Arbitration mustn’t drag on like so many others
Though Prime Minister Narendra Modi’s visit to the UK was the obvious trigger for the government appointing its arbitrator in the Rs 10,247 crore Cairn tax dispute that has been dragging on for almost two years now – both Vodafone and Cairn with whom the government has tax disputes are UK-based – it remains to be seen how smooth the process will be. Ideally the government and Cairn’s arbitrator should appoint an umpire arbitrator, get the case over in 3-6 months and an Indian court should enforce the award, whichever way it goes. For all its statements about wanting to resolve legacy tax issues quickly, and through courts, the government has been dilly dallying – Cairn appointed its arbitrator in March and it was only after the UK energy firm approached the International Court of Justice that the government nominated its arbitrator. And, all along, the government stance has been that tax matters cannot be the subject of arbitration.
India’s history, including that of the NDA government, has not been a happy one when it comes to arbitration. In the case of Reliance Industries, which has now filed five arbitration cases against the government, the Panna-Mukta-Tapti case has been going on for over 5 years already and the cost-recovery case for the KG Basin has been going on for 4 years. In one high profile case involving Reliance, the petroleum minister even asked the country’s foreign intelligence agency, RAW, to investigate links between the company’s lawyers and the umpire arbitrator. The most recent case of Antrix-Devas is also revealing. Antrix, an ISRO arm, had signed a deal with Devas Multimedia to build a satellite for it, but, after the 2G scam report by the CAG, and allegations in the media that the Antrix-Devas deal was similar since it also involved spectrum, the government cancelled the deal. Devas went in for arbitration and the International Court of Arbitration awarded it damages of $672 million. But instead of paying that, Antrix plans to approach the courts to file an ‘application of remedy’ – chances are the case could well go the White Industries way where the company won the arbitration against Coal India in 2002, but the order was set aside by the Calcutta High Court and is still pending in the Supreme Court.
In which case, there is a possibility the government may be hoping that companies like Vodafone and Cairn tire and settle the matter – pay the tax, with the penalty waived off, perhaps. Indeed, senior government functionaries have said they are open to the idea – since Vodafone, particularly, is planning an IPO for its India unit, a settlement may look like a good option. That would be unfortunate since, as even the government accepts, the retrospective taxation was a bad move – the prime minister reiterated this during his current UK visit. In which case, any settlement is akin to speed money, in this case paid to the government, to allow the company to get on with its business. The saving grace, though, is that there is no provision in the Indian tax code that allows for such a settlement.