Scottish company Cairn Energy on Wednesday said that it is in talk with Indian government for adherence of award in its favour by International Tax Arbitration Tribunal.
According to the company, the tribunal ruled unanimously that India had breached its obligations under the treaty and awarded to Cairn damages of $1.2 billion plus interest and costs (sums up to $1.6 billion), which are now payable.
“A significant milestone was achieved in December 2020 with a unanimous award in favour of Cairn in its arbitration with the Government of India under the UK-India Bilateral Trade Investment Treaty. We have engaged with the Government of India regarding adherence to the tribunal’s ruling and are taking all necessary steps to protect our rights to the award,” the company said in pre-close update ahead of announcement of its result.
There is strong possibility of Union Government challenging this award. On December 23, Finance Ministry had that it will be studying the award and all its aspects carefully in consultation with its counsels. After such consultations, the government will consider all options and make a decision on the further course of action, including legal remedies before appropriate for a
Cairn commenced international arbitration proceedings against the Government of India under the UK India Bilateral Investment Treaty in March 2015. The arbitration (the agreed method of Treaty dispute resolution) intended to determine if India breached its obligations under the Treaty to protect Cairn’s investments in India by retroactively applying a newly enacted capital gains tax law to an internal corporate reorganisation undertaken in 2006.
Cairn argued the retroactive application of a newly enacted law is a breach by India of its obligations under the Treaty to treat Cairn and its investments fairly and equitably and refrain from unlawfully expropriating Cairn’s assets. The matter was placed before the international arbitration panel comprising Laurént Levy (Chairman), Staminir Alexandrov and J.Christopher Thomas QC. The merits hearing took place on 20-31 August 2018 in the Hague, with a final hearing in Paris in December 2018. The Arbitral Tribunal issued an award on December 22.
Seeking full restitution
According to Cairn, it is seeking full restitution for losses resulting from: the expropriation of its investments in India in 2014, continued attempts to enforce retrospective tax measures and the failure to treat the Company and its investments fairly and equitably. It also said it is not claiming for any form of special, punitive or consequential losses; the only damages that are equal to the value of the Group’s residual shareholding in CIL (Cairn India Limited) which was lost when the Income Tax Department (IITD) seized it and subsequently sold it (retaining the proceeds), plus a further tax refund due to Cairn in an unrelated matter which has was also seized by the IITD, amounting to approximately ₹10,570 crore ($1.4 billion).
According to the company, it has legal advice confirming that the maximum amount that could ultimately be recovered from Cairn by the IITD is limited to the value of Cairn UK Holdings Limited (CUHL’s) assets, principally the ordinary and preference shares in VL, almost all of which have already been sold and/or redeemed, plus the seized dividends and tax refunds from 2009 and 2011.