Vodafone Trying to Intimidate, India Attorney General Says

A Vodafone Group Plc (VOD) official’s comment that retroactive taxes discourage foreign investments in India is an “attempt at intimidation” over a $2.5 billion payment dispute, Attorney General Goolam Vahanvati said.

Vodafone is waiting for India’s top court to rule on a government claim that it owes taxes on its 2007 purchase of a 67 percent stake in Hutchison Whampoa Ltd.’s Indian unit. The tax bill could rise to $5 billion including penalties, Vodafone Chief Financial Officer Andy Halford told reporters in New Delhi last week.

Such amounts “are quite big uncertainties if you are looking to invest in other countries,” Halford said. Companies should wait to see how the dispute is resolved before making new investments in India, he said.

The comments from Vodafone, which said it doesn’t owe the Indian government taxes, come amid a backlog of commercial disputes in courts and efforts to fight corruption as investments from overseas fall. Foreign direct investment in India dropped 10 percent to $7.1 billion in the first four months of the year, based on latest available government data.

India’s rule of law means “foreign investors never have to worry about their money being confiscated,” Vahanvati said in an interview in New Delhi July 5. The Supreme Court, where Vahanvati is representing the government in the matter, will decide the case, not politicians, he said.

Source: Office of the Attorney General of India via Bloomberg

Goolam Vahanvati, India's attorney general. Close

Goolam Vahanvati, India's attorney general.

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Source: Office of the Attorney General of India via Bloomberg

Goolam Vahanvati, India's attorney general.

‘Commonly Held’ View

Vodafone was expressing a “commonly held” view and has made “no attempt to intimidate the system,” Ben Padovan, a spokesman at the Newbury, England-based company, said by e-mail. “We have done no more than state publicly known facts surrounding the case and give our opinion on those facts.”

Vodafone rose 0.1 percent to 164.90 pence as of 9:23 a.m. in London trading. The stock has gained 16 percent in the past 12 months.

To further improve the foreign-investment climate, the government plans to boost staffing at the Central Bureau of Investigation, India’s federal investigative agency, to fight corruption and set up special courts to deal with corporate disputes, Vahanvati said.

Prime Minister Manmohan Singh held all-party negotiations last week on the creation of an independent, anti-graft body known as Lokpal, in response to a public anti-corruption campaign.

Revenue Investigation

The Supreme Court is already monitoring an investigation into the possible loss of revenue to the government of as much as $31 billion because of a 2008 sale of airwaves that India’s Comptroller and Auditor General said was conducted at “unbelievably low” prices. The court appointed a panel July 4 to oversee Singh’s attempts to recover “black money,” or illegal funds from companies and individuals stashed in overseas bank accounts.

“Internal pressures from civil society and the international trend of greater enforcement against corruption means that the Indian government is being squeezed from all sides into responding to the issues,” said Andrew Martin, a Singapore-based partner at Baker & McKenzie LLP’s India Focus unit.

Vahanvati dismissed a suggestion that the courts were forcing the government to act on corruption, blaming the “misimpression” on inaccurate media coverage.

“The Supreme Court is not at odds with the government, and the government is not at odds with the Supreme Court,” he said.

Lokpal’s Authority

The government hasn’t decided whether Lokpal would work independently of the CBI or would absorb the CBI as an investigative authority, Vahanvati said. The government is keen on a strong Lokpal bill, “but it has to be within the framework of the constitution,” he said.

The CBI had 9,636 cases awaiting trial at the end of 2009, up from 9,475 the year before, the latest periods for which comparable data is available. Out of the 302 positions in the CBI’s law office, 149 jobs were vacant, forcing the agency to hire 46 special prosecutors on contract as a “stop-gap arrangement,” it said in July.

“We will never be able to pay government lawyers the kind of fees that private companies can consider, but we should at least pay a decent amount,” Vahanvati said.

To speed up the resolution of commercial disputes, parliament is considering a bill that would create a special Commercial Courts Division, with judges trained in business matters, he said. A current backlog of 31 million cases, or an an average of 2,100 cases per judge, would take more than 300 years to resolve, the Supreme Court estimated in 2010.

“I am very concerned about how slow the system is, and we are trying our best to reduce the arrears,” Vahanvati said. “But there is no magic wand.”

To contact the reporters on this story: Mehul Srivastava in New Delhi at msrivastava6@bloomberg.net; PS Patnaik in New Delhi at ppatnaik2@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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