Cairn slaps $5.6bn claim on govt. for ‘loss of value’

The company has sought the withdrawal of the retrospective tax demand made by the I-T department.

July 12, 2016 12:11 pm | Updated October 18, 2016 01:16 pm IST - New Delhi

Employees gather at Cairn India, Oil and Gas exploration plant at Barmer in Rajasthan.

Employees gather at Cairn India, Oil and Gas exploration plant at Barmer in Rajasthan.

British oil and gas explorer Cairn Energy has raised a $5.6 billion compensation demand from the Indian government for a breach in an investment treaty arising out of the retrospective tax demand of Rs. 29,047 crore on an internal reorganisation of Cairn’s India unit.

Cairn Energy wanted the I-T Department’s demand raised in January 2014 withdrawn, and it be paid $1.05 billion for the loss of value in its 9.8 per cent shareholding in its erstwhile subsidiary, Cairn India, following the tax demand and the subsequent freezing of the shares.

In a 160-page Statement of Claim, filed with an international arbitrator, Cairn Energy said the Indian government has “failed to uphold its obligations” under the UK-India Investment Treaty by not giving its investments in the country “fair and equitable treatment”. In the event that the arbitrator does not order India to retract its tax demand, Cairn has demanded compensated for the breach in the investment treaty by being paid for the loss of the value in its holdings in Cairn India along with interest and penalties; the total coming to Rs 37,400 crore.

The compensation demand, according to experts, will hurt India’s international business reputation at a time when it was doing very well in this regard.

“India has got bilateral investment promotion agreements with several countries,” Dinesh Kanabar, CEO of Dhruva Advisors told The Hindu.

“And this is a claim under that. There were previous incidences like this as well. All such high-profile claims makes foreign investors sit up and take notice. When India’s current international reputation is so good, such incidents can certainly be avoided.”

The I-T Department had in January 2014 sent a draft tax assessment of Rs 10,247 crore to Cairn Energy on alleged capital gains it made on its 2006 transfer of Indian assets to a new subsidiary, Cairn India, and subsequent listing of the firm.

Cairn Energy sold its majority stake in Cairn India to Vedanta Resources in 2011 but held on to 9.8 per cent of the company, which was later attached by the I-T Department following deal. This year, the Department sent the company a final assessment order comprising Rs. 18,800 crore of interest on the Rs 10,247 crore principal tax amount, taking the total dues to Rs 29,047 crore.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.