India’s Dispute With Cairn Energy

Cairn Energy Is A Prominent Independent Oil And Gas Exploration And Development Company Based In Europe. In The 1990s, It Started Investing In India And Has Invested Around INR 45000 Crore (US$6 Billion) In Projects In The Oil And Gas Sector, And Local Populations With Its Partners.

Structural reorganization

Cairn Energy PLC Reorganized Its Indian Business Into A Different Company, I.E., Cairn India Limited (“CIL“), And Sold Its Interest In CIL To Petronas In 2009 And Vedanta In 2011. This Reorganization Included The Transfer Of Shares In An Indian Company. Cairn Energy PLC Obtained Appropriate Approvals And Paid Around INR 3700 Crore (US$500 Million) As Capital Gains Tax In 2009.

The implication of retrospective legislation

In The Famous Vodafone Case Of 2012, Tax Indirect Transfers Of Shares In A Non-Indian Corporation Were Sought To Be Taxed. Hon’ble Supreme Court Of India Ruled In Favor Of Vodafone In January 2012 And Held That Such Transfers Were Not Subject To Indian Taxation. However, An Amendment To Section 9(1) (I) Of The Income Tax Act, 1961 Allowed Retrospective Taxation In Such Transfers.

Cairn Energy PLC Was Planning To Sell Its Remaining Stake In CIL In January 2014, Eight Years After The Reorganization. The Indian Income Tax Department (“IITD“) Decided To Open A Retrospective Tax Probe On The Transactions In 2006 At That Stage. Further, The ITD Prohibited Cairn Energy PLC From Selling Its Remaining 10% Stake In CIL. To Meet The Tax Demand, IITD Seized And Sold Cairn Energy PLC’s Shares In Its Former India Business, Confiscated Dividends Owed, And Withheld Tax Refunds.

Arbitration proceeding

In March 2015, Cairn Energy Invoked Arbitration Against The Government Of India Under The UK-India Bilateral Investment Treaty (“Treaty“) To Adjudicate Whether India Violated The Treaty. In Its Award, The Arbitral Tribunal Ruled In Favor Of Cairn Energy PLC And Held That The Indian Government Had Violated The Treaty And Directed The Indian Government To Pay Around INR 8000 Crore As Damages To Cairn Energy PLC In December 2020. The Indian Government Refused To Enforce The Award. (“Award“)

Current Status

Indian Government Filed An Appeal Against The Award In March 2021 Before The Hon’ble Hague Court Of Appeal Which Is Currently Pending. Separately, Cairn Energy Filed A Suit In A US Court Earlier This Month To Declare Air India As India’s Alter Ego, To Enforce The Award. It Has Filed Similar Suits Before Courts In The UK, France, Japan, The UAE, Singapore, Canada, Mauritius, And The Netherlands. Additionally, Cairn India Has Secured Orders To Freeze Properties Owned By The Indian Government In Paris. The Parties Are In Discussions To Find An Amicable Settlement While Awaiting The Order Against The Appeal Filed By The Indian Government In The Hon’ble Hague Court Of Appeal.

Arbitration Provides A Speedier And Cheaper Mode Of Dispute Resolution For Adjudication Of Disputes Between The Parties. Further, The Ease Of Enforceability Of The Award Has Made It One Of The Preferred Modes Of Dispute Resolution. WeVaad Provides A Platform For Online Dispute Resolution, Allowing The Parties To Resolve Disputes In A Time-Bound And Cost-Effective Manner. For Any Queries, Reach Out To Us At Contact@Wevaad.Com.