News reports suggested that Vodafone International Holdings BV (Vodafone) invoked arbitration under the Agreement between the Republic of India and the Kingdom of the Netherlands for the Promotion and Protection of Investments (India-Netherlands BIT-pdf) in relation to the proposed amendment in the Income Tax Act, 1961 to retrospectively alter the law pertaining to capital gains through indirect transfers of Indian assets (Livemint).
Vodafone has served a Notice of Dispute invoking Article 9(1) of the India-Netherlands BIT, which reads:
"Any dispute between an investor of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute. The party intending to resolve such dispute through negotiation shall give notice to the other of its intentions."
The purpose of the said Notice of Dispute as it suggests is to settle the dispute in an amicable way. Further, it states that the failure of the Government to respond to the Notice of Dispute or to withdraw the complained amendments to the Act “would establish that the Government of India is not interested in amicable resolution…”
In the Notice, Vodafone has complained that the retrospective amendment to the Income Tax Act, 1961 violated the following provisions of the India-Netherlands BIT:
- Breach of obligation to accord fair and equitable treatment and fill protection and security to the Investment [Article 4(1)]
- Breach of obligation to accord to the Investment treatment not less favourable than that accorded either to investments of its own or investments of investors of any third state, whichever is more favourable to the investor concerned [Article 4(2)]
- Breach of obligation not to subject the Investment to expropriation or measures having the effect equivalent thereto except in the public interest in accordance with law, on a non-discriminatory basis and against compensation [Article 5(1)]
The Notice of Dispute dated 17.04.2012 can be accessed from here.