Hindustan zinc mine dispute: Vedanta parent files case against Indian government in Permanent Court of Arbitration

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

The arbitration under the 1994 India-UK Bilateral Investment Treaty (BIT) marks an escalation in the mining giant’s efforts to resolve regulatory challenges in India. PCA records released on November 12 highlighted growing tensions in India’s mining industry over foreign investment.

The arbitration started on October 22 this year, and the arbitral tribunal is composed of three people. Former Supreme Court Justice of India V Ramasubramanian is one of the arbitrators.

The controversy erupted after the Indian government rejected Vedanta’s bid to acquire a government stake (about 30%) in mining company Hindustan Zinc, in which Vedanta already holds a 63% majority stake, according to people familiar with the matter.

Vedanta first acquired Hindustan Zinc in 2003 when it was a central public sector undertaking.

The government has been reducing its stake in Hindustan Zinc, selling 2.5% on November 6. According to multiple media reports, the sale of 1.6% equity generated nearly $35 billion rupees.

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We sent email queries to Vedanta Resources Ltd and the Finance Ministry about the development but did not receive an immediate response.

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

The place of arbitration shall be Switzerland.

Previously, the Supreme Court of India had paid attention to the famous divestment cases such as the Bharat Aluminum Company (BALCO) case and the HPCL-BPCL divestment case. In these documents, the Supreme Court noted that decisions related to disinvestment of government entities can only be taken after changes in the relevant laws.

Investor-State Arbitration

The challenge of investor-state arbitration has been brought into the spotlight by a dispute brought by UK-based Vedanta Resources Ltd against the Indian government.

Notably, the India-UK BIT signed in 1994 was India’s first BIT since economic liberalization in 1991. By 2015, the number of bilateral investment treaties and multiple international investment agreements jumped to more than 80.

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Investor-state disputes have been a challenge since 2011, when the Indian government was first dragged into arbitration and received an adverse ruling in White Industries v. Republic of India. Arbitration Review (GAR) article from July this year.

“This opened the floodgates of BIT cases against India. By 2015, there were around 17 known BIT claims, all of which were challenged by India. As BIT cases were filed against India across the country Concerns are growing over the proliferation of arbitration, with some calling for restrictions on investor-state dispute settlement (ISDS),” GAR research said.

In view of such unfavorable treaty claims, the Indian government decided to amend its BIT regime. In 2015, the government formulated a model bilateral investment treaty to protect the interests of investors while taking into account government obligations. Another focus of the government in 2015 was the termination of BITs whose original provisions had expired or whose provisions were inconsistent with the new model.

In its recent BIT update, India made specific changes to its model BIT framework. Notably, in the India-UAE BIT that came into force in October, India recognized portfolio investments in the UAE as legitimate investments – a category not included in the model BIT.

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Additionally, it shortens the local remedy requirement from five years to three years, allowing for faster arbitration where local remedies prove insufficient.