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.
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.