Over the weekend, the Bombay high court quietly published a 160-page court order detailing its decision to dismiss a petition by Vodafone of the UK against the Indian tax department.
Vodafone had asked the court to overrule an attempt by the tax department to assess it for capital gains tax on the UK group's $11bn takeover of an Indian mobile operator, then known as Hutchison Essar. The tax in question could amount to $2bn, plus penalties. Vodafone argues that the transaction took place offshore between overseas-registered companies. Such deals have never been taxed before in India, turning the case into one of the most closely watched among foreign and even domestic investors in the country.
More worrying for Vodafone than the decision to reject the petition, however, was a clause buried in the court order that accuses the UK group of having "wilfully failed to produce" the original sale agreement between Hutchison and Vodafone. Witnesses at the case say they have heard Vodafone lawyers repeatedly offer the document to the court, only to have their offer ignored.
Vodafone plans to appeal the case to the Supreme Court and the case remains very much up in the air. But for now, foreign investors watching the case will be more concerned about that strange clause -- why would the court say the document was withheld when it was offered?
Copyright: The Financial Times Limited 2008
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