For the research article “ Impact of emerging global-entities on working of domestic/municipal administration (state sovereignty) with special reference to Vodafone taxation case” following literature is thoroughly perused and explored by the researcher.

Rajeshwar Tripathi in “Concept of Global Administrative Law : An Overview” hold that, Globalisation has integrated the entire world into a unit with a vast range of regulatory regime, and has led to the emergence of a neo-global state through international institutions. These global institutions directly or indirectly regulate the social, economic and political functions of states. In this way GAL is related to trans-governmental regulation and administration designed to address the consequences of globalised interdependence in such fields. This phenomenon has led to the question of accountability, fairness and transparency and due process in the functioning of these global administrative bodies. [7]

 B.S. Chimni in the paper “Co-option and Resistance: Two Faces of Global Administrative Law” critiques the Global Administrative Law (GAL) initiative from a third world perspective. He argues that, in the absence of a simultaneous reform of substantive law, GAL has only limited potential to contribute to justice in the international system, and even may legitimize unjust laws and institutions. Modern global institutions are not, for the most part, being made more participatory and responsive to the concerns of developing countries and its peoples. Thus, GAL can play a vital role as an instrument of resistance and change. [8]

Benedict Kingsbury, Nico Krisch & Richard B. Stewart in the article “The Emergence of Global Administrative Law” expressed their views that emerging patterns of global governance are being shaped by a little-noticed but important and growing body of GAL. This body of law is not at present unified indeed, it is not yet an organized field of scholarship or of practice. [9]

Benedict Kingsbury in his article “The Administrative Law Frontier in Global Governance” submits that a body of GAL is under construction, and that this growing body of law can be better analysed as part of the new jus gentium rather than being analysed simply under the traditional international law model of jus inter gentes. [10]

Nico Krisch and Benedict Kingsbury in “Introduction: Global Governance and Global Administrative Law in the International Legal Order” hold that Globalization and the rise of global governance are transforming the structure of global law. He states that the distinction between domestic and global law becomes more precarious, and the sovereign equality of states is gradually undermined, and thus basis of legitimacy of international law is increasingly in doubt. Global administrative law starts from the observation that much of global governance can be understood as regulation and administration, and that we are witnessing the emergence of a “global administrative space”: a space in which the strict dichotomy between domestic and international has largely broken down, in which administrative functions are performed in often complex interplays between officials and institutions on different levels, and in which regulation may be highly effective despite its predominantly non-binding forms. [11]

Benedict Kingsbury in the article “Weighing Global Regulatory Rules and Decisions in National Courts” opined that Global regulatory governance is increasingly conducted by extra-national/global institutions by adopting administrative-style rules and regulations, or specific decisions concerning individual entities, which affect private actors or state agencies in ways that eventually come to be considered in national courts. This global regulatory governance produces unfamiliar challenges for national courts. [12]

Case of Vodafone ( Whether PCA is alleged to be undermined/discarded the very sovereign function ?)

Vodafone’s case is a good instance to analyse the assertion that there are many emerging global institutions, which affects the working of states in the modern era of globalisation and in many cases the very sovereign space of states is alleged to be undermined/affected by decisions of powerful global entities. The decision made by the Supreme Court in the Vodafone case and subsequently the decision made by PCA contrary to the very legislation of Indian sovereign ( Parliament) not only made a huge loss to the Indian state, but questioned the sovereign economic functions of modern nation-states in the working of intergovernmental global institution.

As far as factual matrix of this case is concerned it can be summarise as:

‘This issue concerns a tax dispute involving the Vodafone Group with the Indian tax Authority  in relation to the acquisition by Vodafone International Holdings BV (herein after mentioned as Vodafone) a company alleged to be resident for tax purposes in the Netherlands, of the entire share capital of CGP Investments (Holdings) Ltd. ( herein after mentioned as CGP) a company  said to be resident for tax purposes in the Cayman Islands vide a transaction entered in 2007, whose stated aim, was, acquisition of 67% controlling interest in Hutchison Essar Limited (herein after mentioned as HEL)”, being a company resident for tax purposes in India. It is alleged that Vodafone agreed to acquire companies which in turn controlled a 67% interest, but not controlling interest, in HEL, CGP held indirectly through other companies 52% shareholding interest in HEL as well as options to acquire a further 15% shareholding interest in HEL, subject to relaxation of FDI norms. Thus the dispute is that the Revenue seeks to tax the capital gains arising from the sale of the share capital of CGP on the basis that CGP, whilst not a tax resident in India, holds the underlying Indian assets.’[13]  Thus in September 2007, a show-cause notice was given to the Vodafone Company by the Indian Tax Department to clarify the reason for why tax was not retained on instalments made to HTIL in connection to the above said transaction as said transaction of transfer of shares in CGP had an impact of aberrant or indirect transfer of assets in India.’[14]

The legal question to be adjudicated in this case is, ‘Whether the transfer of shares between two foreign companies, resulting in extinguishment of controlling interest in the Indian Company held by a foreign company, amounted to transfer of capital assets in India to make it assessable as tax in India?[15]

Approach of Indian Judiciary

Against the notice of Income Tax department the Vodafone group approached the Bombay High Court, who ruled in the favour of the Income Tax Department of India while holding that the very purpose of entering into agreements between the two foreigners is to acquire the controlling interest which one foreign company held in the Indian Company, by another foreign company, thus the transaction would certainly be subject to the municipal law of taxation provided in Indian domestic/municipal jurisdiction.[16] Vodafone filed an appeal before the Supreme Court of India, wherein the Supreme Court while overturning the decision of High Court held that the transaction took place between the two non-resident entities and the said agreement was entered and executed outside India, thus not subject to the jurisdiction of the Indian authorities.[17] The Government of India filed a review petition against the judgement but the supreme Court withstood its earlier stand and dismissed the review petition.[18] Then parliament invoked its sovereign authority of legislation and enacted a retrospective amendment in the Income Tax Act, 1961, which is very rare in the legacy of Indian taxation legislations. The Finance Act 2012 amended  the Income Tax Act,1961 and validated the tax that was imposed on Vodafone, while providing a  clarification note stating that it is required to remove ambiguity that was already present.[19] Thereafter, the Income Tax Department issued a fresh notice to the Vodafone for pending tax amount. It is to be noted that retrospective taxes are criticised in the systems of most of countries, thus  global pressure mounted on the India to settle the matter with Vodafone by arbitration, thus it reached the Permanent Court of Arbitration in Hague, where it invoked  the Bilateral Investment Treaty (BIT) signed between India and the Netherlands in the year 1995.[20]  A bilateral investment treaty means an agreement between the governments of two or more states that contains terms and conditions for private investments by nationals and companies of one state into another state, aimed  that the host state does not discriminate against foreign investments and protects the investments made by the investors of both countries. India and the Netherlands signed a bilateral investment treaty in 1995. The arbitration panel consisted of three members one of which was neutral and one each nominated by the party to the case, but the decision was unanimously taken  in favour of Vodafone, stating that India act in violation of the bilateral investment treaty and the United Nations Commission on International Trade Law (UNCITRAL). Article 9(1) of the BIT says that, any dispute aroused with an investor in connection with an investment in the territory of the other contracting party shall as far as possible be settled amicably through negotiations between the parties to the dispute. [21]

The judgement of PCA was that Netherlands was entitled to avail benefit of fair and equitable treatment under the BIT. The challenge put forth by the Government of India to the final judgment and order of the Supreme Court constituted a breach of the agreement, that was not avoidable and might lead to international responsibilities on India, thus India needs to pay an amount to Vodafone, as damages.’[22] It is further held that There is a breach of Article 4(1) of the Bilateral Investment Treaty, by the Indian Government “the protection of the guarantee of fair and equitable treatment” is also violated. The Government of India is not entitled to claim any tax from Vodafone and should stop any effort to recover the same.’[23]

It is to be noted that The PCA is an trans-governmental entity established 1899,  the Hague, Netherlands. It is the ancient mechanism to settle inter-state disputes with arbitration, it can’t be termed as Court as the International Court of Justice.[24]

PCA by holding that an amendment to Indian tax laws was in violation of India and the Netherlands agreement, the imposition of taxation through a retrospective amendment in local tax laws was in violation of fair and equitable treatment provided under the Agreement between the India and the Netherlands. This award does not mark the end of dispute as the Indian Government has the opportunity to challenge it before the High Court of Singapore.[25]  But is raise question that whether sovereign function of Parliament and Apex Court of a nation-state can be undermined by any global-entity. Thus the contentious question regarding de facto/phenomenal global governance by global administration bypassing municipal administration has been arisen in this issue.

Way Forward:

To check abuse of discretion/authority in arbitrary manner in the domestic administrative functioning, most of the democratic states have evolved an administrative law. Administrative law is the body of those fine rules (mechanisms) which are meant to regulate and control the administration in order to keep administrative authority equitable, democratic and fair, i.e.  to rule out chances of misuse of authority in arbitrary and unjust manner.[26] On the similar lines transparency, participation and accountability in global administrative working is also sine qua non. Many modern jurists urge for developing, introducing and adopting certain minimum principles, values and ideas akin to domestic administrative law as per suitability of global administrative bodies under the project called ‘Global Administrative Law (GAL)’.[27]  Thus, GAL is an taken with hope as a check and transparency providing evolution in context this serious issue of due and just governance by global bodies. The notion of global administrative law take birth from the twin ideas that global governance in the hands of emerging global bodies that can be understood as administration, and that such administration is often organised and structured by principles having an administrative law character.[28] On this modern era many scholars and academicians argued that for ensuring due and just regulation of these global bodies, GAL is required as we need to unite the structure of rules and principles through which subjects affected by these global bodies can be better governed.[29] So, this emerging global state, which acts through certain institutions and agencies required a just, democratic and comprehensive global administrative law to provide a just and democratic global governance, beneficial to all sovereign states and its citizens.[30]