INDIAN GOVERNMENT TO REIMBURSE CAIRN ENERGY PLC $1.4 BILLION IN ARBITRATION AWARD

Highlights:

•       Cairn is bracing up with recognition of the arbitration award in 9 courts of the world in case India does not pay

•       The case goes back to 2012 when the Indian government sold residual shares of the company

In 2012, the government enacted legislation that allowed it to tax deals like capital gains made by a sale. This was enforced on Hutchinson’s deal with Vodafone wherein the former had sold its India operations to the latter. The government of India later increased its demand of taxes on Vodafone and Cairn for reorganizing its Indian business. This tax demand was based on the condition that the reorganizing of the business was done before the listings.

Consequently, the Indian government sold and seized Cairn’s leftover stakes in India. Furthermore, the dividends from the holdings were confiscated as well as due tax refund reverted.

In the context of the case, the Indian government has been asked to refund Cairns to refund $1.4 billion. This development came in the post it was found by the Hague panel that the 2012 ruling was a new tax. Hence the penalty on Cairns was unjust.

In case the government of India fails to or opposes the refund, the company has begun registration of arbitration award in nine countries.

Courts of 5 countries have already given recognition to the arbitration award to Cairn Energy plc. This recognition will mean that the company can seize Indian government assets including bank accounts, aeroplanes, and ships, in these countries. The countries are the UK, US, Netherlands, Canada and France.

The British firm was awarded the judgment unanimously by three judges. One of these judges was appointed by the Indian government. As of now, the Indian government has not contested the verdict. However last week the Indian Finance Minister, Nirmala Sitharaman did hint about going in for an appeal on the same.