Government May Seek Out-Of-Court Settlement With Cairn Energy
An offshore oil platform and wells are silhouetted by the setting sun (Photographer: Derick E. Hingle/Bloomberg)  

Government May Seek Out-Of-Court Settlement With Cairn Energy

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Cairn Energy Plc.’s Chief Executive Officer Simon Thomson is set to meet Finance Secretary Ajay Bhushan Pandey on Feb. 18, two months after the British explorer won a $1.2-billion arbitration case against India.

The Indian government is going to offer the company an out-of-court settlement in the meeting, a person familiar with the matter said on the condition of anonymity citing sensitivity around the issue. The meeting will serve as an opportunity for the company to “settle” the long-pending matter, as the government plans to appeal against the three-member international arbitration tribunal order delivered in December, the person said.

India had lost arbitration proceedings and the tribunal directed the government to pay Cairn Energy over $1.2 billion. The payout stems from an initial tax demand of Rs 10,247 crore on Cairn U.K. Holdings Ltd. for alleged capital gains it made in the 2006 business reorganisation of its Indian holdings. With penalties and interest added the tax claim has risen to over Rs 22,000 crore, part of which the tax demand recovered via sale of Cairn assets they had seized. That, alongwith damages, is what the arbitral award has ordered be paid back.

Also read: Why India Lost To Cairn Energy: BQ Exclusive 

Earlier this week, the British oil explorer asked a U.S. district court to enforce the arbitral award, according to a Reuters report.

That came after Cairn Energy's Feb. 9 tweet that said Thomson is looking forward to meeting Finance Minister Nirmala Sitharaman in New Delhi this week. However, the person cited earlier said Sitharaman asked the finance secretary to meet Thomson.

“The arbitration is now finalised and the award has been given. We would request, along with others, that the Indian government will swiftly adhere to the award… I’m sure working together with the government, we can swiftly draw this to a conclusion,” Thomson said in a video released along with the tweet. He said investment by the oil firm has led to a revenue generation of $20 billion for the Indian government.

The dispute arose from an amendment made in law by the Indian government in 2012 to retrospectively tax firms going for offshore transfer of shares during mergers and acquisitions. The move significantly impacted two international firms—Vodafone Plc. and Cairn Energy.

In September 2020, the Indian government lost a case to Vodafone in an international arbitration over a $3 billion tax demand. However, the government has taken the case to a high court in Singapore to set aside the order.

Also read: Vodafone, Cairn Score Big Tax Victories-Yet India Won’t Give Up

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