Cairn wants India to honor its word and pay $ 1.4 billion, shareholders need enforcement

British oil firm Cairn Energy plc on Sunday said its shareholders, including the world’s top financial institutions, expect the company to recover $ 1.4 billion from the Indian government using its “strong powers of enforcement”, but that it has the honor of international arbitration You should not keep a promise to do it. Tribunal award on retrospective taxes.

Also read: Government may give oilfield to Cairn for $ 1.4 billion in arrears

Cairn has already moved and recognized courts in the US, UK, Netherlands, Canada, France, Singapore, Japan, UAE and the Cayman Islands to register and recognize the International Arbitration Tribunal Award on 21 December – before The first phase may demand the seizure of the Government of India. Those accounts include payments to bank accounts, state-owned entities, airplanes and ships, if New Delhi does not return the value of the seized and sold shares, forfeiting dividends and tax refunds to accommodate the tax demand of Rs 10,247 crore. Raised using retrospective legislation that was discontinued.

Cairn CEO Simon Thomson, who met top finance ministry officials for three straight days on the issue last month, said the Indian government should keep its word and honor $ 1.4 billion back to honor arbitration awards An international arbitration tribunal has ordered withdrawal of the retrospective tax demand. .

“Our shareholders are watching,” he said in a Twitter post. “They expect India to honor its obligations and bring the matter to a conclusion as soon as possible and if India does not do so, and if India delays, our shareholders expect us to enforce our Stronger powers will pursue what we have to do ”.

Finance Minister Nirmala Sitharaman indicated the government’s intention to appeal against the award on 5 March when she said it is her “duty” to appeal in cases where the sovereign authority of the nation is concerned with taxing .

Interestingly, the December 21 arbitration award specifically clarified that the basis for the verdict was not a challenge to the 2012 law that empowered the government to retroactively tax deals, or India’s sovereign tax.

He said, “Domestic tax law is not a matter on this issue; Instead it is whether the fiscal measures taken by the state, whether valid under its own tax laws, violate international law, ”the tribunal said.

The government enacted a law in 2012, after losing a Supreme Court lawsuit against Vodafone taxing a capital gain of $ 11.2 billion in 2007 sales in its India business, which allowed it to retrospectively tax such deals. Had given powers of. The tax department then stated that Vodafone should withdraw the tax on the deal and issued a notice of ₹ 11,218 crore, which was later increased to 900 7,900 crore in penalties.

In January 2014, the department assessed that Cairn also made an alleged capital gain on restructuring its India business before an IPO in 2006-07 and demanded Rs 10,247 crore in taxes. But unlike Vodafone, where no enforcement action was taken, it seized Cairn’s residual stake in the India unit and forfeited dividends from such holdings and prevented the tax return due to it.

Cairn said its reorganization was in compliance with the laws prevailing at the time and approved by the government and regulators, including Sebi, and challenged the tax demand before an international arbitration tribunal, which overturned the demand and raised $ 1.4 billion Ordered to return. .

“The award has now been finalized and it is time for the Indian government to honor that award, as he has said on several occasions,” Thomson said. “India now increasingly needs to bring the matter closer, to comply with its obligations and to honor the award.”

And there is nothing less that Cairn shareholders need. “This is our shareholders; Those global financial institutions are expected to; They said they were needed. “I believe that if India does this, it will confirm to those shareholders that India can be a positive investment destination.”

Shareholders include large financial institutions such as Blackrock, Fidelity, Franklin Templeton, Schroders and Aviva.

Vodafone also won an arbitration award against retro tax last year, which the government has challenged before a court in Singapore – the seat of the arbitration tribunal.

In Cairn’s case, the seat of arbitration was The Hague and any challenge would have to be brought there.

Sources said the award is final and merit cannot be appealed, and under Dutch law, the basis for setting aside an arbitral award is extremely narrow. There is no valid arbitration agreement on these grounds, the rules of composition are not being followed, the tribunal exceeds its mandate, an award has not been signed or argued and this order is governed by public policy or public morals. Is the opposite.

The Cairn Award was unanimous with all three judges, appointed with the consent of the Government of India. The 582-page order gave a detailed argument to the point of challenge brought by the Government of India, including the point that taxation was not a part of bilateral investment treaties.

Cairn challenged the tax demand under the UK-India Bilateral Investment Treaty, which reaffirms strong provisions for implementing a successful award and the tribunal’s decision is final and binding on both parties.

“We have clarified our position on retrospective taxation. We have repeated this in 2014, 2015, 2016, 2017, 2019, 2020 so far. I see no lack of clarity, ”Ms. Sitharaman said, referring to the Modi government’s stance of not using the 2012 law to raise any new tax demand.

“Where I have received an arbitration award, in which there is a question of taxing the sovereign authority of India … If there is a question about the right of the sovereign tax, I will appeal, it is my duty to appeal,” he said . “An arbitration award, which questions the government’s right to tax, I will appeal that.”