India had seized and sold shares of Cairn in its erstwhile India unit, confiscated dividend due and withheld tax refunds to recover the tax demand it had levied two years after passing a law in 2012 that gave it powers to levy tax retrospectively. (File image)The Centre on Sunday refuted reports that it has purportedly asked state-owned banks to withdraw funds from foreign currency accounts abroad in anticipation of the potential seizure of such accounts by Cairn Energy.
“These are totally incorrect reports which were not based on true facts. Certain vested parties appear to have orchestrated such misleading reporting, which often relies upon unnamed sources and presents a lopsided picture of factual and legal developments in the case,” finance ministry said in a statement.
The government also confirmed that it filed an application in the Permanent Court of Arbitration at The Hague on March 22, 2021, seeking setting aside of the arbitral award that favoured Cairn Energy.
In December 2020, The Hague tribunal not only invalidated India’s $2.74-billion 2015 tax claim on the Edinburgh-headquartered energy major, but also ordered it to return up to $1.4 billion in funds withheld, plus interest and costs, to the firm. The tribunal ruled that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty.
On Sunday, the ministry reiterated that the tribunal had “improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate. The government added that it was committed to “pursuing all legal avenues to defend its case in this dispute worldwide”.
India had seized and sold shares of Cairn in its erstwhile India unit, confiscated dividend due and withheld tax refunds to recover the tax demand it had levied two years after passing a law in 2012 that gave it powers to levy tax retrospectively.
Even as it was challenging the award, the government of India apparently wanted Cairn to settle the dispute using the Vivad se Vishwas scheme; under the scheme, the company will have to pay around half the amount due sans interest and penalties in cases where the tax department has lost a case in a forum and filed an appeal, as the instant one. It is not clear if Cairn has even been open to this formula.
The government also stated that the CEO and other representatives of Cairn have approached the government for discussions to resolve the matter. Constructive discussions have been held and the government remains open for an amicable solution to the dispute within the country’s legal framework, it added.
UK’s Cairn Energy has reportedly identified $70 billion of Indian assets overseas for potential seizure to collect $1.72 billion due from the government — a move if successful will put India in league with Pakistan and Venezuela which faced similar enforcement action over failure to pay arbitration awards. The assets identified reportedly range from Air India’s planes to vessels belonging to the Shipping Corporation of India, and properties owned by state-owned banks to oil and gas cargoes of PSUs, reports suggested.
The ministry said: “The Government has raised several arguments that warrant setting aside of the award including but not limited to: (i) the arbitral tribunal improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate; (ii) the claims underlying the award are based on an abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairn’s alleged investments of any protection under the India-UK bilateral investment treaty; and (iii) the award improperly ratifies Cairn’s scheme to achieve double non-taxation, which was designed to avoid paying taxes anywhere in the world, a significant public policy concern for governments worldwide. This proceeding is pending”.
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