Centre to appeal against Cairn's $1.2 billion arbitration award

Finance Minister Nirmala Sitharaman (File image: Reuters)

The Cairn Energy dispute appears no closer to settlement than when it had begun. The Centre has decided to file an appeal against the global energy major's $1.2 billion arbitration award, CNBC-TV18 reported, citing sources.

Cairn Energy's top management will meet Union finance ministry officials on February 19, after a previous meeting a day earlier.

The government will contest its sovereign rights to tax and challenge “other suits by Cairn Energy at various international courts,” CNBC-TV18 quoted government sources as saying.

On its part, the government has 'welcomed' Cairn’s move to reach out for a resolution. The CNBC-TV18 report cited sources as saying that any dispute resolution sought by Cairn will have to be within the existing legal framework.

Cairn Energy Plc's Chief Executive Officer, Simon Thomson, met the Finance Secretary, Ajay Bhushan Pandey, and other ministry officials on February 18 to reach an amicable solution to the controversial retrospective tax issue.

While the meeting's participants declined to speak to the press, a person aware of the discussion told Moneycontrol that the Centre too is looking to resolve the matter.

Early this week, the company had approached a US district court seeking to enforce a $1.2 billion arbitration award. Some news reports also speculated that Cairn Energy is in the process of identifying Indian assets abroad, including bank accounts, Air India aircraft or even ships that could be seized, if India fails to pay the arbitration award.

In December 2020, a Permanent Court of Arbitration at The Hague ruled that the Indian government should pay damages worth $1.2 billion to the company and the case of retrospective tax was wrongly applied on Cairn.

In 2006-07, as part of an internal rearrangement, Cairn UK transferred shares of Cairn India Holdings to Cairn India. Indian tax authorities had claimed that the company made capital gains during this transaction, which happened ahead of the initial public offering (IPO) of Cairn India. Authorities had slapped a tax demand of Rs 24,500 crore on the company.

Though Cairn Energy sold its majority stake in Cairn India to Anil Agarwal-led Vedanta in 2011, it continued to hold a minority stake of 9.8 percent in the company. Later, the Indian government froze the dividend payment by Cairn India to Cairn Energy. To partially recover the tax demand, the Income Tax department had attached some shares of Cairn Energy in Cairn India and had sold it in 2018.