The possibility of a negotiated resolution to the tax dispute between Cairn Energy and the Indian government seems to have brightened with the two sides sending positive signals after a meeting on Thursday.

Cairn Energy Plc’s chief executive Simon Thomson on Thursday met finance secretary Ajay Bhushan Pandey, CBDT chairman P.C. Mody and other tax officials in the hope of quickly resolving the issue, nearly two months after an international arbitration tribunal ruled against the Indian government levying taxes retrospectively.

“We had a constructive dialogue and the dialogue is ongoing,” Thomson told reporters. He refused to comment on what transpired at the meeting. “I can’t comment more on the meeting.”

Finance ministry officials said the government is keen to find an amicable solution to the controversial retrospective tax issue.

“While the tax department is in favour of challenging the ruling of the Permanent Court of Arbitration, many others, including the political leadership, are aware of what it would mean for investor sentiment,” the official said.

Cairn Energy has won an arbitration award from ICC Hague which directs the Centre to pay damages of $1.4 billion (about Rs 8,800 crore) for trying to recover tax dues worth over Rs 24,000 crore from Cairn Energy on account of imputed capital gains related to a corporate restructuring exercise in 2006-07.

Cairn sold its stake in the company to Anil Agarwal’s Vedanta but has not been able to exit the country because of the tax dispute with the Centre which has stalled payments for the share transfer.

Cairn has taken pre-emptive action to force the Indian government to pay the award amount by filing cases in the US, the Netherlands and Britain seeking to confiscate Indian sovereign assets to realise the sum if the Centre fails to pay. The Centre may challenge the award and has time till March 21 to do so.

While some reports had speculated that the Centre may offer an out-of-court settlement to Cairn, others said the only option on the table for a settlement for the Indian government is to make use of the Vivad se Vishwas direct tax dispute settlement scheme. Under this, the principal tax demand is to be paid while the interest and penalty are waived.

Officials had earlier hinted at filing an appeal against the December 21 ruling. Cairn has threatened to seize Indian government assets overseas if New Delhi fails to return the value of the shares sold, dividend seized and tax refund withheld by the income tax department to recover part of the tax demand.