India in no mood to concede defeat in Cairn Energy tax case, to appeal against arbitration award
India will appeal against the arbitration award issued to Cairn Energy by the international tribunal on the grounds of contesting its sovereign right to tax, while strongly contesting other cases filed by Cairn in other international courts, sources said.
The appeal against the award is likely to be in the government in the Netherlands, while India will contest it’s right to tax in the case filed by Cairn in a US court to implement the award.
“Cairn conducted transactions through tax havens to avoid taxes,” government sources said. The UK based oil major reorganised it’s assets in India back in 2007 before a public listing.
Cairn Energy’s top executives led by chief executive Simon Thomson met the finance secretary on Thursday to discuss the way ahead for the $1.2 billion arbitration award that the UK company won against India in a retrospective tax case.
“The government welcomes Cairn’s move to reach out for a resolution but any dispute resolution to be sought by Cairn will have to be within already existing laws,” one of the sources said.
While both sides did not reveal the details of discussions, industry watchers and taxation experts said that resolution of the ongoing dispute was the best way forward for India since the government is trying to project the country with greater ease of doing business and as a destination for foreign investment.
Some added that among existing laws, a settlement could be derived through the Vivaad Se Vishwas scheme where Cairn may need to pay only 50% of the disputed amount.
But legal experts also noted that since Cairn has already won the award in an international tribunal, it may not take the settlement route.
Cairn’s management, prodded by shareholders, has been mounting pressure on the government to implement the arbitration tribunal’s December order asking India to pay the oil explorer damages of $1.2 billion plus interest and costs in a six-year-old retrospective tax dispute.
An appeal in Cairn’s case would be similar to one filed in a case involving the UK’s telecom group Vodafone. India has appealed in a Singapore Court against an international tribunal’s award favouring Vodafone in a Rs 20,000 crore retrospective tax case.
The UK company warned last month of seizure of Indian assets overseas to enforce the award and approached a US district court last week to confirm the award. The US court issued summons to the Indian government on Tuesday. An order from a court with valid jurisdiction would be needed to seize Indian assets overseas against the award.
The dispute with Cairn arose in 2015 after the government demanded capital gains tax of Rs 10,200 crore plus interest and penalty for a reorganisation of assets that Cairn undertook for its India unit in 2006, ahead of the listing of its shares in 2007.
The demand was triggered by a 2012 amendment in the tax laws that gave the government the power to tax any merger and acquisition deal going back to 1962 if the underlying assets were in the country.
Cairn then approached the arbitration tribunal, challenging the tax demand under the UK-India Bilateral Investment Treaty.
In 2011, Cairn Energy sold its unit, Cairn India, to mining baron Anil Agarwal’s Vedanta while retaining a 9.8% stake in the company. The government seized those shares and sold most of them in 2018 while also seizing its pidends of Rs 1,140 crore and a tax refund of Rs 1,590 crore in a separate matter due to Cairn Energy.
( Originally published on Feb 19, 2021 )