Hindustan Zinc dispute: Vedanta parent moves Permanent Court of Arbitration against Indian govt | Company Business News-OxBig News Network

Vedanta Resources Ltd, the UK-based parent company of Vedanta Ltd, has taken its ongoing dispute with the Indian government to the Permanent Court of Arbitration (PCA) over mining rights. 

The arbitration under the 1994 India-UK bilateral investment treaty (BIT) marks an escalation in the mining major’s efforts to address regulatory challenges in India. The PCA record published on 12 November underscores rising tensions over foreign investment in India’s mining sector.

The arbitration began on 22 October this year, with a three-person arbitral tribunal. Former Indian supreme court judge V Ramasubramanian is one of the arbitrators.

The dispute arose when the Indian government refused Vedanta’s bid to purchase the government-stake in mining company Hindustan Zinc – about 30% – where Vedanta already holds a majority 63% stake, according to a person aware of the matter.

Vedanta first purchased Hindustan Zinc, which was then a central public sector undertaking, in 2003.

The government has been reducing its stake in Hindustan Zinc, selling 2.5% on 6 November. According to multiple media reports, the sale of a 1.6% stake generated nearly ₹3,500 crore.

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An email query sent to Vedanta Resources Ltd and the ministry of finance regarding the development did not elicit an immediate response. 

Indian law firm Khaitan and Co., which is one of the firms representing Vedanta Resources Ltd, also did not respond to queries immediately. 

The seat of arbitration is Switzerland.

Previously, the Supreme Court of India had taken notice of disinvestment cases such as the reputed Bharat Aluminium Company (BALCO) case and the HPCL-BPCL disinvestment case. In these, the top court noted that decisions related to disinvestment of government entities can only be taken after amendments to related laws.

Investor-state arbitration

UK-based Vedanta Resources Ltd raising a dispute against the government of India brings the challenges of investor-state arbitration into limelight. 

Notably, the India-UK BIT signed in 1994 was India’s first bilateral investment treaty, after the liberalisation of the economy in 1991. The number jumped to over 80 bilateral investment treaties and multiple international investment agreements by 2015. 

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Investor-state dispute has been a challenge ever since, as the floodgates opened after the Indian government was dragged to arbitration for the first time in 2011, and received an adverse award in the case of White Industries v Republic of India, as per a Global Arbitration Review (GAR) article in July this year. 

“This opened a floodgate of BIT cases against India. By 2015, there were about 17 known BIT claims, all of which were contested by India. With increased national concern around the surge of BIT arbitrations filed against India, there was a call for curtailment of investor-state dispute settlement (ISDS),” the GAR study said. 

Following such adverse treaty claims, the Indian government decided to rework its BIT regime. In 2015, the government created a Model BIT to protect the interests of investors while taking into account government obligations. Another focus of the government in 2015 was to terminate BITs whose initial terms had lapsed, or whose terms were not aligned with the new model. 

In recent BIT updates, India has made specific departures from its Model BIT framework. Notably, in the India-UAE BIT, which took effect in October, India recognised portfolio investments from the UAE as legitimate investments—a category not included under the Model BIT. 

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Additionally, it shortened the local remedies requirement from five years to three, allowing for arbitration sooner in cases where local remedies prove insufficient.