New Delhi: British energy firm Cairn Energy Plc on Monday said the Indian government had sold some of the shares it owned in Vedanta Ltd, which were earlier attached in a tax dispute, for $216 million.

The Edinburgh-based company had received 5% stake and preference shares in Vedanta in exchange for its residual stake in its former subsidiary Cairn India, which has been merged with Vedanta.

Citing an income-tax department communication, Cairn Energy said after the sale, the attached shares amount to a 3% stake in Vedanta. “It is possible that the Indian income-tax department may make further sales," added the company.

Cairn Energy, which sold its Indian arm to Vedanta’s parent, Vedanta Resources Plc, in 2011, retained roughly 10% stake in the unit, which was later attached by the tax department to recover alleged tax dues arising from a retrospective change in tax law in 2012. The tax department is seeking to recover capital gains tax on a 2006 internal reorganization of Cairn India Ltd prior to its listing in 2007 and subsequent sale to Vedanta Resources.

Cairn Energy said it is pursuing restitution of $1.3 billion losses from the Indian government on account of the regulatory action. After the share sale, Cairn will write down the carrying value of its investment in Vedanta, resulting in an impairment charge. Cairn’s demand for compensation for the regulatory action is now part of an international arbitration. Final hearings are scheduled for two weeks from 20 August in The Hague, said the company.

So far, the tax department has seized dividends due to Cairn from its shareholding in Vedanta totalling about $155 million, and has offset a tax rebate of $234 million due to Cairn from overpayment of capital gains tax on a separate matter, the company said.

The tax department claims a principal tax due of about 10,200 crore plus interest and penalties. The company claims the arbitration will result in a binding and internationally enforceable award.

“The group has legal advice confirming that the maximum amount that could ultimately be recovered from Cairn by the Indian income-tax department is limited to the value of Cairn UK Holdings Ltd’s assets, principally the ordinary and preference shares in Vedanta Ltd, plus the seized dividends and tax refund from 2011," said the company in an update issued on the tax dispute.

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