Cairn wants India to honour its word and pay $1.4 billion, shareholders to seek enforcement

British oil agency Cairn Energy mentioned its shareholders, together with prime monetary establishments of the world, count on using the corporate’s “strong powers of enforcement” to get better $1.4 billion from the Indian authorities ought to it not hold its word of honouring worldwide arbitration tribunal awards on retrospective taxes.

Cairn has already moved courts within the US, UK, Netherlands, Canada, France, Singapore, Japan, UAE and Cayman Islands to get the December 21 worldwide arbitration tribunal award registered and recognised – step one earlier than it may well seek seizure of the Indian authorities property similar to financial institution accounts, funds to state-owned entities, aeroplanes and ships in these jurisdictions, in case New Delhi doesn’t return the worth of the shares seized and offered, dividend confiscated and tax refund stopped to modify a Rs 10,247 crore tax demand raised utilizing retrospective laws.

Cairn CEO Simon Thomson, who final month met prime finance ministry officers for 3 straight days over the difficulty, mentioned the Indian authorities ought to hold its word on honouring arbitration awards and return the $1.4 billion that a world arbitration tribunal has ordered rescinding a retrospective tax demand.

“Our shareholders are watching,” he mentioned in a Twitter submit. “They expect India to honour its obligations and to quickly bring this matter to a conclusion and if India do not do that, and if India delay, then our shareholders expect us to pursue our strong powers of enforcement which we have to do”.

Finance Minister Nirmala Sitharaman had on March 5 indicated the federal government’s intent to enchantment towards the award when she mentioned it’s her “duty” to enchantment in circumstances the place the nation’s sovereign authority to tax is questioned.

Interestingly, the December 21 arbitration award particularly made clear that the premise of the judgment was not a problem to the 2012 regulation, which gave the federal government powers to tax offers retrospectively, or India’s sovereign proper to tax.

“The issue at stake is thus not a matter of domestic tax law; it is rather whether the fiscal measures taken by the State, valid or not under its own tax laws, violate international law,” the tribunal had mentioned.

After dropping a Supreme Court case towards levying tax on capital good points made within the 2007 sale by Hutchison of its India enterprise to Vodafone for USD 11.2 billion, the federal government had in 2012 enacted laws that gave it powers to tax such offers retrospectively. Thereafter the tax division mentioned Vodafone ought to have withheld tax on the deal and issued a discover searching for Rs 11,218 crore, later augmented by Rs 7,900 crore in penalties.

In January 2014, the division assessed that Cairn too made an alleged capital achieve on reorganising its India enterprise prior to an IPO in 2006-07 and sought Rs 10,247 crore in taxes. But in contrast to Vodafone the place no enforcement motion was taken, it seized and offered Cairn’s residual stake within the India unit, confiscated dividends due from such holding, and stopped tax refund due to it.

Cairn maintained that its reorganisation was in compliance with the legal guidelines prevalent at the moment and had been authorized by the federal government and regulators, together with Sebi, and challenged the tax demand earlier than a world arbitration tribunal, which overturned the demand and ordered a return of USD 1.4 billion.

“The award has now been finalised and it is time for the Government of India to honour that award as they have said on multiple occasions over the years that they would do,” Thomson mentioned. “India now needs to swiftly bring this matter to a close, to comply with their obligations and to honour the award.”

And nothing lower than that’s what Cairn shareholders need. “That is what our shareholders; those global financial institutions expect; that is what they require,” he mentioned. “I believe that if India do that, it will reaffirm to those shareholders that India can be a positive investment destination.”

The shareholders embrace huge monetary establishments similar to BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva.

Vodafone too had final 12 months gained an arbitration award towards the retro tax, which the federal government has challenged earlier than a courtroom in Singapore – the seat of the arbitration tribunal.

In the case of Cairn, the seat of arbitration was The Hague and any problem could have to be introduced there.

Sources mentioned the award is ultimate and the deserves can’t be appealed, and beneath Dutch regulation, the grounds for setting apart an arbitral award are extraordinarily slim. These grounds embrace no legitimate arbitration settlement, guidelines for composition not being noticed, tribunal exceeding its mandate, an award not signed or not reasoned and the order being opposite to public coverage or public morals.

The Cairn award was unanimous with all three judges, together with one appointed by the Indian authorities consenting. The 582-page order gave detailed reasoning on the very level of the problem introduced by the Indian authorities, together with the purpose that taxation didn’t type a part of the bilateral funding treaties.

Cairn had challenged the tax demand beneath the UK-India Bilateral Investment Treaty, which affords sturdy provisions to implement a profitable award and the choice of the tribunal is ultimate and binding on each events.

“We have made our position clear on retrospective taxation. We have repeated it in 2014, 2015, 2016, 2017, 2019, 2020, till now. I don’t see any lack of clarity,” Sitharaman had mentioned, referring to the Modi authorities’s stand of not elevating any new tax demand utilizing the 2012 laws.

“Where I find an arbitration award questioning India’s sovereign authority to tax… if there is a question about the sovereign right to tax, I will appeal, it’s my duty to appeal,” she mentioned. “An arbitration award, which questions the authority of the government to tax, I will appeal on that.”