A BIT more Indian investment arbitration

As the dust settles on a momentous General Election in India, many will also have noted a number of multinationals having commenced, or taken steps towards, arbitration claims against the Government of India under Bilateral Investment Treaties (BITs) in the last few weeks.

Perhaps the most high profile is Vodafone, whose long running dispute with the Indian tax authorities over its 2007 takeover of Hutchison Whampoa's Indian operations has now resulted in an arbitration claim being issued against the Government.  The tax authorities had claimed that Vodafone was liable for over US$2 billion in taxes as a result of that acquisition, which Vodafone successfully contested in the Indian Supreme Court, only for the Indian Parliament to pass new legislation which enabled it to impose the tax claim retroactively.  Vodafone has claimed that such steps are in breach of India's BIT obligations and, having attempted conciliation with the Government, has now filed for arbitration. 

It is also reported that Nokia has notified the Government of a claim under the Finland-India BIT in relation to disputes concerning the application of withholding tax to royalty payments made by Nokia India to its parent.  Reports suggest that the notification marks the start of a three-month pre-action period which is required before proceedings can be commenced. 

Going against the grain, Norwegian telecom company Telenor has announced that it will not be pursuing arbitration claims against the Government following the cancellation of its previous mobile network licences that were quashed by the Supreme Court in 2012.  Telenor had previously intimated an intention to bring claims under India's Comprehensive Economic Cooperation Agreement with Singapore, but following the Government's decision to allow it a set-off of Rs. 16 billion (US$260 million) on payments due under its new spectrum licences by way of credit for the previously cancelled licences, Telenor has decided not to pursue those claims.

The initiation of arbitration claims by Vodafone and Nokia, and Telenor's approach, are reflective of a growing awareness of the availability of investment protections under BITs and other instruments available to international investors aggrieved by their treatment by national authorities.  Such a phenomenon is not confined to India, nor indeed to emerging markets.  What direction these Indian claims will now take will be an important early decision for incoming Prime Minister Narendra Modi. 

Herbert Smith Freehills has extensive experience of advising clients regarding actual or potential investment arbitration claims involving India.  For further information, please contact Nick Peacock, Partner, Donny Surtani, Senior Associate, or your usual Herbert Smith Freehills contact.