India Ordered To Pay $1.2 Billion To Cairn Energy After Losing An Arbitration In Tax Dispute

An international arbitration tribunal has ordered India to return $1.2 billion (around Rs 8000 crore) to UK oil major Cairn Energy Plc which was collected as retrospective taxes.

The three-member tribunal, which also comprised a nominee of the Indian government, unanimously ruled that India's claim of Rs 10,247 crore in past taxes over a 2006-07 internal reorganisation of Cairn's India business was not a valid demand.

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According to the tribunal, India had failed to accord the Claimants' (Cairn Energy's) investments fair and equitable treatment under the bilateral investment protection pact the nation had with the UK.

Cairn's claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands and the proceedings were under the registry of the Permanent Court of Arbitration.

Cairn Energy had in 2010-11 sold Cairn India to Vedanta. Post the merger of the two in April 2017, the UK firm's shareholding in Cairn India was replaced by a shareholding of about five per cent in Vedanta issued together with preference shares.

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Along with attaching its shares in Vedanta, the tax department seized dividends of around Rs 1,140 crore due to it from the shareholdings and set-off a Rs 1,590-crore tax refund against the demand.

In 2015, Cairn initiated an international arbitration to challenge retrospective taxation.

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.

The government was asked to compensate Cairn "for the total harm suffered" together with interest and cost of arbitration, according to the order.

The tax demand was made invoking the controversial tax law amendment India made in 2012 with retrospective effect.

AFP

This is the second loss the government has suffered in three 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.

The tribunal had ruled that levying retrospective tax was in "breach of the guarantee of fair and equitable treatment" under the bilateral investment protection pact between India and the Netherlands.

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However, Cairn was the only company against which the government took action to recover retrospective taxes.

Though the order cannot be challenged or appealed against, the government said it will study the arbitration award and "will consider all options and take a decision on the further course of action, including legal remedies before appropriate fora."