But the development comes even as inter-ministerial government panel on Monday decided to inform Vodafone that its arbitration notice under the India-Netherlands investments protection treaty was premature.
"We will tell them that their notice under India-Netherlands BIPA (Bilateral Investment Protection Agreement) is premature," a senior finance ministry official told ET after Monday's meeting and added that that the inter-ministerial group has finalized its response.
Vodafone however is of the view that the Indian government had breached clauses in the bilateral tax treaty that calls for 'fair and equitable treatment of investments', thereby violating the international legal protections granted to the company, the executive quoted above added.
Last month, The Dutch subsidiary of UK-based telecom major Vodafone, had served a dispute notice to the India government, the first step towards initiating international arbitration proceedings under the India-Netherlands bilateral treaty after the 2012 budget gave the government power to retrospectively tax the company's $11-billion acquisition of Hutchison Essar in 2007.
The government had set up an inter-ministerial group headed by finance secretary RS Gujaral to frame its response to Vodafone notice. Other members of the group include the officials from the ministries of external affairs, telecom, law and revenue.
The government says the retrospective amendment will impact only those transactions in which assessment order has not yet been passed. The finance ministry has also maintained that tax issues are not covered under India-Netherlands BIPA.
Reacting to passing of the Finance Bill, where the government suggested that it would raise a tax demand of Rs 20,000 crore (including penalties and interest) on Vodafone, the UK-headquartered mobile phone company had threatened legal action without specifying details.
The Finance Bill 2012 has not yet received presidential assent.
It had been assumed that Vodafone's legal strategy would involve approaching the Supreme Court first to challenge the constitutional validity of a retrospective change in law in the Finance Bill that was approved by the Lok Sabha earlier this month.
The Finance Bill is widely seen as targeting Vodafone and an attempt by the Centre to overturn the SC ruling that struck down the government's tax claim against the mobile phone company. In January this year, Vodafone won a four-year legal battle against the government when the Supreme Court ruled that it did not need to pay the Rs 12,000 crore in taxes because the transaction took place between two overseas firms and there was no provision in Indian law to tax such deals.
Vodafone's CWW bid shows backbone - CIO UK
Cable and Wireless has had troubled times of late. Two years ago, in an attempt to address and solve its difficulties, it split consumer and business telecoms functions into Cable & Wireless Communications and Cable and Wireless Worldwide (CWW) respectively.
When CIO met CWW’s director of IT operations Richard Wilson in August last year, he had already been through an extensive round of streamlining; he had introduced more efficient IT processes and his ‘team-desking’ has cut office costs.
Even so the company had found it hard to make its mark against huge rivals like BT and as a result CWW looked like a prime target for acquisition.
Sure enough, early this year a race began between Indian telco Tata Communications and mobile phone behemoth Vodafone.
By the end of April Vodafone had become the sole remaining bidder, putting in a bid of 38p for each share. This offer has already been endorsed by the CWW board and some key shareholders and is being put to remaining shareholders for approval.
One key shareholder, Orbis, holds 19 per cent of CWW’s shares and remains a fly in the ointment. Orbis is holding out against Vodafone’s terms, thinking the valuation of just over £1bn too low.
As Vodafone needs a 75 per cent shareholder agreement to go ahead, Orbis’ continued reluctance would put the deal in the hands of a small number of shareholders.
If the deal does go ahead, exactly what will Vodafone have bought and how will it complement its own lines?
Last year CWW revenue was split equally between voice and legacy and IP and data traffic, and in spite of CWW’s recent push in hosting and apps, such products still represent just 12 per cent of revenue.
So Vodafone is not buying CWW’s products, but its infrastructure.
In acquiring CWW, Vodafone gains access to over 200km of UK fibre infrastructure. This essential fibre capacity will help it reduce costs, increasing control and allowing network rationalisation.
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