New Delhi: In a setback for India, the Hague-based International Court of Justice has rejected its plea for replacing the presiding judge of the arbitration panel looking into the Rs 22,100-crore retrospective tax case of Vodafone Group of UK. India had sought removal of Sir Franklin Berman as the presiding arbitrator of three-member panel as he was a British national and faced conflict of interest as Vodafone is also a UK company.
The ICJ, which had originally named Berman as the neutral and presiding judge of the three-member arbitration panel, rejected India’s plea, an official privy to the development said. Vodafone had initiated two separate arbitrations under the India-Netherlands Bilateral Investment Treaty and the India-UK Bilateral Investment Treaty against the tax notice linked to a legislation that gave the I-T Department powers to raise retrospective demand.
While appointment of arbitrators in the dispute raised under the India-UK treaty has not yet taken off, the two sides had named one arbitrator each under the Dutch treaty. But when the arbitrators appointed by Vodafone and the Indian government failed to reach a consensus on selection of a presiding judge of the three-member panel, the British telecom giant in March moved ICJ asking it to make the appointment.
Vodafone International Holdings BV had on April 17, 2014, served a notice of arbitration under the Dutch Bilateral Investment Treaty seeking resolution of the tax demand imposed by India through a tax law with retrospective effect to sidestep a Supreme Court judgement that went in the company’s favour. Conciliatory proceedings were initiated to resolve the dispute, but differences led to a breakdown following which the arbitration was initiated. The government had in June 2014 appointed former chief justice of India R C Lahoti as arbitrator while Vodafone named Canadian trial lawyer Yves Fortier as its choice.
The two had zeroed in on Abdulqawi Ahmed Yusuf of ICJ as the presiding arbitrator. However, Lahoti recused himself from the case in May 2015 and a month later, Yusuf too declined to be part of the panel. Thereafter, India in July last year named Costa Rica- based lawyer Rodrigo Oreamuno to arbitrate on its behalf. But Oreamuno and Fortier were not been able to decide on a presiding arbitrator, prompting Vodafone to move ICJ. ICJ appointed British barrister Sir Franklin Delow “Frank” Berman.
The government had raised a tax demand of Rs 7,990 crore on Vodafone for failing to deduct tax on capital gains made over its USD 11-billion acquisition of 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007. Vodafone in May had stated that it received a reminder of an outstanding tax demand of Rs 22,100 crore on February 4 this year. “The latest reminder threatens enforcement action if the demand is not satisfied,” it had said. The tax demand included interest and penalty. On June 15, 2015, Vodafone had served a arbitration notice on the Indian government under the United Kingdom-India Bilateral Investment Treaty (UK-BIT) in respect of retrospective tax claims under the Finance Act, 2012.