India's top court allows Vodafone to begin second arbitration in $2 billion tax dispute

By Suchitra Mohanty and Sankalp Phartiyal

NEW DELHI/MUMBAI (Reuters) - India's top court on Thursday allowed Britain's Vodafone to initiate a second arbitration process under an India-UK investment pact over a long-running $2 billion (£1.5 billion)-plus tax dispute with New Delhi.

A two-judge panel of the Indian Supreme Court said a second arbitration tribunal may be set up and its proceedings can begin after a regional court formally lifts a stay order on the move. The Delhi High Court is expected to rule on the case in January.

Vodafone has already initiated an arbitration process over the matter under India's investment pact with the Netherlands.

Vodafone, the world's second-largest mobile operator, entered India in 2007 by acquiring Hutchison Whampoa's wireless assets. It is contesting a tax bill of more than $2 billion relating to that acquisition.

India's Supreme Court ruled in 2012 that Vodafone was not liable to pay any tax over the transaction. But the federal government changed laws, allowing it to make retroactive tax claims on completed deals, a move that drew criticism from business groups.

Vodafone, whose local unit is India's second-largest mobile carrier, has repeatedly said it was not liable to pay any tax over the Hutchison acquisition.

Vodafone India is in the process of merging its operations with smaller rival Idea Cellular to potentially create the biggest Indian telecom carrier.

Earlier this year, Indian tax authorities issued a penalty order to a unit of CK Hutchison Holdings Ltd for not paying taxes on the 2007 transaction.

(Reporting by Suchitra Mohanty and Sankalp Phartiyal; Editing by Malini Menon and Mark Potter)