PremiumAn international arbitration tribunal has awarded $1.2 billion in damages plus interest and costs to British energy major Cairn Energy Plc in a protracted tax dispute with the Indian government over its business restructure in 2006, the company has said.
Cairn had moved the arbitration tribunal in connection with India’s 2015 tax demand amounting to $2,740 million over the group’s reorganisation resulting in creation of Cairn India Ltd prior to its initial public offering. The tax demand was made invoking the controversial tax law amendment India made in 2012 with retrospective effect.
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Cairn informed the London Stock Exchange on Wednesday that the tribunal ruled favouring Cairn’s claim under the UK-India Bilateral Investment Treaty.
“The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and has awarded to Cairn damages of US$1.2 billion plus interest and costs, which now becomes payable," Cairn said in its statement.
Cairn India Ltd. has since been merged with Vedanta Ltd. after Anil Agarwal's Vedanta Group acquired the company.
The finance ministry said in a statement that it was reviewing the arbitration panel’s award. The government has not ruled out an appeal. “The Government will be studying the award and all its aspects carefully in consultation with its counsels. After such consultations, the government will consider all options and take a decision on further course of action, including legal remedies before appropriate for a," said the statement.
The Narendra Modi administration is examining a similar recent award of an international arbitration panel favouring Vodafone Group Plc in another tax dispute. That relates to Vodafone Group Plc’s $11 billion offshore deal acquiring Hutchison Essar Ltd.—later renamed Vodafone India Ltd—in 2007.
“The loss in Cairn case is a major setback for the Indian government in a span of three months, with a retrospective application of the award costing India too much. Perhaps the outcome shall lead to alterations in the decision to appeal against the Vodafone ruling, for which India was awaiting the award in this particular case," said Sonam Chandwani, Managing Partner at KS Legal & Associates, a law firm.
“India will now have to shell out huge monies, in each of the two consecutive blows on Delhi. Consequently, India might be eyeing key changes in prevalent laws to mitigate the loss, including the withdrawal of the 2012 amendment to settle the tax disputes," said Chandwani.
