Writ Petition No.1325 of 2010. Case: Vodafone International Holdings B.V. Vs Union of India & Anr.. High Court of Bombay (India)
Case Number | Writ Petition No.1325 of 2010 |
Counsel | For the Appellant: Mr.Harish Salve, Sr.Advocate with Dr.Abhishek Singhvi, Sr.Advocate, Mr.Arvind Datar, Sr.Advocate, Ms.Anuradha Dutt, Ms.Fereshte Sethna, Mr.Kuber Dewan, Ms.Shweta Bindhuri, Mr.Gaurav Chauhan, Mr.Shardul Singh, Ms.Malvika Bakshi, Ms.Gayatri Goswami, Mr.Kamaldeep Dayal, Mr.Rahul Chugh, Mr.Jaiveer Shergill, Mr.Sameer Singh and Mr... |
Judges | Dr.D.Y.Chandrachud And J.P.Devadhar, JJ. |
Issue | Income Tax Act, 1961 - Sections 133(6), 163, 90, 14A, 94(7), 2(14), 195; Constitution of India - Articles 39(b)(c), 285(1), 226, 245(2) |
Citation | 2010 (112) BomLR 3792, 2010 (235) CTR 15 (Bom), 2010 (329) ITR 126 (Bom), 2010 (193) Taxman 100 (Bom) |
Judgement Date | September 08, 2010 |
Court | High Court of Bombay (India) |
Judgment:
Dr.D.Y.Chandrachud, J.
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The facts:
Hutchison''s business interest in India:
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Vodafone International Holdings B.V., Netherlands (VIH BV) is a company controlled by the Vodafone Group Plc. U.K. In 1992 the Hutchison Group of Hong Kong acquired interests in the mobile telecommunications industry in India, through a joint venture vehicle, Hutchison Max Telecom Ltd. (renamed Hutchison Essar Ltd -- HEL in August 2005). Between 1992 and 2006 Hutchison acquired interests in twenty three mobile telecommunication circles in India. HEL is an Indian company in which shares were acquired by the Hutchison Group of companies through a structural arrangement of holding and subsidiary companies. The moiety of shares of all the operational companies (Indian entities) which were under Hutchison control, direct or indirect, were held either by Mauritius based companies recognized as Overseas Corporate Bodies with tax residency certificates, or through other entities in which Hutchison interests (shareholding over which Hutchison exercised direct or indirect control) were held by a Mauritian company.
Ownership structure:
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In order to facilitate an understanding of the key issues in this case, we reproduce below an ownership structure chart:
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Hutchison held call options over companies controlled by Asim Ghosh and Analjit Singh as also over SMMS Investments Pvt. Ltd. aggregating to approximately 15% of the shareholding of HEL. The benefit of these options enured in favour of a corporate entity called 3 Global Services Private Ltd., a company registered under the Companies' Act, 1956.
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The licence for Mumbai Circle was awarded in November 1994 by the Department of Telecommunications (DoT) to Hutchison Max Telecom Ltd. (HMTL). 50% of the share capital in HMTL was held by an Indian company, Max Telecom Venture, 49% by Hutchison Telecommunications (India) Ltd. Mauritius (HTM) and 1% by another company. The parent company of HTM, at the material time, was Hutchison Telecommunications (India) Ltd. Cayman Islands (HTC). HTC, in turn, was a joint venture of the Hutchison Group (60%) and Distacom India Co.Ltd., BVI (40%). Distacom left the joint venture in 2004. Subsequently, a number of investments were made through other companies:
● In 1998, MTV sold a 40% stake in HMTL to Telecom Investments India Ltd. (TII).
● In 2004, Essar (Mauritius) purchased the 40% stake of Distacom in HTC who then transferred the shares to HTI BVI Holdings Ltd. HTM transferred 19.6% of its holding in HMTL to the Essar Group.
● In 2006, Kotak Group sold its 51% stake in TII to ND Callus Info Services Pvt. Ltd., a company controlled by Analjit Singh. Simultaneously, Centrino Trading Co. Pvt. Ltd. subscribed to 23.97% stake in TII.
● In 2006, the Hinduja Group, which held a 5.11% stake in HEL, sold its stake to Hutchison Group.
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On 12 January 1998 CGP Investments (Holdings) Ltd., (CGP) was incorporated in Cayman Islands by the Hutchison Group. HTL Hong Kong was the sole shareholder of CGP and in September 2004, it came to be transferred to/acquired by HTI BVI.
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Hutchison entered into the Delhi Telecom Circle in December 1999, the Kolkata Circle in July 2000 and the Gujarat Circle in September 2000. Licences for these Circles had initially been awarded by DoT in 1994, 1997 and 1995 respectively.
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In 2004, Hutchison Telecommunication International Ltd., Cayman Islands (HTIL) was incorporated and listed on the Hong Kong and New York Stock Exchanges. HTIL and its downstream companies held interests in the mobile telecommunications business in several countries including India.
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In 2005, HMTL (which later became HEL and is now VEL) completed a process of consolidation. Shares of several operating companies were transferred by diverse holding companies to HMTL, in consideration for which HMTL issued its own shares to these holding companies. Approval of the Foreign Investment Promotion Board of the Union Government (FIPB) was obtained in November 2004 and of the Reserve Bank in December 2004.
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On 28 October 2005 VIH BV agreed to acquire 5.61% of the shareholding in Bharti Televentures Ltd. (now Bharti Airtel Ltd.).
Framework Agreements:
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On 1 March 2006, Framework Agreements were entered into by Asim Ghosh and Analjit Singh. One agreement was between Asim Gosh, Goldspot Mercantile Company Pvt. Ltd., Plustech Mercantile Co. Pvt. Ltd., 3 Global Services Pvt. Ltd. (3GSPL) and Centrino Trading Co.Pvt. Ltd. Centrino Trading acquired shares in TII. Plustech held 100% shares in Centrino. Goldspot held 100% shars in Plustech. Goldspot was controlled by Asim Ghosh. 3GSPL's holding company was Hutchison Tele Services (India) Holdings Ltd., Mauritius, and in turn, CGPC was the holding company with a 100% shareholding of Hutchison Tele Services (India) Holdings Ltd.
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3GSPL (a Hutchison Company) agreed to procure credit support in order to enable Centrino to subscribe to 23.97% shares in TII (which holds directly and indirectly 19.54% in HEL). In consideration for this, the Agreement conferred upon it a right:
• to subscribe to equity in Centrino.
• to purchase equity of Plustech (3GSPL Call Option), Goldspot had, in turn, an option to require 3GSPL to purchase equity shares of Plustech (Goldspot Put Option). The transfer price/fair market value of the Plustech shares was to be determined in terms of a comprehensive mechanism agreed to between the parties, set out in Schedule 2.
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There was a similar Framework Agreement between Analjit Singh, Scorpios Beverages Pvt. Ltd. (held 100% by Mr./Mrs.Analjit Singh), MV Healthcare Services Pvt.Ltd. (held 100% by Scorpios) and ND Callus Info Services Pvt. Ltd. (held 100% by MV Healthcare).
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In consideration of 3GSPL procuring financial assistance for N.D. Callus to subscribe to 38.78% shares in TII (which holds directly and indirectly 19.54% in HEL), Scorpios granted 3GSPL.
• a right to subscribe to equity in ND Callus
• and/or purchase equity of MV. Healthcare.
3GSPL granted Scorpios Beverages an option to require 3GSPL to purchase equity shares of MV Healthcare. The transfer price/fair market value of the MV Healthcare shares was to be determined in terms of Schedule 2, which set out a mechanism somewhat at variance with the mechanism in the other Framework Agreement.
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Similarly on 7 August 2006, a Framework Agreement was executed between IDFC Pvt. Equity Co. Ltd., Hutchison Telecommunications (India) Ltd., 3GSPL, Indusind Telecom Network Ltd., HTIL and other companies.
Hutchison exits:
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In December 2006, HTIL issued a press statement, stating that it had been approached by various potentially interested parties regarding a possible sale of its equity interests in Hutchison Essar Limited (HEL), the company's mobile operations in India.
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On 22 December 2006, Vodafone Group Plc made a non binding offer for a sum of US$11.055 billion, in cash, for HTIL's shareholdings in HEL. The letter stated that Hutch Essar was being valued at an enterprise value of US $ 16.5 billion. The offer to HTIL of US$ 11.055 billion was for its 67% interest in Hutch Essar.
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On 9 February 2007, Vodafone Group Plc submitted a revised and binding offer to HTIL on behalf of Vodafone International Holdings BV for HTIL's shareholdings in HEL together with inter related company loans. The offer was US $10.708 billion on the basis of an enterprise value of US $ 18.250 billion.
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Bharti Infotel Pvt. Ltd. by a letter dated 9 February 2007 furnished its no objection to the proposed transaction.
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On 10 February 2007, Vodafone Group Plc made a final binding offer of US $ 11.076 billion, based on an enterprise value of US $ 18.800 billion of HEL.
Sale Purchase Agreement:
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On 11 February 2007, a Sale Purchase Agreement (SPA) was entered into between the Petitioner and HTIL under which HTIL agreed to procure and transfer to the Petitioner the entire issued share capital of CGP, by HTI BVI free from all encumbrances together with all rights attaching or accruing, and together with assignment of loan interests. This was followed by announcement by HTIL and Vodafone of 12 February 2007, the latter stating that it had agreed to acquire a controlling interest in HEL via its subsidiary VIH BV.
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On 20 February 2007, Vodafone Group Plc on behalf of VIH BV addressed a letter to Essar Teleholdings Ltd. for purchase of Essar's entire shareholding in HEL (''Tag along rights'').
Application to FIPB:
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On 20 February 2007, VIH BV, filed an application with the Foreign Investment Promotion Board (FIPB) of the Union Ministry of Finance stating thus:
Vodafone Group acquired a direct and indirect investment in Bharti Airtel Ltd.
• The Petitioner held 5.61% stake directly in Bharti Airtel.
• Vodafone Mauritius held an indirect interest of 4.39% in Bharti Airtel through Bharti Infotel Pvt. Ltd. and Bharti Telecom Ltd.
• The Petitioner intended to acquire the share capital of CGP indirectly from HTIL. CGP owns directly and indirectly through its subsidiaries an aggregate of 42.34% of the issued share capital of HEL.
• This was an overseas transaction between two overseas companies, which requires noting, and does not require approval of FIPB.
• The Petitioner will acquire an indirect controlling interest of 51.96% in HEL, a company competing in the same field with Bharti, attracting Press Note 1.
• The Consent of Bharti has been secured.
The Petitioner requested the FIPB to take note and grant approval under Press Note 1 to the indirect acquisition of a 51.96% stake in HEL through an overseas acquisition of the entire share capital of CGP from HTIL.
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On 22 February 2007, HTIL made an announcement on the Hong Kong Stock Exchange stating that it intended to use the proceeds from the sale of its interest in HEL by declaring a special dividend of HK $ 6.75 per share, utilising HK $ 13.9 billion to reduce debt and the remainder for investment in telecommunications businesses.
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On 28 February 2007, FIPB addressed a letter to HEL, seeking complete details...
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