The government of India is likely to file an appeal against the Cairn arbitration award contesting its sovereign rights to tax. In December 2020, an international tribunal had unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014, when the income tax department had slapped a Rs 10,247-crore tax assessment using legislation that gave it powers to levy taxes retrospectively.
In a ruling, which Cairn had previously described as “final and binding”, the tribunal had ordered New Delhi to pay $ 1.2 billion in damages, plus interest and costs, to compensate Cairn for the shares — long sold off by the tax department — as well as confiscated dividends and withheld tax refunds. This totals to USD 1.4 billion. Its shareholders have been egging the management to take action to get the money back.
Cairn chief executive Simon Thomson met Finance Secretary Ajay Bhushan Pandey last week to discuss the arbitration award. The government is planning to file an appeal against the tribunal order as it believes the arbitration tribunal cannot question a nation’s sovereign right to tax.
Britain’s Cairn Energy plc has filed cases in the US, the UK and the Netherlands courts to register a USD 1.4 billion arbitration award it had won in a tax dispute against India, as a preparatory action in case it is not paid by the Indian government. Cairn filed a petition in a Washington DC Federal court on February 12, and followed it up with similar filings in the UK and the Netherlands courts.
In a letter to the Indian government last month, Cairn had said its shareholders “expect an early resolution, failing which they will expect Cairn to pursue the award in conformity with its rights under the treaty”. “The award can be enforced against Indian assets in numerous jurisdictions around the world for which the necessary preparations have been put in place,” it added.
In 2011, Cairn Energy had sold Cairn India to mining billionaire Anil Agarwal’s Vedanta Group, barring a minor stake of 9.8 per cent. It wanted to sell the residual stake as well but was barred by the I-T department from doing so. The government also froze the payment of dividends by Cairn India to Cairn Energy.