On May 7, Delhi High Court in the case of Union of India v. Vodafone Group PLC United Kingdom & anr clarified various important issues relating to Bilateral Investment Protection Agreements (hereinafter, BIPA) including inter alia jurisdiction of National Courts and the nature of arbitration under the said Agreements. Facts The Supreme Court vide its judgment dated 20th May 2012, discharged Vodafone from tax liability imposed by the government of India, with respect to a merger entered into by the company with Hutchinson. Pursuant to the judgment, the Parliament amended the Finance Act, 1961, so as to allow retrospective application of the tax liability. Consequently, Vodafone, being a company incorporated in Netherlands, issued a notice of dispute to Union of India under the India-Netherlands BIPA. The plaintiff, in its reply, argued that the said BIPA did not cover disputes partly or wholly related to taxation and therefore, such notice is invalid. However, Vodafone for commencement of arbitration proceedings served a notice of Arbitration to the plaintiff under the India-Netherlands BIPA. On June 2015, Vodafone served a notice of dispute and a consequent notice of arbitration under the India-United Kingdom BIPA. On August 2017, the plaintiff filed the instant civil suit, claiming the following reliefs: That the notice of dispute and notice of arbitration under the India-United Kingdom BIPA be declared as null, void and abuse of process. That a decree of permanent injunction be passed against defendants restraining the defendants, from taking any action in furtherance of the notice of dispute and notice of arbitration.
ISSUES I. Whether this Court has jurisdiction over the defendant and over the subject matter of the dispute? II. Whether there is a threshold bar or inherent lack of jurisdiction with this Court to deal with BIT Arbitrations? III. Whether the BIT Arbitrations and suits relating to BIT Arbitrations are governed by private international law or any other system of law including domestic law? IV. Whether the Courts in India can restrain Bilateral Investment Treaty Arbitrations, which are oppressive, vexatious, inequitable or which abuse the legal process? V. Whether the plaintiff under the doctrine of kompetenz–kompetenz, has to raise the plea of multiple claims constituting an act of oppression before the same arbitral tribunal? Issue I Section 20 Civil Procedure Code, 1908 is the residuary clause which deals with the ‘place of suing’. The qualifying conditions for the applicability of the section, includes that either of the parties must work for gain in India. The Court held that the investment defendants made into ‘the territory of India’ for growth of telecommunication network leads to the conclusion that the Defendant had direct economic interests in India, and accordingly worked for gain in India. Even if that is discounted, Vodafone PLC and Vodafone India (which is incorporated in India) must be considered as a single economic entity as Vodafone PLC holds majority shareholding in Vodafone India. Consequently, this Court has jurisdiction over the defendants in personam and over the subject matter of the dispute. Issue II and III As regards to the ouster of jurisdiction of National Courts under BIPA, the Court held that the jurisdiction of the Civil Court is not barred unless it is express or clear implied provision of law. Since the Parliament has not passed any law codifying BIPA provisions, it cannot reasonably follow that the National Courts have no jurisdiction over BIPA. Besides, the government of India’s position in not acceding to Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965, as it provides complete ouster of jurisdiction of national Courts, reinforces the above position. The Court then goes on to distinguish between inter-state arbitration and investor state arbitration. In the latter, the rights claimed by the investors are not provided to them by the UK but are pursuing the rights in their name and for themselves claims against the other State party. Further, a BIPA is not a treaty but falls in the sui generis category. This is because if such an agreement to arbitrate between an investor and a state is held to be a treaty, it would be equivalent to accord the status of ‘foreign state’ to the investor. Additionally, BIPA Arbitrations cannot be termed as international commercial arbitration or domestic arbitration, and, therefore are not governed by Indian Arbitration Act, 1996. For an arbitration to be international commercial arbitration, the pre-requisite is that it must be commercial in nature. State guarantees, which form the essence of investment arbitration, are not commercial in nature. The roots of investment arbitration are in public international law, obligation of state and administrative law. Issue IV An injunction can be passed against an arbitration proceeding if it is oppressive, vexatious, inequitable or constitutes an abuse of the legal process. The principle of abuse of process is founded upon the notion that a party may have a valid procedural right, but exercises it for purposes other than for which it is provided, to the detriment of other party. National Court would generally not grant an injunction, except if there are compelling circumstances and the Court has been approached in good faith and there is no alternative efficacious remedy available. Since it is the case of the plaintiff-Union of India that the claim under the Netherlands-India BIPA is without jurisdiction, invocation of another treaty by the parent company cannot be regarded as an abuse per se. The Court will not grant an injunction if by doing so it deprives the defendants of advantages in the foreign forum, of which it would be unjust to deprive the defendants. The plea that plaintiff-Union of India will be vexed twice over in respect of identical claim or that there is a possibility of conflicting awards by two different tribunals, is resolved by accepting the defendants offer dated 9th January, 2018 that if the plaintiff-Union of India gives its consent, it would apply straightaway to the UK treaty tribunal to consolidate the two proceedings. Issue V The principle of kompetenz kompetenz provides that the Arbitral Tribunal has the jurisdiction to decide on its own jurisdiction and is resonated in Article 21 of the UNCITRAL Arbitration Rules, 1976. The Court held that the claims under India-UK Arbitration have to be decided by the arbitrator and the National Court shall not restrict the exercise of such power. Conclusion The judgment recognized that as far as possible, the intervention of national Courts must be minimal and the bargain of international arbitration must be upheld. This approach will ensure that the purposes of the agreements between private investor and state are upheld and will also guarantee that the government does not evade its international obligations by taking recourse to national Courts. This may incentivize private investors to enforce its rights under their respective BIPA, ensuring an easier and convenient dispute resolution mechanism. The Court also highlighted various concerns associated with BIPA including the apprehension against private individuals affixing state liability, inconsistent awards, and a perceived deficit of legitimacy. However, through such treaties, state accountability and liability has grown, usually in excess of its liability under domestic law.
This post has been authored by Mincy Mathew, a Third Year student of National Law Institute University, Bhopal.
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