India, on May 23rd, 2021, challenged an international arbitration tribunal that has asked it to return $1.2 billion to UKs Cairn Energy Plc, citing that India had never agreed to arbitrate over a national tax dispute.
The finance ministry in the matter said that the tribunal improperly exercised jurisdiction over a national tax dispute that Republic of India never agreed or offered to arbitrate, even though the government appointed a judge on the three-member arbitration panel and fully participated in the proceedings.
The firm invested in the oil and gas sector in India in 1994 and in 2006 made a huge oil discovery in Rajasthan. In 2012, the government passed retroactive tax law and billed Cairn Rs.10,247 crore plus interest under the retroactive law.
India then expropriated and liquidated Cairns remaining shares in the Indian entity. It seized and sold shares of the company in its erstwhile India, confiscated dividends due and withheld tax refunds to recover the tax demand that it had levied two years after passing retroactive law.
Cairn, invoking arbitration under India-UK bilateral investment treaty, challenged the action in the Hague before an arbitration tribunal that awarded the company $1.2 billion plus costs and interest as of December 2020.
The tribunal in which Cairn filed his challenged consisting three judges, one from the company, another from Indian government and a third neutral party presiding officer, unanimously overturned the tax and asked India to return the value of the shares sold, dividend seized and tax refunded withheld, together amounting to $1.2 billion.
The finance minister, in its statement, called the 2006 reorganization of Cairns India business for listing on the local bourses a abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairns alleged investments of nay protection under the India-UK bilateral investment treaty.
There is still an air of confusion around The Hagues merit to levy tax by the Indian government over a corporate amalgamation scheme.
Earlier this month, Cairn filed a plea in a court in New York for declaring Air India as Indias alter ego in order to force it to pay the award. If New York court were to recognize Air India as the alter ego of the India Government, Cairn would not still be able seize the airlines assert for repayment. It means that it can seek seizure of any assert Air India may have in the United States of America, with the threat looming over Air India plane landing at any US airport, giving Cairn an opportunity to be able to move to court and get it attached before it departs.
Indias appeal pending before the Hague Court, underlying the award is based on an abusive tax avoidance scheme which is a gross violation of Indian tax law, is committed to follow all legal recourses to defend its case in the companys claim.
