Vodafone has served on the Government of India a notice of dispute under the India-Netherlands investment treaty, in the latest escalation of the controversy over proposals in the Finance Bill, 2012.

The move enables Vodafone commence international arbitration proceedings should the yet-to-be-enacted legislation get passed. The proposals “violate the international legal protections granted to Vodafone and other international investors in India,” the company said in a statement on Tuesday.

The notice was the “first step required prior to the commencement of international arbitration,” a London-based spokesperson for Vodafone toldBusiness Line. If enacted, the proposals would have “serious consequences for Vodafone,” they said. “We have called on India to either abandon or suitably amend the tax proposals.”

“We are happy to meet and explain our position, however if legislation as it is currently crafted becomes law then we will do whatever it takes to protect ourselves and our shareholders, including commencing international arbitration,” the spokesperson said.

The notice has been issued by Vodafone International Holdings BV, the Dutch subsidiary of the British telecom giant under the Bilateral Investment Treaty between India and the Netherlands. Vodafone contends that the changes included in the Finance Bill breached certain obligations of the Indian government, including giving investors fair and equitable treatment, and not denying justice to investors.

“The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007,” the company said.

Clarifying how the procedure would work should the company proceed with arbitration, the spokesperson said this would involve a panel of three arbitrators deciding on the matter in a neutral country, based on general international principles.

The day before the Vodafone announcement, the Commerce and Industries Minister, Mr Anand Sharma, on a visit to London, reiterated the government's position, namely that the Finance Bill proposals amounted to “clarificatory amendments” and that they were not intended to be “Vodafone specific.”

Our New Delhi Bureau adds:

The Finance Ministry today said that it has not as yet received the notice of dispute reported to have been served on the Indian Government by Vodafone in the matter of the controversial retrospective amendment proposed in the Finance Bill 2012.

“I am yet to see the notice, then only can I give my view on it”, said Mr R. Gopalan, Economic Affairs Secretary. Echoing this view, the Finance Secretary, Mr R. S. Gujral, said, on the sidelines of a CII event: “We are in no position to talk about it as we are yet to see the notice.” (The Hindu)