India appeals against Cairn arbitration order; seek stay on $1.2 bn award

India appeals against Cairn arbitration order; seek stay on .2 bn award
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India on Monday night filed an appeal against winning an international arbitration case against the country, challenging at The Hague the $1.2 billion award on grounds of sovereignty and tax avoidance by the UK oil major.

New Delhi sought a stay on Cairn seeking to enforce the award before a Dutch lower court and it will do the same in at least eight other jurisdictions including the UK, Canada, US and France.

As per Dutch law, India had time till mid-April to file an appeal. New Delhi filed appealed before that in order to be able to get a stay on the enforcement in other jurisdictions and prevent seizure of Indian assets in those countries.

“India has appealed against the Cairn verdict,” a source told Business Standard.

In the appeal at The Hague, India is learnt to have taken the stand that its government has the sovereign right of taxation and private individuals cannot decide on that. Besides, it falls outside the domain of a bilateral investment treaty and beyond the jurisdiction of international arbitration. Secondly, the government will likely invoke international public policy, arguing that Cairn did not pay tax in any jurisdiction across the globe.

The permanent court of arbitration at The Hague had held that the Cairn tax issue is not a tax dispute but a tax related investment dispute. Hence, it falls under its jurisdiction. India is learnt to have contested this claim in the appeal filed on Monday.

The government lost an international arbitration case to energy giant Plc over the retrospective tax legislation amendment in a December 21 verdict. The case pertains to the over Rs 24500-crore tax demand (including interest and penalty) on capital gains made by the oil major in reorganising its India business in 2006-07.

The energy major has been building pressure on New Delhi to honor the arbitration award and has so far filed a case in the US, the UK, Netherlands, Canada, France, Singapore, Japan, the United Arab Emirates and Cayman Islands over implementation of the December 21 award, which will enable the UK firm from going forward to identify commercial Indian assets that can be seized, such as aircraft, ships, etc.

READ MORE: Seizing Indian assets won’t be easy for Cairn Energy, say experts

Getting a stay against Cairn may take another 3-4 months post filing an appeal. The Finance Ministry did not confirm the development.

Cairn had said in its annual results announcement presentation earlier this month that the award of $1.7 billion at the year-end ($1.2 billion plus interest currently totalling $490 million) was enforceable against India-owned assets in over 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It had added that preparatory identification of assets belonging to the Indian government has begun in multiple countries.

Simon Thomson, chief executive, PLC said that its shareholders expect the company to use its strong powers of enforcement to recover the full award amount from the Indian government. “Our shareholders expect India to honour its obligations and to quickly bring this matter to a conclusion… 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 said recently that it was the government’s “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.

The government had lost an international arbitration case to energy giant Cairn Plc under the retrospective tax legislation amendment.

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 at the Permanent Court of 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 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.

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