On 04 April 2020, I had the pleasure of doing a webinar for Dhruva Advisors LLP's, the leading tax and regulatory services' firm's principals and associates on "Arbitration". We covered the arbitral process and interface of tax and arbitrations, particularly India's BIT arbitrations that arose from tax disputes. Thank you to Dinesh Kanabar and Vishal Gada for the collaboration.

1. Arbitration
Hasit Seth
To Be Presented To Dhruva Advisors on 04-04-2020

2. Disclaimer
Nothing stated herein is or is intended to be legal advice. This is an academic
discussion material. This is not and should not be considered as a solicitation for
clients.

3. A Bit About Myself
• I work as a counsel doing civil litigations and arbitrations.
• 20 years of experience across US & India in diverse roles.
• My interest areas are: law, technology, economics and art.
• .edu = B.Sc. (Computer Sci.), LL.B. (GLC, Mumbai),
LL.M. (Mumbai Uni., Gold Medal), LL.M. (FPLC, US).
• Licensed in New York and India as a lawyer.
• LinkedIn - https://www.linkedin.com/in/hbs
• Email: hbs@hlaw.in

4. Outline For Discussion

5. Discussion Items
• Tax and Arbitration
• Purpose of Arbitration
• Law of Arbitration
• Process of Arbitration
• Q & A

6. Tax and Arbitration

7. Vodafone Tax Dispute
• “M/s Hutchinson Telecommunications International Limited earned
capital gains on the sale of stakes to Vodafone International Holdings
B.V (VIHBV) in an Indian company by the name of Hutchinson Essar
Limited (HEL) for a consideration of $11.1 Billion (Approx) on 8th May,
2007.”
• “The acquisition of stake in HEL by VIHBV was held liable for tax
deduction at source under Section 195 of the Income Tax Act, 1961
and since VIHBV failed to honour its tax liability, a demand under
Section 201(1)(1A)/220(2) for non-deduction of tax was raised on
VIHBV.”

8. Vodafone Tax Dispute
• Supreme Court struck down the Income Tax Department's demand
notice.
• “… a retrospective amendment to Section 9(1) and Section 195 of the
Income Tax Act read with Section 119 of the Finance Act, 2012 re-
fastened the liability on VIHBV.”
• P.S. – “…basic tax demand was Rs 7,990 crore, the total outstanding,
including interest and penalty, is estimated to have risen to Rs 20,000
crore.” [Business Standard, 16-9-2014]

9. Vodafone Tax Dispute
• Usually, a tax dispute would end with an amendment in the Income
Tax Act, 1961, unless someone launches a Constitutionality challenge
to the amendment.
• Vodafone didn’t challenge the amendment in Indian courts.
• Instead, it launched an arbitration against Government of India!
• [All quotes from Delhi HC order in UOI v. Vodafone in CS(OS) 383/2017 unless otherwise noted]

10. Cairn-Vedanta Tax Dispute
• “Claims arising out of a draft assessment order issued by the Indian
Income Tax Department addressed to the claimant’s subsidiary, Cairn
UK Holdings Limited, in respect of fiscal year 2006/7 in the amount of
USD 1.6 billion plus any applicable interest and penalties; and the
alleged prohibition for the claimant to sell its 10 per cent
shareholding in Cairn India Limited.”
• “Claims arising out of a tax bill of approximately USD 3.29 billion,
imposed by the Government on Cairn India Limited in 2015, for the
alleged failure to pay taxes on capital gains arising from Cairn’s
operations in 2006-2007.” (Source: https://investmentpolicy.unctad.org/ )

11. So What?
• Retrospective taxation claims are being challenged under bilateral
investment treaties through arbitrations.
• A BIT-BIPA Arbitration in past (White Industries Case) has made
Government of India pay for impaired investments due to delay in
judicial decision making.
• Government has cancelled or renegotiated most BITs now.
• Government is thinking of having a domestic investment tribunal
(when? Nobody knows).

12. Tax Arbitrations?
• I am told by experts at Dhruva Advisors that as of now, there are no
arbitration provisions in either Income Tax or GST/Indirect tax laws.
• But this may happen in near future due to global pressures and
backlog of cases at tax tribunals and ultimately in courts.

13. US IRS has a Tax Arb’/Med’ Process

14. Arbitration: OECD & UN Model Tax Tr.

15. Purpose of Arbitration

16. Features of Arbitral System
• Parties can choose arbitrators on the Arbitral Tribunal.
• Fast – 12 + 6 months (Domestic Arbitrations).
• Confidential & happens outside court system in private offices.
• Minimal Court interference.
• Award (decision) of the Arbitral Tribunal is a decree of civil court.
• Award has only a challenge procedure. No regular appeals or Writs.
• Institutional Rules to govern arbitration or parties can create their
own rules.

17. International Arbitration
• Established arbitral institutions in London (LCIA), Singapore (SIAC),
Paris (ICC) and HK (HKIAC).
• Fast proceedings
• Home courts of the international institutions rarely interfere with
awards when challenged in those courts
• Global trade wants neutrally located arbitral centers
• A species of this is the BIT arbitration referred earlier.

18. Law of Arbitration

19. Statute for Arbitration
• Arbitration & Conciliation Act, 1996
• It brought Indian law in line with UNCITRAL Model Law of Arbitration
• It’s been amended a few times (though not as many times as the
Income Tax Act!)
• It covers both domestic and international commercial arbitrations –
unlike say Singapore which has separate laws for domestic and
international arbitrations
• Decrees are executed (enforced) as any other under Order 21,Code of
Civil Procedure, 1908.

20. Process of Arbitration

21. Agreement for Arbitration
Needs an
Arbitration
Agreement
Usually it is a clause
in the main
agreement
Even if the main agreement is
breached, the arbitration
agreement is still enforceable
Arbitration Agreement can be a
separate agreement or can be a
clause in the same contract, but it
has to be in writing

22. Starting An Arbitration
In Ad-Hoc Arbitrations
if parties cooperate, then they
can appoint arbitrators
else Court can do it.
An arbitration can be ad-hoc
(parties set rules) or through
rules of an Arbitral Institution
In Institutional Arbitrations, the
rules of the institution provide
method of appointment or the
institution can appoint itself.
Court can grant before, during
and post arbitration interim
relief like injunctions, etc.
Arbitrators have powers parallel
to court for interim relief until
the award.

23. Rules of Procedure
For Ad-hoc arbitrations, Parties
can make their own rules for
conduct of arbitration
proceedings
Alternately, they can choose
neutral rules like UNCITRAL
Rules
For an Institutional Arbitration,
the rules of the institution
manages the process
Civil Procedure Code, 1908 or
Evidence Act, 1872 are not
strictly applicable.
Arbitrator takes calls about this.

24. Pleadings and Evidence
No specific formats for claims,
reply or counter-claims.
Up to the parties or arbitrators.
Parties can mutually agree to
have no oral evidence and rely
only on documents.
The arbitrator is bound to treat
both parties fairly and equally in
the arbitration process.

25. Arguments and Award
Arguments can be written or oral
or both. It’s up to the parties and
arbitrators or institutional rules.
Arbitrator will then issue a
written award (decision). This
automatically becomes a court
decree.

26. Challenges to an Award
Awards can be challenged in
courts but grounds are
extremely limited.
Court can ask the party
challenging the award to deposit
any amount in court before it
hears the challenge.
If an award is not challenged
within 3 months (+ 30 days) , it
can be straightway executed.

27. International Arbitrations
By the New York Convention, an international
commercial arbitration award issued in any
member country can be executed in any other
member country.
The New York Convention and Geneva Convention
awards are enforceable in India via Arbitration &
Conciliation Act, 1996 Part II provisions.
Limited grounds to reject enforcement, e.g.
public policy and fundamental policy of Indian law.

28. Q & A
Thank you.