The UK-based company, which won $1.2 billion in an arbitration award against India, is looking to settle the dispute and could meet the officials possibly as early as Wednesday, said people with knowledge of the matter.
“Cairn would just want the Indian government to refund the principal amount. The company is willing to let go of the remaining part of the arbitration award,” said one of them. Another person said, “Earlier too, Cairn had offered this to the Indian government. And the company wishes to end the dispute as early as possible.”
Cairn Energy didn’t respond to queries.
The Taxation Laws (Amendment) Bill 2021 allows the government to withdraw tax demands and settle cases by paying the principal tax collected under the clause. This is subject to the appellant withdrawing all cases. The government will not pay any interest or penalty imposed under any international tribunal. In December, Cairn Energy won $1.2 billion and costs in its arbitration case. The company says the amount is now $1.7 billion.
“Cairn is due to get $1.7 billion, including the award, damages and interest, but if the government does not pay interest, that will lead to a substantial amount being reduced,” said one of the persons.
The government says ₹7,880 crore has been collected from Cairn as part of the demand under the retrospective tax rule. This includes the value of its shares in
sold by the government, retained dividends and tax refunds in another case.
“If it is just the value of shares being refunded, it will be a large haircut that the company will have to take,” said the person.
Clarification on Minor Points
Finance minister Nirmala Sitharaman said Monday that the government was open to holding talks with companies such as Cairn Energy and Vodafone Group that were affected by the retrospective tax law. Sitharaman added that the government would refund Cairn Energy about Rs 7,879.73 crore in the event of a settlement.
India had filed an appeal in March to set aside an award in favour of Cairn Energy given by The Hague Court of Appeal in December 2020. The dispute arose in 2015 after the government demanded capital gains tax of Rs 10,200 crore plus interest and penalty over a reorganisation of assets that Cairn undertook at its India unit in 2006, ahead of the listing of its shares in 2007. The Permanent Court of Arbitration had ordered the government to return the value of shares it had sold, dividends seized and tax refunds withheld, amounting to over $1.2 billion. Soon after the government moved to scrap the retrospective clause, the company held a round of meetings with several of its India advisors.