Arbitration award: Cairn CEO to meet finance secretary on ThursdayFebruary 17, 2021
Cairn Energy’s Chief Executive Officer Simon Thomson will meet Finance Secretary Ajay Bhushan Pandey on Thursday as the UK-based oil major builds pressure on India to honour the $1.2 bn arbitration award.
Meanwhile, a high level inter-ministerial group (IMG) is meeting on Wednesday as part of the series of meetings to chart out India’s strategy to contest the award given by the Permanent Court of Arbitration at The Hague in December. The IMG comprises senior officials from the Department of Revenue, Ministry of Law, Department of Economic Affairs and Ministry of External Affairs.
However, India is likely to file an appeal at The Hague by around March 10 and is in talks with senior Dutch lawyers. New Delhi has time till March 21 to file an appeal, according to the 90-day window.
The award will likely be contested on two key grounds – jurisdiction and international public policy.
Thomson had, however, in a video message last week expressed willingness to meet Finance Minister Nirmala Sitharaman.
“Thomson is scheduled to meet the finance secretary on Thursday. While Cairn had asked time from Finance Minister Nirmala Sitharaman, it was asked to meet the finance secretary instead,” said a source.
Cairn Energy has filed a case in a US district court to implement the arbitration award. Earlier, the Edinburgh-based company had filed a similar case in a Dutch court.
In the appeal, India is expected to take a stand that the government has the sovereign right of taxation and private individuals cannot decide on that.
According to the Centre, the award falls outside the domain of a bilateral investment treaty and beyond the jurisdiction of international arbitration.
Also, the government will most likely invoke international public policy, arguing that Cairn did not pay tax in any jurisdiction across the globe.
The government had lost an international arbitration case to energy giant Cairn Plc under the retrospective tax legislation amendment in a verdict on December 21.
Cairn Energy CEO Thomson had in a video address said last week, “The arbitration is now finalised and the award has been given and we would request along with the others, that the Indian government moves swiftly to adhere to the award that has been given.”
The company had in a letter to the Centre last month threatened seizure of Indian government’s assets if New Delhi failed to pay the award. Cairn had got an order from a Dutch lower court on implementation of the award, which will enable the UK firm to identify commercial Indian assets that can be seized, such as aircraft and ships, among others.
The case pertains to the Rs 24,500-crore tax demand on capital gains made by the oil major in reorganising its India business in 2006-07.
The Rs 8,800-crore arbitration award includes legal fees paid by Cairn for the case.
It also includes reversing the dividend as well as the tax refund that the government had seized and shares the I-T department sold to recover part of the demand.
India had argued, during the Cairn arbitration, that non-compliance to tax was not covered under international treaties and that the amendment in the Finance Act, 2012 (retrospective amendment), was only clarificatory in nature. The verdict was given by a three-member panel chaired by Laurent Levy. The final hearing in the case was held in Paris in December 2018.
Meanwhile, in 2017, the Iincome Tax Appellate Tribunal had upheld the I-T department’s capital gains tax demand of Rs 10,240 crore. The matter – pertaining to computation of capital gains and abuse of tax – is being heard by the Delhi High Court, with the next hearing on March 10.
The principal tax demand in case of Cairn stands at Rs 10,247 crore, besides a penalty at 100 per cent on the principal tax. There is also interest at 12 per cent per year from February 2017, taking the total to Rs 24,500 crore.
India had, in December, appealed against Vodafone’s verdict of over Rs 22,100-crore tax demand at the Singapore court of appeals on grounds of sovereignty.
India had lost the arbitration to the British telecom major over a 2012 legislation that gave the government powers to retrospectively tax deals like Vodafone’s acquisition of 67 per cent stake in Hutchison Whampoa in 2007.
Vodafone had challenged the tax demand of Rs 22,100 crore, including interest and penalty, under the Netherlands-India Bilateral Investment Treaty.