Cairn Energy Plc, based in the United Kingdom said on Tuesday, that it is taking all appropriate steps to obtain the USD 1.7 billion, it was awarded by an international arbitration tribunal after the Indian government’s retroactive tax demand was overturned. In 1994, the Scottish company invested in India’s oil and gas market and a decade later, it made a massive oil discovery in Rajasthan. It reported its Indian assets on the BSE in 2006. Five years later, the government enacted a retroactive tax law, imposing a bill of Rs 10,247 crore on Cairn, plus interest and penalties for the reorganisation related to the flotation. To satisfy the demand, the state expropriated and liquidated Cairn’s remaining shares in the Indian entity, confiscated dividends and withheld tax refunds. Cairn took the matter to an arbitration tribunal in The Hague, which awarded it USD 1.2 billion (over Rs 8,800 crore) in December, plus costs and interest for a total of USD 1.725 billion (Rs 12,600 crore) by December 2020.
“The tribunal formed to rule on our lawsuit against the Government of India ruled in Cairn’s favour in December last year and awarded us damages of USD 1.2 billion plus interest and costs,” Cairn Energy CEO Michael Cairn said at the company’s annual shareholders meeting. According to international treaty law, this decision is binding and enforceable. “While India has tried to challenge the award’s basis in the Dutch courts through set-aside proceedings, we remain secure in our role and continue constructive engagement with the Government of India while taking all appropriate steps to safeguard our rights to the award and access its value as soon as possible,” he added. Cairn had previously threatened to seize overseas properties of state-controlled Indian companies to recover the money owed to it, but he did not elaborate.
Last month, Finance Minister Nirmala Sitharaman reiterated that an international arbitration decision on India’s sovereign right to taxation sets the wrong precedent, but that the government is working to resolve the matter. The government has appealed against a decision by the Hague-based tribunal ordering the government to return the value of securities expropriated and liquidated, tax refunds withheld, and dividends confiscated in order to recover a wrongly levied retroactive tax claim. The Indian government claims that a tax imposed by a foreign power should not be subject to private arbitration; however, Cairn previously stated that the award is binding and that it can be enforced by seizing Indian assets located abroad. Cairn has been working with the finance ministry to get the reward paid by the government. Its officials met with then-Revenue Secretary Ajay Bhushan Pandey three times in person in February, and had at least one video call with his successor Tarun Bajaj. The Indian government which named one of the three arbitrators on The Hague panel and has been actively involved in the arbitration proceedings since 2015, wanted Cairn to resolve the matter through its now-closed ‘Vivad se Vishwas’ tax dispute resolution scheme.
According to sources familiar with the situation, the Vivad se Vishwas scheme, which ended on March 31, allowed for the dismissal of a tax case if 50% of the demand was paid, which the company refused. The Indian government would have had to refund around Rs 2,500 crore to the British firm even if it had agreed to the plan, they said adding that the value of shares seized and sold, dividend confiscated and tax refund withheld totalled over Rs 7,600 crore or more than half of the Rs 10,247 crore principal tax demand made.
