They’re taking such actions as a result of they discover that enforcement of funding treaty arbitration awards might nearly be inconceivable earlier than Indian courts.
To clarify: all overseas arbitral awards are enforceable in India as India is a signatory to the New York Conference of 1963. Nevertheless, India signed the New York Conference with one limitation, i.e. solely awards which can be “thought of industrial below the regulation in pressure in India” shall be enforceable in India.
This limitation was accordingly integrated within the laws and has develop into a stumbling block for this particular class of awards – these handed below the provisions of a bilateral funding treaty (BIT).
A BIT is a reciprocal sovereign-to-sovereign assure that protects investments and buyers of 1 nation within the territory of the opposite. It moreover gives for dispute decision mechanisms, corresponding to arbitration, and offers buyers the suitable to non-public motion – the ability to provoke a dispute with the federal government of the host nation in case it isn’t handled pretty and equitably as envisaged by the BIT.
Delhi excessive courtroom, listening to a case between the Union of India and Vodafone, was of a prima facie view that funding treaty awards couldn’t be categorised as industrial below Indian legal guidelines. This, as a result of they have been born from a sovereign-to-sovereign assure, and never as a pure industrial contract between two contracting events.
This view has subsequently been reiterated by the Delhi HC when contemplating an identical situation and ruling on a dispute between the Union of India and Khaitan Holdings (Mauritius) Ltd. Delhi being the seat of the Union of India, this view had forged a severe doubt over the enforceability of funding treaty awards earlier than Indian courts.
What compounds the issue is that arbitral awards pronounced below BITs are by definition not judgments by overseas courts. Within the case of the latter, there’s home laws that enables enforcement in India. BIT awards don’t have this benefit.
So, treaty award holders like Cairn determine GoI’s overseas property and search refuge earlier than overseas courts. Cairn, and Devas, which additionally holds a BIT award in its favour, have additionally filed fits earlier than the US district courts in Washington and New York searching for a declaration that Air India is an “alter ego” of the Union of India and thus its property are amenable to fulfill cash judgments in favour of BIT award holders.
As is well-known, this story started with retrospective taxation being utilized to Vodafone and Cairn. This prompted Cairn and Vodafone to take recourse to the dispute decision/ arbitration clauses below India’s BITs with the UK and Netherlands, respectively.
In December 2020, the Everlasting Court docket of Arbitration on the Hague dominated that India’s retrospective tax demand was in breach of the assure of “truthful and equitable therapy” as contained within the India-UK BIT. An award of $1.2 billion was handed in favour of Cairn Power Plc.
Equally, the Everlasting Court docket of Arbitration held the demand for assortment of tax from Vodafone to be opposite to the truthful and equitable therapy provision of the BIT between India and the Netherlands and awarded an undisclosed quantity in favour of Vodafone BV.
There are, nevertheless, extra arbitration disputes. India, from 1994 onwards, has been a signatory to 86 BITs and has been concerned in 21 separate arbitration disputes.
GoI recognised these points rising from its legacy BITs when the current authorities reformulated and issued a mannequin BIT in 2016. The mannequin BIT, which has since fashioned the idea of varied renegotiated BITs, tried to carve out an exception from legal responsibility towards measures and legal guidelines relating to taxation.
Nevertheless it was additionally realised that carving out of such exceptions might not ship the suitable sign to the funding group at massive. Due to this fact, GoI has added a selected clarification that awards below the brand new BIT shall be handled as industrial, and might be enforceable below the present legislative framework in India.
Nevertheless, an identical provision doesn’t exist in its beforehand signed legacy BITs below which most funding treaty arbitrations are being contested, and below which the awards have been handed in favour of firms like Cairn and Vodafone.
If these awards are introduced for enforcement earlier than courts in India, the federal government’s stance shall be intently watched by all the worldwide enterprise and arbitration group. If the state decides to not contest jurisdiction, it might assist settle the difficulty in favour of enforcement, simply as within the case of overseas industrial arbitration awards.
Until then, the federal government has no choice however to run round, attempting to guard its overseas property and face repercussions of a coverage extensively recognised as imprudent and erratic.
The author, a Supreme Court docket advocate, specialises in arbitration and industrial disputes regulation. Ishaan Pratap Singh assisted in his analysis