A security guard stands in front of a sign featuring the Cairn India Ltd. (Photographer: Adeel Halim/Bloomberg)

Cairn Energy’s Retro Tax Arbitration Award Delayed

Cairn Energy Plc of the U.K. said it expects the long-running arbitration process against Indian authorities over retrospective taxation to be more protracted than originally anticipated and is unlikely to be concluded before late 2019.

An international arbitration tribunal in August last year concluded main court hearings in the British company's challenge to the Indian government using retrospective legislation to seek Rs 10,247 crore in taxes.

The tribunal was supposed to give an award by February 2019 but the same is now expected not before the end of the year.

Cairn Energy in a statement said it had last month written to the three-member panel seeking guidance on the likely timing of the arbitration award.

"The panel has now responded that although it remains mindful of Cairn's need for a swift decision, given its workload and the number of matters before it, it is still unable to provide specific guidance on timing," the statement said. "As a result of this, Cairn expects that the timetable for issuing the award will be more protracted than originally anticipated and is unlikely to be before late 2019."

In January 2014, Cairn received notice from the Income Tax Department of India, requesting information relating to the group re-organisation done in 2006. The Income Tax Department attached the company's near 10 percent shareholding in Cairn India, which was subsequently merged with its parent Vedanta. Cairn Energy held a 4.95 percent stake in Vedanta after that move.

Cairn Energy received a draft assessment order from the Indian Income Tax Department in March 2015 and subsequently filed a notice of dispute under the U.K.-India Investment Treaty in order to protect its "legal position and shareholder interests".

Pending arbitration proceedings, the Income Tax Department, beginning May 2018, has sold most of the Cairn shares to recover tax dues.

With merits submissions and hearings concluded, the arbitration panel is preparing its final award.

Also read: Taxman Sells Cairn Energy Shares To Recover Retrospective Dues

"The Panel had originally guided the arbitration parties that it expected to issue an award expeditiously following the conclusion of the main merits hearings in The Hague held in August 2018," Cairn said.

"When the parties appeared before the Tribunal in December 2018, the Panel advised that it had not been able to advance the award as expected due to the number of procedural matters that had been brought before it since the August hearings, and that it is was not in a position at that time to give guidance to the parties on the expected timing of the issuance of the award."

Cairn's claim under the treaty is for monetary compensation of $1.4 billion, the sum required to reinstate the company to the position it would have been in, but for the actions of the tax department since January 2014.

"The arbitration Panel is expected to issue a binding and internationally-enforceable award, and Cairn continues to have a high level of confidence in the merits of its claims in the arbitration," it said.

Also read: Cairn Loses $216 Million Vedanta Stake as India Tax Row Deepens