Vodafone v. India

Case summary

At a glance

Parties: Union of India (plaintiff) v. Vodafone Group Plc and Vodafone Consolidated Holdings Ltd (defendants)
Case no.: CS(OS) 383/2017, High Court of Delhi
Court: High Court of Delhi at New Delhi (Manmohan J, sitting alone)
Underlying arbitration: UNCITRAL (1976 Rules) arbitration under the India–UK BIPA, begun by notice of arbitration of 24 January 2017; a parallel arbitration under the India–Netherlands BIPA brought by Vodafone International Holdings B.V.
Treaty: India–United Kingdom BIPA; India–Netherlands BIPA
Sector: Telecommunications; taxation
Outcome: On 22 August 2017 the Court granted India an ex parte anti-arbitration injunction. On 7 May 2018 it dismissed India's suit, vacated the injunction and left the abuse-of-process objection to the India–UK BIPA tribunal.
Amount: Tax demand of Rs. 12,000 crores (quashed by the Supreme Court on 20 January 2012). Transaction value about $11.1 billion. No order as to costs.

The dispute

Vodafone International Holdings B.V. (VIHBV), a Dutch subsidiary of the Vodafone Group, bought a stake in Hutchison Essar Limited for about $11.1 billion in 2007. India's tax authorities then demanded capital gains tax from VIHBV. The Supreme Court of India quashed the demand, but the Finance Act 2012 retrospectively amended the Income Tax Act and imposed the liability again. VIHBV began arbitration under the India–Netherlands BIPA. Vodafone Group Plc and Vodafone Consolidated Holdings Ltd later began a second arbitration under the India–UK BIPA over the same tax measures. India sued in the Delhi High Court for a declaration and an anti-arbitration injunction. It argued that the second claim by entities in the same corporate chain was an abuse of process. The Vodafone defendants argued that Indian courts have no jurisdiction over treaty disputes, that the arbitral tribunal must decide its own jurisdiction (kompetenz-kompetenz), and that India had suppressed material facts.

Key holdings

The 22 August 2017 interim order found, prima facie, that the two claims duplicated parties and issues and that the Vodafone entities were a single economic entity. It held that two arbitrations would be an abuse of process, and it restrained the defendants from pursuing the India–UK BIPA arbitration. Order of 22 August 2017, pp. 6–10
The Court has personal jurisdiction over the defendants and jurisdiction over the subject matter. The defendants purposefully availed themselves of Indian jurisdiction by investing and doing business in India, and they form a single economic entity with VIHBV. Judgment of 7 May 2018, ¶¶ 72–75
An agreement to arbitrate between an investor and a host State under a treaty is not itself a treaty; it is sui generis and contractual. Nothing bars Indian courts from dealing with BIPA arbitrations. The Arbitration and Conciliation Act 1996 and the New York Convention do not apply to such arbitrations, so the McDonald's ruling (no inherent power to enjoin arbitrations) does not apply. ¶¶ 83, 88–91, 103, 117
Indian courts keep an inherent power to restrain treaty arbitrations that are oppressive, vexatious, inequitable or an abuse of process. They should use it only in compelling circumstances, where the court has been approached in good faith and no other effective remedy exists. ¶¶ 104, 114, 119
Multiple claims by entities in the same vertical corporate chain over the same measure are not an abuse in themselves. Because India argued that the Netherlands tribunal lacked jurisdiction, the parent company's resort to another treaty was not an abuse per se. The defendants' offer to consolidate the two proceedings answers the risk of double recovery and conflicting awards, and the defendants are held bound by that offer. ¶¶ 120–128
India did not disclose its letters of 7 and 11 August 2017 to the ICJ President. Disclosure would have shown there was no urgency for an interim order. The Court gave India the benefit of the doubt and made no finding of wilful suppression. ¶¶ 129–132
Applying kompetenz-kompetenz with full rigour, the Court left the abuse-of-process objection to the now-constituted India–UK BIPA tribunal. India, having first raised the issue before the Netherlands tribunal, could not seek the same relief in court. The suit was dismissed, the injunction vacated, and no order made as to costs. ¶¶ 133–140, 149–150