Outlook India | 10 September 2019
Cairn arbitration award may be protracted, not expected before 2019-end
New Delhi (PTI) — UK’s Cairn Energy on Tuesday said the arbitration process against India on imposition of a Rs 10,247-crore retrospective tax demand is likely to be protracted and a decision is not expected before late 2019.
"The formal hearings and submissions in respect of Cairn’’s claim under the UK-India Bilateral Investment Treaty concluded in 2018 and the arbitration panel is preparing its final award," the company said in its half-year results for 2019.
The three-member panel, it said, had originally indicated issuance of an award as expeditiously as possible. But "workload and the number of matters before the panel have meant that the timetable for issuing the award will be more protracted than originally anticipated and the award is, therefore, unlikely to be before late 2019," it said.
"Drafting of the award by the tribunal is ongoing and Cairn continues to have a high level of confidence in the merits of its claim," Cairn Energy said, adding that it was confident of success in the arbitration.
Cairn Energy is seeking full restitution for losses totalling more than USD 1.4 billion resulting from government "expropriation of its investments in India in 2014, and India’’s unfair and inequitable treatment of those investments, due to the imposition of retrospective tax measures."
The company, which gave the country its biggest oil discovery, received a notice from the Income Tax Department in January 2014, requesting information relating to the group re-organisation done in 2006.
Alongside, the Income Tax Department attached the company’’s near 10 per cent shareholding in its erstwhile subsidiary, Cairn India. In March 2015, the tax department sought Rs 10,247 crore in taxes on alleged capital gains made by the company in the internal reorganisation.
Cairn Energy had in 2010-11 sold Cairn India to Vedanta. Following the merger in April 2017 of Cairn India and Vedanta, the UK firm’’s shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares.
In addition to attaching its shares in Vedanta, the tax department seized dividends due to it from those shareholdings totalling Rs 1,140 crore and set of a Rs 1,590 crore tax refund against the demand.
Cairn Energy in 2015 initiated an international arbitration to challenge the retrospective taxation.
Pending final award, the tax department sold Cairn Energy’’s shares in Vedanta to recover part of the tax demand.
"The group also has legal advice confirming that the maximum amount that could ultimately be recovered from Cairn by the Income Tax Department, in excess of the assets already seized, is limited to the value of company’’s assets, including the remaining ordinary shares in Vedanta," it said on Tuesday.