A losing battle?

Delays, the lack of predictability, and the escalating cost of dispute resolution in India have left investors and companies scrambling for a path to real remedies

Rebecca Abraham reports

India’s image as an investment destination got a boost when the Supreme Court ruled in January that Indian tax authorities did not have the backing of the law to tax capital gains arising out of Vodafone’s entry into India. Vittorio Colao, CEO of Vodafone, would have been speaking for many among the international investing community when he said the decision “underpins our confidence in India”.

The Supreme Court ruling sent a powerful message to the world at large about the Indian judiciary’s ability to uphold the rule of law.

“Very few countries can boast of such a judiciary,” Harish Salve, a senior advocate who represented Vodafone, is reported to have said soon after the judgment.

The Vodafone case was notable also for the relative speed with which the final decision was delivered. The company’s troubles in India began in September 2007 when the tax authorities asked a Dutch unit of Vodafone to explain why it had failed to withhold taxes. After the initial wrangling over jurisdictional issues, the matter – admittedly a high-stakes writ petition – went through both Bombay High Court and the Supreme Court in just 20 months.

Delays persist

But while a few high-profile cases such as this get resolved swiftly, as a rule only the very patient should knock on the doors of an Indian court.

“The biggest concern for foreign investors is the pervasive delay in the court system,” says Peter Goldsmith QC, a partner at Debevoise & Plimpton in London and former attorney general of the UK. Goldsmith, who heads the European and Asian litigation practice at the firm, points out that “Indian court dockets are notoriously backlogged, often taking 10-15 years to fully resolve a case (from the date of filing until all appeals are exhausted).”

Investors and companies within India share this view.

“One of the major concerns for me is the time,” says B Gopalakrishnan, president and head of legal at Axis Bank. He adds that going to the courts is “often a last resort”.