Vedanta parent moves Permanent Court of Arbitration against Indian govt
UK-based Vedanta Resources Ltd raising a dispute against the government of India brings the challenges of investor-state arbitration into limelight.
New Delhi: Vedanta Resources Ltd, the UK-based parent of India-listed Vedanta Ltd, has moved the Permanent Court of Arbitration (PCA) against the government of India over fresh investments.
The proceedings in the case, which has been brought to the arbitration court under the 1994 India-UK Bilateral Investment Treaty (BIT), officially began on 22 October, a PCA record published late Tuesday showed.
A tribunal of three arbitrators, including a former Supreme Court of India judge V. Ramasubramanian, is hearing the case. The seat of arbitration is Switzerland.
The dispute arose after Vedanta proposed to buy a further stake in Hindustan Zinc, in which it already holds a controlling 63% interest, according to a person aware of the matter. Vedanta first acquired stake in the Indian zinc and silver producer, which was a public sector undertaking, in 2003.
"...the case relates to an Indian mining company known as Hindustan Zinc, which is nearly 65% owned by Vedanta and roughly 30% by the Indian government. The BIT case concerns the Indian government’s refusal to sell Vedanta any more shares in the entity, which Vedanta says is in breach of a share purchase agreement," said a report by arbitration journal Global Arbitration Review after the PCA record was published.
The government, which holds a 29.54% share in Hindustan Zinc, reduced its stake in the company via an offer for sale on 6-7 November. According to multiple media reports, the sale of a 1.6% stake generated nearly ₹3,450 crore.
Hindustan Zinc is currently in discussions with the government about a potential division of the company into two separate units. However, the government is yet to agree on this, a PTI report said. “We are engaging with the government on all matters related to the split. It will proceed once both parties reach an agreement,” Misra was quoted as saying in October.
Also read: Vedanta Aluminium doubles down on value-added AL to cash in on India’s construction boom, EV drive
An email query sent to Vedanta Resources Ltd and the ministry of finance regarding the development did not elicit an immediate response.
India's Khaitan and Co., which is one of the law firms representing Vedanta Resources Ltd, also did not respond to queries immediately.
Investor-state arbitration
UK-based Vedanta Resources Ltd raising a dispute against the government of India brings the challenges of investor-state arbitration into the limelight.
Notably, the India-UK BIT signed in 1994 was India's first bilateral investment treaty, after the liberalisation of the economy in 1991. The number jumped to over 80 bilateral investment treaties and multiple international investment agreements by 2015.
Investor-state disputes have been a challenge since 2011, when the Indian government faced arbitration for the first time and received an unfavorable ruling in the case of White Industries vs. Republic of India, as per an article by Global Arbitration Review in July this year.
In 1989, the Australian mining firm entered into a contract with state-run Coal India. In the following years, disputes arose between the two regarding quality, bonus, and penalty payments, pushing the Australian firm to start arbitration under ICC Arbitration Rules, where it emerged the winner.
After several unsuccessful court runs by over the enforcement of the arbitral award till 2010, White Industries invoked arbitration under the India-Australia BIT, claiming that delays to enforce the award in Indian courts was a violation of the BIT. India lost this arbitration, and had to pay a penalty of over Australian dollar 4 million.
“This opened a floodgate of BIT cases against India. By 2015, there were about 17 known BIT claims, all of which were contested by India. With increased national concern around the surge of BIT arbitrations filed against India, there was a call for curtailment of investor-state dispute settlement (ISDS),” the GAR study said.
Following such adverse treaty claims, the Indian government decided to rework its BIT regime. In 2015, the government created a model BIT to protect the interests of investors while taking into account government obligations. Another focus of the government at the time was to terminate investment treaties whose initial terms had lapsed or whose terms were not aligned with the new model BIT.
In more recent investment treaty upgrades, India has deviated from the model BIT framework in certain cases. In the India-UAE BIT, enforced in October this year, the government recognized portfolio investments from the UAE. Earlier, it was not included in the model BIT.
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First Published:13 Nov 2024, 02:03 PM IST
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