Cairn Energy to drop cases against India, accepts $1-billion offer

Vedanta is also likely to withdraw arbitration

Cairn Energy Plc on Tuesday said it was ready to withdraw all cases it had slapped against the Indian government for enforcing a $1.2-billion arbitration award the company had won in December 2020. This is part of the settlement under recent legislation by Parliament.

Also, Vedanta, which had bought Cairn Energy’s erstwhile subsidiary Cairn India in 2011, is likely to withdraw arbitration it had filed in Singapore seeking around Rs 5,000 crore as damages from the government.

London Stock Exchange-listed Cairn Energy will enter into “statutory undertakings” with the government. This will enable a refund of retrospective taxes collected from it by way of asset seizures since 2014. It will get a refund totalling Rs 7,900 crore (approximately $1.06 billion) once it withdraws litigation and enters into an agreement with the government.

According to Simon Thomson, chief executive, Cairn Energy Plc, the company would be required to withdraw its international arbitration award claim, interest, and costs, and end legal enforcement actions in order to be eligible for the refund under the terms of new legislation. The company had registered the arbitration award in many jurisdictions, including the US, the UK, Canada, Singapore, Mauritius, France, and the Netherlands. It had even sought mortgaging government properties in Paris and sought claim on Air India as “the alter ego of the Indian state”.

According to draft rules of the Taxation Laws (Amendment) Act, 2021, released by the Central Board of Direct Taxes (CBDT) last week, companies have to file a declaration to “irrevocably withdraw, discontinue and not pursue” any legal proceedings.

These include proceedings before the appellate forum, proceedings for arbitration, conciliation or mediation, and enforcing or pursuing attachments in respect of any award, order, or judgment. The draft rules require a similar undertaking from “interested parties” and shareholders in support of withdrawing cases.

The legislation offers settling the retrospective cases pertaining to the 2012 legislation on the offshore indirect transfer of Indian assets.

“Vedanta has also shown an interest in the legislation and is also expected to withdraw the case from the Singapore Tribunal,” said a government official.

“The Vedanta case is inter-related to Cairn Energy in the sense that they are starting from the 2012 order. So ideally they will all need to be withdrawn,” said a government official. London-based Vedanta Resources had served a notice of claim against the government of India under the India-United Kingdom bilateral investment treat, challenging the tax demand on March 27, 2015. 

A person close to the development said Vedanta had an arbitration in a Singapore court. These would become “infructuous” since the government’s tax demand on Cairn India would be withdrawn.

Anil Agarwal-led Vedanta had sought damages also under the India-Singapore investment treaty over a significant decline in share value due to the Rs 10,250-crore tax notice to its erstwhile subsidiary, Cairn India. Vedanta later merged Cairn India with itself in 2017.

According to the draft rules, the jurisdictional commissioner will grant approval in 15 days if conditions for eligibility and undertaking to withdraw all cases are satisfactory. The final form of the statutory undertakings was yet to be published by the government, said a Cairn statement.

“It is anticipated that the principal condition that they prescribe will be the withdrawal of Cairn’s rights under the international arbitration award,” the Edinburg-based company said at the announcement of its half-yearly results on Tuesday.

The company is planning to use $700 million out of the refund for special dividend and buyback out of this, subject to the resolution of the dispute.

“Payment of the tax refund would enable a proposed return to shareholders of up to $700 million, via a special dividend of $500m and a share buyback programme of up to $200m. The remainder of the proceeds would be allocated to further expansion of the low cost, sustainable production base,” it said.