India’s offer to Cairn in $1.4-bn arbitration battle: ‘Pay half the dues and move on’

By | February 20, 2021

India’s provide to Cairn in $1.4-bn arbitration battle: ‘Pay half the dues and transfer on’

In its December 2020 ruling, the Permanent Court of Arbitration at The Hague invalidated India’s $2.74-billion 2015 tax claim on Cairn Energy.In its December 2020 ruling, the Everlasting Courtroom of Arbitration at The Hague invalidated India’s $2.74-billion 2015 tax declare on Cairn Vitality.

Discussions between finance ministry officers and Cairn Vitality CEO Simon Thomson – and his crew – continued for the second day on Friday, nevertheless it seems the federal government desires Cairn to settle the dispute utilizing the Vivad se Vishwas scheme; beneath the scheme, the corporate must pay round half the quantity due sans curiosity and penalties in instances the place the tax division has misplaced a case in a discussion board and filed an enchantment, as the moment one.

Concurrently, the federal government has additionally determined that it’ll problem the arbitration award.

Whereas Cairn has filed a case in a US courtroom to implement the $1.4-billion arbitration award ($1.2 billion plus curiosity and penalties) that it has simply gained and this may, ultimately, even result in Indian belongings – properties of Indian embassies, even presumably Air India’s planes – being connected, finance ministry sources really feel that this isn’t going to be straightforward both and is usually a long-drawn course of. During which case, their hope is that Cairn recognises that the worth of its cash will maintain declining and so its greatest wager is pay a part of the taxes after which transfer on.

It isn’t clear whether or not, whereas difficult the arbitration award, the federal government may also method the Supreme Courtroom (SC) to reject the award on grounds that it’s antithetical to India’s coverage. The federal government has achieved this for many awards which have gone in opposition to it, such because the Antrix-Devas one, however the response of the SC has been combined.

Final yr, the apex courtroom turned down a authorities enchantment to cease a $476-mn award that Vedanta and Videocon had gained approach again in January 2011. And whereas listening to the federal government enchantment in opposition to the $672-mn arbitration award that Devas Multimedia gained in 2016 in opposition to Isro-arm Antrix Company, the truth that the SC requested Devas whether or not it will be prepared to waive off the curiosity element of the cash owed to it suggests the problem might not maintain.

There are, alternatively, additionally instances the place SC has dominated in opposition to imposing arbitration awards on grounds that they ran opposite to India’s public coverage; this was the argument the federal government made in SC whereas asking for the award to be put aside.

In its December 2020 ruling, the Everlasting Courtroom of Arbitration at The Hague invalidated India’s $2.74-billion 2015 tax declare on Cairn Vitality.

In 2011, Cairn Vitality bought majority of its then India enterprise, Cairn India, to Vedanta. The Indian taxman, nonetheless, didn’t permit Cairn UK to promote 10% and connected Cairn India shares in addition to dividends that the corporate paid to its mother or father. The Hague courtroom ordered the federal government to return the worth of shares it had bought, dividends seized and tax refunds withheld. In truth, the federal government was requested to compensate Cairn “for the entire hurt suffered” along with curiosity and value of arbitration.

Confirming New Delhi’s resolve to contest the arbitration award in favour of the Edinburgh-headquartered vitality firm, ministry sources stated that the federal government would “strongly contest different fits filed by the agency at varied different worldwide courts” to implement the award. Cairn Vitality has just lately filed a case in a US district courtroom to implement the arbitration award; it has additionally reportedly filed comparable instances within the UK and the Netherlands.

“The federal government welcomes Cairn’s transfer to achieve out for a decision. Nonetheless, any dispute decision to be sought by Cairn must be inside already present legal guidelines,” a ministry supply stated, stressing on sovereign proper to tax. “Cairn had carried out transactions by way of tax havens to evade taxes,” the supply iterated, whilst he added that the federal government welcomed Cairn’s transfer to achieve out for a decision.

New Delhi’s 2012 regulation had empowered itself to make tax calls for regarding cross-border offers all the way in which again to 1962, citing ‘underlying Indian belongings’. The transfer has since been uncovered as a misadventure as The Hague Courtroom dominated in opposition to in opposition to India within the two resultant high-profile instances – earlier than Cairn Vitality, telecom big Vodafone had gained an analogous arbitration in opposition to India.

In its 582-page order within the Cairn case, three-member tribunal, together with India’s nominee J Christopher Thomas QC, stated that the retrospective tax demand was “in breach of the assure of truthful and equitable therapy”. Affirming its jurisdiction over the case, the tribunal stated the Cairn case was not only a tax-related, however an investment-related dispute.

The India authorities’s competition is that tax orders, together with these beneath retrospective legal guidelines, can’t be arbitrated beneath bilateral funding treaties (BITs). Affirming this stance, the federal government introduced in a brand new mannequin BIT in 2016, explicitly excluding tax issues from its purview. It additionally concurrently began a means of modifying present bilateral funding pacts on these strains, whereas additionally in search of to verify any new settlement will follow the rule. Nonetheless, since these treaties are bilateral, a unilateral coverage shift doesn’t suffice to make a distinction, and there have but been been few cases but of any massive nation endorsing India’s amended BIT.

Because the Hague Tribunal has affirmed its jurisdiction over the Cairn case regardless of the existence of the India-UK BIT, the possibilities of a reversal of the order in a evaluation is distant. Nearly, a reversal is feasible provided that mala fide within the award is established.

Cairn tax dispute could also be sequenced as follows: In 2006-07, as part of inner rearrangement by a agency in European tax haven of Jersey, Cairn UK transfers shares of Cairn India Holdings to Cairn India. The taxman then raises a requirement of capital good points tax on Cairn UK amounting to $2.74 billion. The agency disputes the demand and the matter is heard by the I-T Appellate Tribunal after which the Delhi Excessive Courtroom. Whereas Cairn misplaced the case at ITAT, a case on the valuation of capital good points remains to be pending earlier than the excessive courtroom.

On November 18, the GoI instructed the Delhi Excessive Courtroom it’s but to take a name on whether or not to problem the Vodafone award. Showing for Vodafone-Concept, senior counsel Harish Salve has instructed the Delhi Excessive Courtroom that the telecom main won’t proceed with the second arbitration – this one over New Delhi’s alleged violation of India-UK treaty – till the worldwide award already handed (in reference to the Netherlands treaty) is put aside, if in any respect.

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