The Delhi High Court today restrained Vodafone Group’s arbitration proceeding against India, under a treaty with the UK, in connection with a ₹11,000-crore tax demand raised against the company in relation to its $11 billion deal acquiring stake of Hutchinson Telecom.

Justice Manmohan restrained Vodafone or its subsidiaries from going ahead with arbitration under the India-UK Bilateral Investment Protection Agreement (BIPA) as the telecom major had initiated similar proceedings on the same issue under the the India-Netherlands BIPA.

“This court is of the prima facie view that in the present case, there is duplication of the parties and the issues. In fact, the relief sought by the defendants under the India-UK BIPA and by the Vodafone International Holdings BV (VIHBV), the subsidiary of defendants (Vodafone group), under the India-Netherlands BIPA are virtually identical.

“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,” the court said in an interim order.

Notice to Vodafone

It also issued notice to Vodafone and sought its response by October 26 on the Central government’s plea seeking a permanent injunction against the telecom major from proceeding with the arbitration under the India-UK BIPA.

In its interim order, the court was also of the prima facie view that “India constitutes the natural forum for the litigation of the defendants’ (Vodafone and its subsidiaries) claim against the plaintiff (Centre)”.

The Court noted that government was of the view that the $11-billion acquisition of stake of Hutchinson Telecommunications International Ltd (HTIL) in Hutchinson Essar Ltd (HEL) by Vodafone was liable for tax deduction at source (TDS) under the Income Tax Act.

As Vodafone had not deducted the tax at source, the government had raised the demand of ₹11,000 crore which was subsequently quashed by the Supreme Court on January 20, 2012, the High Court said.

Thereafter, the government made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone, the High Court order noted.

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