Japanese automaker Nissan Motor has told the Madras High Court that the Tamil Nadu government cannot have any objection to international arbitration proceedings initiated by it against the Indian government for the reported failure on the part of the host nation in protecting the investment of the foreign company. In a counter-affidavit filed in response to the State government’s plea for an anti-arbitration injunction, Nissan Motor pointed out that Tamil Nadu had approached the court as late as 10 months after the company commenced the arbitration in February 2017 in its capacity as a protected investor.
According to the automaker, a consortium, of which it was a part, had entered into memorandum of understanding with the State in February 2008 for establishing the vehicle manufacturing unit with an installed annual capacity of 4 lakh vehicles and an eligible investment of ₹4,500 crore within seven years from the date of the MoU.
Claiming that the consortium had no obligation other than meeting the investment and installed capacity threshold, it claimed to have made much larger contributions by creating a manufacturing facility with a production capacity of 4.8 lakh vehicles per annum and investing ₹6,100 crore.
Under the MoU, the State had agreed to provide incentives in the form of Investment Promotion Subsidy (IPS), which included fiscal incentive in the amount of gross output value added tax (VAT) as well as the Central sales tax (CST) paid by the consortium on the vehicles and spare parts manufactured in the State.
In March 2015, a dispute arose between Nissan Motor India and Renault Indiaover honouring the input tax credit (ITC) that had accumulated over the years.In 2016, the Tamil Nadu VAT Act was amended with retrospective effect from January 1, 2007 and the ITC lying in the books of accounts of Nissan Motor India and Renault India was sought to be lapsed. Though both the companies challenged the amendment by way of individual writ petitions in July 2016, the government had not filed a counter-affidavit till date.
Due to the delay in payment of incentives, Nissan Motor decided to initiate an arbitration.
Jurisdictional issue
A notice was issued to the Prime Minister on July 7, 2016, providing 90 days’ time for an amicable resolution of the dispute. Since no settlement was reached, the arbitration proceedings commenced on February 27, 2017. Subsequently, the Centre nominated former Chief Justice of India J.S. Khehar as one of the arbitrators and raised jurisdictional issues. Stating that Nissan Motor too had agreed for adjudication of the jurisdictional issue before the arbitral tribunal could go into the merits of the dispute, the Japanese company said the court should allow the tribunal to be the first judge of its own jurisdiction by following the principle of competence-competence. The company contended that Indian courts must exercise restraint and avoid interfering with the arbitration proceedings by taking into account factors such as balance of convenience and the principle of comity.
Justice Anita Sumanth gave time till February 6 to Additional Advocate-General Narmadha Sampath for filing a rejoinder.
