Cairn Energy wins arbitration award against India in tax dispute

British energy major Cairn Energy has won an international arbitration case against the Indian government over a tax dispute.

An international arbitration tribunal ruled that India’s tax claim of Rs 10,247 crore in past taxes over internal reorganisation of Cairn’s India business was not a valid demand.

In a statement Cairn said that the tribunal has awarded damages of $1.2 billion along with interest and costs.

“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$1.2billion plus interest and costs, which now becomes payable,” it said.

Cairn’s claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands and the proceedings were under the registry of the Permanent Court of Arbitration.

Cairn Energy had in 2010-11 sold Cairn India to Vedanta. Post the merger of Cairn India and Vedanta in April 2017, the UK firm’s shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares.

Along with attaching its shares in Vedanta, the tax department seized dividends of around Rs 1,140 crore due to it from the shareholdings and set-off a Rs 1,590-crore tax refund against the demand.

In 2015, Cairn initiated an international arbitration to challenge retrospective taxation.

The development comes as a major setback for the Indian government after Vodafone Group Plc had won an international arbitration case against the Indian government in September.