Cairn says engaged with Indian govt on adherence to arbitration award

New Delhi: A month after a tribunal at the Permanent Court of Arbitration in The Hague ordered India to return USD 1.2 billion to UK’s Cairn Energy Plc, the company on Wednesday said it is engaged with the Indian government on implementation of the ruling.

The three-member tribunal, which comprised a judge appointed by India, last month unanimously overturned a Rs 10,247 crore retrospective tax demand on the British oil and gas company and asked the government to return shares it sold, dividend it seized and tax refunds it stopped to enforce the tax.

In an update ahead of announcing its preliminary results for 2020, the company said it is taking all necessary steps to protect its rights to the award.

“In December, the tribunal established to rule on Cairn’s claim against the Government of India under the UK-India Bilateral Investment Treaty found in Cairn’s favour.

“The tribunal ruled unanimously that India had breached its obligations to Cairn under the Treaty and awarded to Cairn damages of USD 1.2 billion-plus interest and costs, which are now payable,” the company said.

The tribunal, in a 582-page judgment on December 21, had ordered the return of the value of shares that the Income Tax Department sold as also the dividend it seized and tax refunds it withheld to recover tax demand that was levied following a 2012 amendment to the Income Tax Act that gave authorities powers to seek taxes on past deals.

It ruled that the 2006 reorganisation of Cairn Energy’s India business prior to listing on local bourses was not “unlawful tax avoidance” and ordered tax authorities to drop the tax demand.

“A significant milestone was achieved in December 2020 with a unanimous award in favour of Cairn in its arbitration with the Government of India,” chief executive Simon Thomson said.

“We have engaged with the Government of India regarding adherence to the tribunal’s ruling and are taking all necessary steps to protect our rights to the award,” he added.

He did not elaborate.

The Income Tax Department had in 2015 slapped a Rs 10,247 crore tax demand on Cairn for alleged capital gains it made in the 2006 business reorganisation. Cairn denied the scheme avoided any tax that was prevalent on that date and challenged the demand through an arbitration.

During the pendency of the arbitration, the government sold Cairn’s near 5 per cent holding in Vedanta Limited, seized dividends totalling Rs 1,140 crore due to it from those shareholdings and set off a Rs 1,590-crore tax refund against the demand.

The tribunal ordered the government to return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand along with interest. Also, it was asked to reimburse the cost of arbitration. All this totalled to USD 1.25 billion plus interest.

The government, in response to the arbitration award, had stated that it will study the order and “consider all options and make a decision on the further course of action, including legal remedies before appropriate fora.”

This is the second loss the government has suffered in recent months over the retrospective levy of taxes.

In September, UK’s Vodafone Group won an international arbitration against the demand of Rs 22,100 crore in taxes.