The Modi government has decided to challenge the international arbitration award that went in favour of Cairn Energy plc even as the finance ministry held talks for the second day with the officials of the exploration company.
The government is likely to file an appeal against the Cairn arbitration award insisting on its sovereign right to taxation, sources said.
Soon after the second meeting in as many days between Cairn CEO Simon Thomson and finance secretary Ajay Bhushan Pandey ended, official sources said the government intended to defend its sovereign right and would file an appeal against tribunal order asking India to return $1.4 billion to the British company.
The government will also strongly contest other suits filed by Cairn Energy at various international courts, they said, adding any dispute resolution by Cairn must be within already existing laws.
However, sources said the option of India appealing against the verdict did not figure in the talks between the two sides either on Thursday or Friday.
Cairn on its part remained tightlipped on the discussions it had only initiated to recover the sum. “Constructive dialogue is continuing,” Thomson said after the meeting on Friday. He did not elaborate.
Sources said the government was aware of the legal consequences and was weighing all its options. “The fact that a second round of meeting was sought by the finance ministry indicates their eagerness to avoid any legal consequences and look for a resolution,” they said. The options discussed at the meeting were not immediately known.
An international tribunal in December had unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014. The income-tax department had slapped a Rs 10,247-crore tax assessment using legislation that gave it powers to levy taxes retrospectively.
The verdict meant the Indian government would have to pay an overall $1.4 billion in damages for wrongfully claiming it was entitled to capital gains tax of Rs 24,000 crore on a corporate restructuring exercise conducted in 2006.
The payout stems from an initial tax demand of Rs 10,247 crore on Cairn U.K. Holdings Ltd that rose to over Rs 22,000 crore with penalties and interest. The tax department recovered part of the dues via the sale of Cairn assets.
Cairn sold its stake in Cairn India to Anil Agarwal's Vedanta in 2011 but retained a rump stake that was impounded by the govt preventing the its exit from India. Cairn Energy has filed suits in the US, UK and the Netherlands in an attempt to get the court to allow it to claim possession of the Indian government’s assets to realise the arbitration which the Centre has shown no sign of paying the money.
It had filed a petition in a Washington DC federal court on February 12 and followed that up with filings in the UK and the Netherlands.
India had previously lost another major international arbitration case against Vodafone over a $2 billion retrospective tax dispute. The government has challenged the verdict.
In a letter to the Indian government last month, Cairn had said its shareholders “expect an early resolution, failing which they will expect Cairn to pursue the award in conformity with its rights under the treaty”. Earlier this month, minister of state for finance Anurag Thakur had told the Lok Sabha that the Cairn arbitration award was “under consideration of the government”.
