December 2020

Vodafone vs. India: The Many Twists and Turns

The legal tussle between the telecom giant, Vodafone, and India Inc. tied at deuce with Vodafone’s recent win in a tax liability case at The Hague.

A unanimous decision of the Permanent Court of Arbitration at The Hague ruled in favor of Vodafone on the grounds that India’s retrospective demand of Rs. 22,100 Cr. as capital gains and withholding tax imposed on Vodafone violated the “fair and equitable treatment” guaranteed under the investment protection pact between India and the Netherlands i.e. the Netherlands-India Bilateral Investment Treaty (BIT).

While the tax dispute involving Rs. 12,000 crores in interest and Rs. 7,900 crores in penalties started with Vodafone’s acquisition of Indian mobile assets from Hutchison Whampoa in 2007 where-after the Indian government insisted on payment of taxes on the $11 billion acquisition, while Vodafone disputed against it before the Bombay High Court, which ruled in favor of the Department of Income Tax.

Subsequently rejected by the Supreme Court, which held that Vodafone was not required to pay any taxes and demanded Income Tax Department refund Rs. 833 crores in taxes to Vodafone Idea. 

However, the convoluted tussle took another turn in 2012. To prevent abuse and plug the loophole of such indirect transfer of Indian assets, the government in 2012 amended the law thus empowering the Income Tax Department to retrospectively tax such deals, as a result of which the onus of paying the taxes fell back on Vodafone which the firm contested through international arbitration.

Thus, the recent setback at The Hague leaves India Inc. with one most obvious option i.e. challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996 which provides for limited grounds to challenge an arbitral award.

A party to a dispute, if dissatisfied, has the right to challenge the award and in light of the persuasive effect, it is likely to have on other treaty arbitrations that concern retrospective tax measures, such challenge is justified. The government should consider damage mitigation strategies after losing against Vodafone in the backdrop of similar, but separate lawsuits such as the Cairn Energy tax dispute. 

On the flip side, as the Permanent Court of Arbitration situated in The Hague had passed the award in favor of Vodafone, there lies no further authority for putting up an appeal. The government can only go back to the Permanent Court of Arbitration on some technical point, but that will not serve any purpose.

Furthermore, the Indian Arbitration Act obliges the government to implement a foreign tribunal award, Vodafone can ask for the same in case the award is challenged in Indian courts.

However, in the present scenario, since all the property, both tangible and non-tangible of Vodafone, lies outside India it will be difficult for the government to successfully challenge it in Indian Courts due to jurisdictional issues. 

Alternatively, India Inc. may choose to gulp in the award passed in favor of Vodafone and do nothing. However, still, waters on the legal front may have a ripple effect among investors.

At the outset, the legal wrangle may appear to have no additional negative impact on investor sentiment as they recognize those challenge proceedings are part of the norm, appealing against an international arbitration award may disincentivize investors in the long term.

The reason is, that a change of legislation against the spirit of the Supreme Court judgment on the subject by resorting to retrospective legislation, certainly creates an unpredictable and unstable business environment.

From an international investor’s perspective, investment in countries leading to change in legislation when companies get entangled in legal tussles with governments for non-compliance with international orders jeopardizes investor interests and hurls them into an abyss of losses. 

Besides discouraging investors, it creates interruptions in the ease of doing business in such countries and thus disincentivizes them to make any investments or indulge in any form of funding. Vodafone’s victory at The Hague may accord partial relief in the backdrop of its mounting AGR dues owed to India Inc.

However, it is likely to have implications on other international arbitration cases over retrospective tax claims and the cancellation of contracts. If other companies like Cairn Energy and a dozen others were to follow suit, the Government of India could end up paying to burn a hole in its treasury for damages if it loses.

It is debatable whether the fault lies in the tax laws and the amendments made thereof, however, the after-effects will have to be borne by the entire economy regardless.

---

Tags: vodafone mergers and acquisitions, merger and acquisition of vodafone and idea, india bilateral investment treaty, vodafone acquisition, vodafone acquisition, bilateral investment treaty of india, india bilateral investment treaty

Environmental Impact and Threats

Since the inception of civilization, the human species have manipulated the environment to suit its own benefit. In order to satisfy the needs and demands of the increasing population, industrialization and urbanization became inevitable, and the apparent significance proved to be injurious to the global environment.

Man-made alterations to nature invariably led to a change in biodiversity and ecosystem, ozone layer depletion, global warming, water pollution, air pollution, and most visibly climate change. In the human pursuit to drive nature as per their own whims and desire, environmental pollution became an inevitable consequence and a pressing issue today.

However, in the wake of the COVID-19 pandemic, cities, and villages across the globe have come to a standstill with most countries under a partial to complete lockdown as a measure to contain the spread of the deadly virus. Mobility restrictions, supply chain disruptions, and plummeting asset prices are only the tip of the iceberg with regard to economic consequences.

Meanwhile, efforts to limit transmission of the SARS-CoV-2, through restrictions have had an exceptional environmental effect. Due to the non-functioning of industries, industrial waste emission has decreased to a large extent. Vehicles are hardly found on the roads resulting in almost zero emission of greenhouse gases and toxic tiny suspended particles to the environment.

Due to the lesser demand for power in industries, the use of fossil fuels or conventional energy sources has been lowered considerably. Ecosystems are being greatly recovered. In many big cities, the inhabitants are experiencing a clear sky for the first time in their lives.

The pollution level in tourist spots such as forests, sea beaches, hill areas, etc. is also shrinking largely. The ozone layer has been found to have revived to some extent. The pandemic has displayed its contrasting consequence on human civilization, in the sense that, on one hand, it has executed worldwide destruction, but created a very positive impact on the world environment on the other hand.

The UN Secretary-General in his call for solidarity during the crisis stated, “We must ensure that lessons are learned and that this crisis provides a watershed moment for health emergency preparedness and for investment in critical 21st-century public services and the effective delivery of global public goods.”

He declared that the UN has a framework for action – the 2030 Agenda for Sustainable Development and the Paris Agreement on Climate Change and will endeavor to keep its promises for the people and the planet alike. UN report warns that the current climate change pledges and legislations like the global Paris Agreement (2016) are insufficient and inadequate to limit global warming by the end of the century to two degrees Celsius.

However, the United States was the first country to withdraw from the Paris Agreement citing the restrictions on the economy. This withdrawal and the cause behind it are the deathly reasons behind recurring flashes of climate change in the form of natural disasters.

A common person can contribute substantially because a mass of common people only makes an entire population. While building homes, individuals must stress a LEED certification which is awarded to “green homes”. Tax rebates are awarded to property buyers of green buildings and commercial establishments for five years.

Reduced usage of air conditioners, increased usage of public transport and bamboo products are important pointers. Utilizing bamboo products in daily routine like brushes, combs, and sanitary pads don’t limit their advantage to climate but also gives impetus to the growth of the industry in backward areas.

Women must be advised to use menstrual cups in place of sanitary pads, as they are relatively economical and bring down waste massively. The government has pushed for increasing the demand for jute since 1987; it should take similar steps to give buoyancy to the bamboo and cloth industries.

It is estimated that the livestock industry produces a whopping sixty-four percent of ammonia which induces acid rain. The livestock industry also generates 65 percent of human-related nitrous oxide, which has 300 times the Global Warming Potential (GWP) of CO2. Estimates of the water required to produce a kilo of beef vary, from 13,000 liters to 100,000 liters.

The aforementioned are some of the many horrifying statistics that must make an individual push for at least three days of no meat per week. A shift in diet can lower greenhouse gas emissions much more quickly than shifts away from the fossil fuel burning technologies that emit carbon dioxide.

The current generation is fixated on fast fashion. It has been estimated that there are 20 new garments manufactured per person each year and we are buying 60% more than we were in 2000. Each garment is worn less before being disposed of and this shorter lifespan means higher relative manufacturing emissions.

Textile production is one of the most polluting industries, producing 1.2 billion tonnes of CO2 equivalent per year, which is more emissions than international flights and maritime shipping. Consumption rates of textiles have to decline.

The present and future generations have to be vocal and must resist the mass falling of trees in biological hotspots. There was an unprecedented uproar recently when “Array” was taken down in Maharashtra and currently a similar protest is in force for Arunachal Pradesh. Citizens must be proactive and must constantly voice their concerns. Only when voices are raised, the legislation is put in place to mirror such concerns.

Path-breaking laws like “The Air (Prevention and Control of Pollution Act) 1981” and “Environment (Protection) Act, 1986” are a result of public and global pressure. The environment and economy complement each other’s protection and not blow each other out of proportion.

Lastly, it is pertinent to note that the pandemic showed a glimpse into a horrendous future and gave us a reminder of the intimate and delicate relationship between people and the planet. Any efforts to make our world safer are doomed to fail unless they address the critical interface between people and pathogens, and the existential threat of climate change; so on World Environment Day 2020, we should take a vow to make our Earth more habitable.

This Day assumes unparalleled importance as it sets out an important environmental mission for a year, with a view to “celebrate bio-diversity” and replenish and revive the eco-system.

---

Tags: effects of water pollution, environmental impact assessment, environmental impact, human impact on the environment, air pollution effects on the environment, environmental threats, effects of pollution on environment, environmental aspects

Return to Work Checklist for Employers

India has forayed into Lockdown 3.0 until May 17 and we all are patiently waiting to know the new changes that Lockdown 4.0 might bring in. But the real question is – how long will this economic standstill last? 

The health and economic consequences of COVID-19 coupled with other unknown variables compelled the government to divide all districts within India into three zones namely – Red, Orange, and Green – each have varying levels of restrictions aimed at containing the spread of the virus.

As Green and Orange zones gear up to open factories, and offices, we cannot overlook the possibility of potential relapses and a subsequent wave of infections. 

This double-sided sword necessitates containment of the virus on one side, and re-stabilization of the economy on the other, people and their government will be tip-toeing to curb the virus and recession simultaneously.

Employers are a vital part of the chain and thus pose the question – what is the ‘Return To Work’ checklist that an employer must comply with by checking off rules and regulations as propounded by the government to provide an overall healthy environment?

Existing Legislation

Legislation governing the health and safety of employees in the workplace is highly fragmented and has a limited scope and specific objectives. The Factories Act, 1948, provides for the health, safety, and welfare of the workers in the manufacturing sector, The Mines Act, 1952, safety in mines.

The Building and other Construction Workers (Regulation and the Employment and Conditions of Service) Act, 1996, provides for regulating the conditions of service of building and other construction workers, whereas the Beedi and Cigar Workers (Conditions of Employment) Act, 1966, provides for the safety, health and welfare measures for a particular class of occupation.

Last year, a bill for consolidating these acts called Occupational Safety, Health, and Working Conditions Code, 2019 (the “Code”), was proposed to set duties of employers and ensure a workplace free from hazards with high safety protocols. 

In the wake of the ongoing pandemic, the proposal would require an overhaul. However, in the interim, the Ministry of Home Affairs exercising its power under the Disaster Management Act, 2005, has prescribed the ‘National Directives’ and ‘Standard Operating Procedures to ensure the health and safety of employees working at offices allowed to remain open during the lockdown.

More or less an employer should incorporate all the legal compliance pertaining to its business together with the new guidelines specifically meant for the pandemic with some complicity and set as a base threshold, before allowing employees into offices.

Spreading Awareness 

At the outset, an individual or employer must be aware of what is going around in the society at large and further check on employees’ health, sanitization of office space, etc. The awareness pre-requisite may seem trivial, but its absence may have catastrophic consequences – health-wise and monetarily. 

All employers should follow the guidelines and reports of WHO, the Indian government, or their local authority to have a hold of the situation which is not only necessary for the wellbeing of its employees but also for understanding and planning business decisions and the next move to deal with it. 

Moreover, employers should provide a guidance report prior to commencement of work in offices and provide necessary training, including for employees engaged in security and housekeeping jobs. All awareness material including posters, presentations, etc. should be displayed in conspicuous places in the workplace (including in regional language) as a reminder of safety and hygiene, and most importantly be consistent with rules laid down by the government.

Planning & Management 

The next step would be meticulous planning and development of a well-devised course of action for the future. This includes setting up a response team comprising all key managerial personnel that would deal specifically with the new need of the hour. 

Communication policies should be reviewed, reassessed, and revised that minimizes physical interactions and promotes social distancing. Telecommunication and work from home should be promoted wherever possible, which can be achieved efficiently through a reliable communication channel. 

Further, travel policies should be revised limiting all non-essential travel for the time being. In offering flexibility, a business should look for alternative sources of creditors, suppliers, and markets to ensure an undisrupted supply chain in the future arising out of any contingency. 

Basic Prevention Measures 

As notified by the Ministry of Labour and Employment, the employer should ensure these primary preventive guidelines to ensure a safer workplace environment amidst the Corona chaos. Ensuring proper cleaning and frequent sanitization of the workplace, particularly of the frequently touched surfaces.

In fact, employers must ensure a regular supply of hand sanitizers, soap, and running water in the washrooms and promote regular and thorough hand-washing by employees, contractors, and customers. 

Advising all staff who are at higher risk i.e. older employees, pregnant women, and those with underlying medical conditions, to take additional precautions and preferably allow them to work remotely. It may be ensured that such employees are not exposed to any front-line work requiring direct contact with the public etc. 

Compensation and other checklists

Employers must ensure clarity on the compensation front with employees from all rungs of the ladder. As per government direction, leaves taken by employees due to the lockdown shall not be treated as leave and further discouraged employers from wage deductions and lay-offs. If an organization goes for alternate working days for two groups of employees the rest day of one group should not be treated as leave and thereby no deductions should be made.

Although the delay in increment, giving bonuses, etc. may be carried out as per the financial health of the business and sales forecast. Employers must ensure confidentiality of employee/s contracting the disease or taking sick leave to ensure no discriminatory practice and thereby mitigate panic at the workplace.

Conclusion

A widely conceived notion is that we are headed towards a new future where social distancing or remote offices may be the new normal. So much so that when right now we are talking about safety at the workplace and we would see before our eyes the very change in the definition of the workplace!

Naturally, employees are the key drivers in client servicing and relationships, thus service providers and service seekers alike must pay attention to such essential and unavoidable changes in society and the legal framework governing it.

Employers have a multitude of challenges to surmount within a short span of time and therefore the best checklist for an employer would be to make employees well aware of the situation at hand and take direct action at a lower level about dealing with situations contingent on it. Adoption of guidelines provided by WHO, and our Central, and local governments into our day-to-day etiquette would be the key to crisis mitigation and management.

 

---

Tags: Return-to-Work, health consequences, economic consequences, Return to Work, checklist for employers, back to work, back to work program, return to work program 2021