Agreements (BIPAs) with 82 countries, starting with the United Kingdom in 1994. Of these 82 countries, BIPAs with 72 countries have been enforced. The list of 82 countries and texts of 72 enforced BIPAs are available on the Ministry of Finance website http://finmin.nic.in. Besides, India has signed 17 Free Trade Agreements (FTAs)/ Comprehensive Economic Partnership Agreement (CEPA)/ Comprehensive Economic Cooperation Agreement (CECA)/ Preferential Trade Agreements (PTAs). The details of these Agreements are available on Department of Commerce’s website http://commerce.gov.in.

BIPAs are intended to provide fair and equitable treatment to the investors of either country in the territory of the other country. BIPAs include provisions for settlement of disputes between an Investor and a Contracting Party, in which any dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former under the Agreement shall, as far as possible, be settled amicably through negotiations between the parties to the dispute. In case a dispute is not settled amicably, a provision exists for arbitration. Provisions for resolution of disputes between the Contracting Parties are also included in BIPAs. CECAs/CEPAs have provisions for settlement of dispute between a Party and an Investor of the other party to the Agreement.

The Government has received notices under the provisions of the applicable Bilateral Investment Promotion and Protection Agreements (BIPAs)/ Comprehensive Economic Cooperation Agreement (CECA) to resolve alleged investor disputes, namely from the following foreign investors:

(i) M/s Sistema Joint Stock Financial Corporation, Russia under BIPA between India and Russia;

(ii) M/s Telenor Asia Pte Ltd., Singapore under Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore;

(ii) M/s Capital Global Limited and M/s Kaif Investment Limited, both Mauritius based investors in M/s Loop Telecom Limited under BIPA with Mauritius;
dated 14.5.2012
(iv) M/s Vodafone International Holdings BV, the Netherlands, under BIPA with the Netherlands,

(v) M/s Devas Employees Mauritius Pvt. Ltd., Mauritius under BIPA with Mauritius; and

(vi) M/s The Children’s Investment Fund Management, United Kingdom under BIPA with the UK and Cyprus;

The said notices are being handled in terms of the provisions of the applicable agreements, keeping in view the details of the case.

The Award dated 30th September 2011 of the International Tribunal in the case between M/s White Industries Ltd. Australia (WIAL) and Government of India (Ministry of Coal), under BIPA between India and Australia, has gone against the Government of India. During the last three years, India has signed one Trade Agreement viz. India – ASEAN Trade in Goods Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) on 13.08.2009.

This information was given by Shri Jyotiradiya M. Scindia, Minister of State for Commerce & Industry in written reply to a question in Lok Sabha today.

Press Release dated 17.4.2012 by Vodafone on service of notice against Indian Government under International Bilateral Investment Treaty

Vodafone has today served the Indian government with a Notice of Dispute (“Notice”) regarding proposals in the Indian Finance Bill 2012 that violate the international legal protections granted to Vodafone and other international investors in India.

The Notice, served by the group’s Dutch subsidiary Vodafone International Holdings BV (“VIHBV”), is the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty (“BIT”) between India and the Netherlands. VIHBV is a company constituted under the laws of the Netherlands and therefore an investor as defined under Article 1(d) of the Treaty.

The dispute arises from the retrospective tax legislation proposed by the Indian government which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences for Vodafone. The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007.

Under the BIT, the Indian government is obliged, amongst other things, to:
• accord fair and equitable treatment to investors;
• provide full protection and security;
• not breach the legitimate expectations of investors in making investments;
• not deny justice or breach previously provided assurances; and
• not take steps to indirectly expropriate the investment.

Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors.

The Indian government’s retrospective tax proposals have also raised significant and widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 250,000 companies across the US, Europe and Asia.

Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter. However, if the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders’ interests, including commencing investment treaty arbitration proceedings under the BIT against the Indian government.