Did Hasmukh Adhia compromise India’s national interest in the Rs.40,000 cr Vodafone Arbitration?

Why is Adhia trying to scuttle a case when Indian Govt. is on the verge of victory?

Why is Adhia trying to scuttle a case when Indian Govt. is on the verge of victory?
Why is Adhia trying to scuttle a case when Indian Govt. is on the verge of victory?

The cobweb of complexities and the maze of unrelenting madness in which the Finance Ministry has tied itself in the Vodafone International Arbitration is a story of how an inept bureaucrat, with arguably limited knowledge of law and taxation, has compromised our national interest. Hasmukh Adhia, to further his naked ambitions, has buried the very idea the Prime Minister Narendra Modi preaches.

Apprehensive of tasting defeat in the arbitration under the Netherlands BIPA, in what is termed as a “devious” move, Vodafone moved for a fresh arbitration under the India-London BIPA.

The Vodafone case, as it is popularly known, involves a tax demand of Rs.11,000 crores ($1.7 billion) on Vodafone, for its Rs.55,000 crores ($8.5 billion) acquisition of a 67 percent stake in Hutchinson Essar Ltd.’s telecom business in India[1].  The interest and penal liabilities, in this case, are Rs.17,000 ($2.6 billion) and Rs.8,000 crores ($1.231 billion) respectively.

Income Tax department lost this case in the Supreme Court and the Government filed a review petition which was also dismissed. The Union Budget, in 2012, retrospectively amended the Income Tax Act 1962 to empower the income tax officers to scrutinize offshore merger and acquisition deals. Vodafone and the Indian Government entered into conciliatory negotiation and dispute settlement mechanism. In June 2013, a non-binding conciliation offer was made to Vodafone by the Indian Government but it did not yield any satisfactory result. The Government, later on, withdrew the offer when in April 2014, Vodafone moved for International Arbitration under the Bilateral Investment Protection Agreement (BIPA) between India and Netherlands. In June 2014, Arun Jaitley recused himself from the proceedings of the Vodafone tax dispute[2] and delegated the decision making in this case to Minister of State for Commerce Nirmala Sitharaman and the Revenue Secretary, as he had provided legal consultancy to Vodafone. Jaitley recused himself because he was the advocate for Vodafone and related companies before 2009.

From 2014 till 2017, the income tax authorities have put up a formidable battle before the Arbitration Tribunal. A senior Income Tax officer, on condition of anonymity, told PGurus that “it was almost certain that India was going to win the arbitration, the first and the biggest till date”. This case is the biggest tax dispute that the Income Tax department has got entangled in its history.

Apprehensive of tasting defeat in the arbitration under the Netherlands BIPA, in what is termed as a “devious” move, Vodafone moved for a fresh arbitration under the India-London BIPA.

The Income Tax authorities handling this matter have been absolutely against the idea of India being a party to the second arbitration in this case, especially when India was winning this case and the 3-year arbitration was coming to its logical end. A policy decision was made on file to ensure that the Dutch proceedings are expedited and that India will not participate in the second arbitration proceedings. Adhia made the decision on file of India not participating in the second arbitration, as proposed by Income Tax and Minister of State approved the proposal on file. The matter must have ended there.

A mystery note, signed by the Finance Minister (FM) Arun Jaitley surfaced, a copy of which is available with PGurus. The note addressed to a senior official in the Prime Minister’s Office (PMO), is also copied to Adhia. According to the note, “a formal colleague from the legal fraternity” advised the Finance Minister[3] regarding the poor performance of the Income Tax (IT) Department in the international arbitration proceedings and strongly recommended that India participate in the second arbitration proceedings. This is an intriguing and extremely strange development shrouded in conspicuous suspicion as the Finance Minister has represented the Vodafone in the past and this is a clear conflict of interest. Who is the legal colleague the Minister was referring to? Did he or she represent or provide legal consultancy to the Vodafone in the past? What about the idea of due diligence before the Government spends around Rs 100 crores a year on legal consultants and lawyers only for this issue? Though officially recused from the Vodafone files, Finance Minister Arun Jaitley later started pressurizing the PMO and argued in favor of new arbitration in London as suggested by the telecom giant3.

All decisions pertaining to the international arbitrations are made by the Inter-Ministerial Committee (IMC) consisting of officials from the Department of Economic Affairs (DEA), Law Ministry, Ministry of External Affairs (MEA) and the Revenue. Hasmukh Adhia chairs these meetings.

Adhia, having been “convinced” by the Minister of this new approach, swung into action and demanded the file in less than 48 hours. He did a U-turn and forced the Income-tax department also to follow suit.

Interestingly, the IT department put up a point-wise reply to the FM’s note with a copy of the rebuttal addressed to PMO. Sadly, Adhia suppressed this rebuttal note and never forwarded it to the PMO. This is an absolute indication of moral debauchery by Adhia because it is known fact that the PMO would not have allowed this course and also the wastage of hundreds of crore of public money. Did Adhia – because of his incompetence in the subject matter – not place all the facts before the Finance Minister?

All decisions pertaining to the international arbitrations are made by the Inter-Ministerial Committee (IMC) consisting of officials from the Department of Economic Affairs (DEA), Law Ministry, Ministry of External Affairs (MEA) and the Revenue. Hasmukh Adhia chairs these meetings. To follow his master’s directions, all ethics and moral principles were thrown out of the window by Adhia. Strange as it may sound, Adhia did not allow senior officers from any Ministry to participate in the IMC meeting to decide on this issue. Junior officers were deputed by the Ministries to make the crucial decisions on a Rs.40,000 crores tax dispute which will have ramifications in the other tax disputes that have been lined up in Cairn and Vedanta cases next. Is the PMO aware of this shoddy IMC and the pathetic performance led by Adhia on this issue? Ideally, all the three – Law, MEA, and DEA – ministries need to be pulled up for surrendering to Adhia and not doing their job in a diligent manner on such a major issue.

The Income Tax officer said, “Adhia records objections as the Head of Revenue Department in financial issues involving even a few lakhs. Why then throw hundreds of crore out of the window? Why not put up a strategic and tactical fight when what is at stake is not just Rs 40,000 crore but also India’s reputation in the first international tax arbitration it ever participated?”

Keeping the PMO in the dark, Adhia pulled off the show for the FM and pushed India into the second arbitration thereby opening up a Pandora’s box. Did Adhia act on his own volition or was he being his master’s voice? Did he realise that he was pulling the case from the jaws of success and putting at stake close to Rs 40,000 crores of public money? Is it not a colossal waste of money to be engaging counsels by paying them Rs 100 crore a year? Who are these counsels and who are the lawyers in the Lutyens Delhi who acted as middlemen and fixers in this deal? It is widely believed that being a lawyer, Jaitley’s opinion on engaging lawyers in London will have a value.

The Income Tax officer said, “Adhia records objections as the Head of Revenue Department in financial issues involving even a few lakhs. Why then throw hundreds of crore out of the window? Why not put up a strategic and tactical fight when what is at stake is not just Rs 40,000 crore but also India’s reputation in the first international tax arbitration it ever participated?”

Hasmukh Adhia needs to answer some critical questions in this regard –Firstly, why did he suppress the Income-tax note and keep the PMO in the dark?

Interestingly, the income tax officers did not give up. They went chasing behind the legal officers of the country. Adhia scuttled every move and did not take the opinion of the Attorney General or the Solicitor General on record. What followed is a series of awry moves that were soaked in an ego tussle between Income Tax and Adhia which has resulted in the entire matter going nasty and awry.

The Government faced a crushing defeat in High Court and then knocked the Supreme Court to take a call on the further course of the second arbitration. Things have come to such an outlandish pass that Vodafone is now ready to agree to club the two arbitrations into one. Long story in short is – India’s success was just snatched away in the last minute and a long and tiresome battle continues. It is a shame that the country’s best and the brightest who make up the Civil Services would deliberately botch prestigious international cases, for reasons best known to them.

It is our nation’s curse, said this income tax officer that domain experts and subject specialists are totally ignored & insulted and the decision making, like in this case, is placed in the hands of a generalist who neither has special knowledge in law, taxation nor arbitrations. “There is only one way in which the world will come to know about the nefarious designs that have been adopted by the Secretary Hasmukh Adhia, in compromising the Indian National Interest – place the relevant files in public domain. The files have an uncanny knack of speaking for themselves” said the officer.

Hasmukh Adhia needs to answer some critical questions in this regard –Firstly, why did he suppress the Income-tax note and keep the PMO in the dark? Secondly, is it true that he deliberately bamboozled senior officers from External Affairs, Economic Affairs and Law from participating in these Inter-Ministerial Committee meetings and insulted the Income-tax officers who are domain experts who did not agree with his views? Thirdly, why does Adhia still not reveal to anyone as to who was the “mysterious lawyer” who gave a note to the Finance Minister[4] which changed the tide in the Rs 40,000 crore dispute? Fourthly, did he deliberately mislead the Ministers of State (Finance) – Santosh Gangwar and Shiv Pratap Shukla and personally get these files signed from them? (it is a known fact in the Ministry of Finance that Adhia has utter contempt for all the Ministers of State (Finance) and does not keep them in the loop on any issue) Fifthly, is the “mysterious lawyer” a consultant to Vodafone? Sixthly, when there was an explicit direction from Arun Jaitley in June 2014 that in case of any dispute on the Vodafone arbitration issue, the matter must be referred to the Prime Minister, why did Adhia not escalate this to the PMO? Did he betray the Finance Minister in the process? Lastly, did Adhia keep the Prime Minister in the loop on this Rs.40,000 crore ($6.15 billion) issue which is expected to have very serious ramifications on the Cairn and Vedanta arbitrations also? Or did he unilaterally decide in his usual arrogant and devious style?

It is extremely unfortunate that Prime Minister India is being misled and let down by the dubious and devious actions of certain bureaucrats he reposes his faith and trust on. We only hope that the Prime Minister Narendra Modi is made aware of these nefarious designs at the earliest.

Note:
1. The conversion rate used in this article is 1 USD = 64.98 Rupees.

References:

[1] (Re)conciling the Vodafone-India tax dispute: the whirlwind isn’t stoppingJul 12, 2013, BNA.com

[2] Vodafone case: Jaitley recuses himself from decisionsJun 18, 2014, The Hindu

[3] Violating Conflict of interest Jaitley intervenes in Vodafone caseJun 19, 2017, PGurus.com

[4] FM Arun Jaitley violates conflict of interest in the controversial Vodafone arbitration caseSep 27, 2017, PGurus.com

Team PGurus

23 COMMENTS

  1. India is going through a turbulence phase and I want to see India a Superpower and by reading this article you will get know what really required to make India a SUPERPOWER

  2. Hasmukh Adhia kind pliable officials are the real problem in this country. He simply obliged to former Vodafone Advocate Arun Jaitley.

  3. Kudos to the courageous IT officials fighting the system fraught with scums like Adhia. Shame to AJ who is on the helm of power today coz of Modiji,s bold AC policies. Where,s the loudmouthed media channels, why aren,t they questioning & investigating this issue deeper and taking opinions of Adhia,IT officials and AJ ,for the nation to know ? The Indian citizen is impotent to deal with all these criminals (in their suits and their ties) and with doubts in the judiciary and weak laws of our country. “SATTA” is the only important issue that matters most and over rides all other issues in our system.

    • There is no scam. So don’t get excited.Govt has told again and again that it will not imposes any retrospective tax.Due to Chidambaram’s wrong policy, foreign companies started to leave.You cannot the law retrospectively to penelise a company. Govt told in clear terms that if vodafone wins, govt will not file any appeal.

  4. The revelations in the article are shocking. Atleast by now the PM must have been briefed about it. No corrective action from PMO would definitely send wrong signals that the PM is soft pedallng the issue for reasons known only to him. Curiously the main stream media seems to be preoccupied with other petty issues but have no time to highlight and debate on this highly condemnable role of the official concerned, assuming the facts reported are true.

  5. The way in which highly sensitive cases are lost by prosection/Government, BJP Government is also highly inefficient and though explicitly talking of eradicating corruption, are keeping blind themselves. Mr. Swamy should personally meet PM and apprise him.

  6. All the core infrastructure sectors like banking,aviation,power(coal,oil,gas),railways,telecom ,river water state disputes etc are mired with corruption,lack of transparency, cronyism .Not to forget army defence deals,space etc as well.
    Who is the VVVIP visitor to INC ex president on Christmas Eve?

    • That is what former INC leader Jaipal Reddy (who was sacked by skullduggery for goin against a corporate) in UPA2 told as well ” Modi will eventually defeat himself”..
      But few big corporate houses believe “Lambhi Race ka ghoda hai…’ i.e till 2024/2029 he will keep winning.

  7. Total fraud that former Vodafone advocate Jaitley, now Finance Minister is saving Vodafone from Income Tax cases. Pliable officers like Hasmukh Adhia are really sin in bureaucracy. This is a classic case of how high profile cases were won by hook and crook

  8. I suspected for too long time that there were incompetent advisors in FM ministry joined in hips with the Chiddu gang sabotaging the Modi GOI even AJ included as he was involved with the INC, SG, MMS, PMukerjee, APatel, LKAdvani, MMJoshi Swaraj, etc. in the NRI case.
    PM Modi has to clear the deck of the old INC people involved in running Depts. Otherwise the swamp will drown him instead of him drowning the old INC swamp.

  9. The process of reconciliation of seller and purchaser for GST also is changed ?

    Looking at this article, National Herald, PC cases, 2G+3G, CWG and so on, what it all indicates is total apathy to solution we expected of NAMO, except asking us to dole GOI out of all loss by co operating in form of taxes, demonetisation, GST etc.

    He+ associate sure are smart enough to see that and as for us what is choice left ?.

    The mistrust will be too devastating if intentions are wrong. In next one year hope to see truth, whatever.

  10. Saddening and sickening..the secretary level postings need to be reviewed…recently watched botching up of cases before judiciary and this is manifestation of the deep decay in the system..high time total revamp is done ..eg.. suggestion in this blog of sacking entire rbi board on pnb scam…if done would send shiver down the system and course correction possible..quicker the better..

  11. HEIGHT OF OPTIMISM

    {We only hope that the Prime Minister Narendra Modi is made aware of these nefarious designs at the earliest}-
    The criminals Chidambaram, his son, Marans are absolved at regular pace in each and every mega scam. Nobody made Modi aware of those ‘nefarious designs’ at those stages???!!! How do PGURUS expect that to happen now?

    Looking into the developments in the Finance Ministry – right from the day Modi took over – it appears the ‘Functions of the Finance Ministry’ has been outsourced to ‘UPA headed by the Chidu gang’ with AJ as the liaison

    It is highly INCONCEIVABLE Modi is unaware of the nefarious activities of the AJ gang for such a long time.

    I can assert & affirm Modi is fully aware of the happenings in the FM under AJ. Modi is either blackmailed into silence because some of his weak links are in AJ’s clench or at the worst Modi too is complicit in them

    A LEGAL RECOURSE TO THIS ISSUE (LIKE A P.I.L.) SHOULD BE RESORTED TO CRACK THE WHIP

  12. While I appreciate and read Ur content in Toto and fwd to like minded friends..have u ever thought of briefing the p.m or bringing to his notice..??every drop of my blood believes he is honest..but my grey cells say..pgurus know these facts ..how come he is not in the know..simple..the money involved is so big.

LEAVE A REPLY

Please enter your comment!
Please enter your name here