The Indian government is likely to file an appeal against the Cairn arbitration award contesting its sovereign rights to tax, sources said. An international tribunal in December, had unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014, when the income tax department had slapped a £1.02 billion tax assessment using legislation that gave it powers to levy taxes retrospectively.
Soon after seeking £1.02 billion in taxes over alleged capital gains made by the company over a 2006-07 reorganisation of India business before its listing, the tax department seized Cairn''s residual 10 per cent stake in Cairn India. In a ruling, which Cairn had previously described as "final and binding", the tribunal had ordered New Delhi to pay $ 1.2 billion in damages, plus interest and costs, to compensate Cairn for the shares - long sold off by the tax department - as well as confiscated dividends and withheld tax refunds. This totals to $ 1.4 billion.
Its shareholders have been egging the management to take action to get the money back. Cairn chief executive Simon Thomson had met Finance Secretary Ajay Bhushan Pandey last week to discuss the arbitration award. Sources said the government is planning to file an appeal against the tribunal order and it believes the arbitration tribunal cannot question a nation''s sovereign right to tax.
Britain's Cairn Energy plc has filed cases in the US, the UK and the Netherlands courts to register a $1.4 billion arbitration award it had won in a tax dispute against India, as a preparatory action in case it is not paid by the Indian government. Cairn filed a petition in a Washington DC Federal court on February 12, and followed it up with similar filings in the UK and the Netherlands courts.
Sources said the government will strongly contest other suits filed by Cairn Energy at various other international courts. Sources said any dispute resolution to be sought by Cairn will have to be within already existing laws. In a letter to the Indian government last month, Cairn had said its shareholders "expect an early resolution, failing which they will expect Cairn to pursue the award in conformity with its rights under the treaty".
