Cairn seeks Sebi help to retrieve dividend from Vedanta

Cairn Energy held 10% stake in Cairn India, which, after merger with Vedanta, stands reduced to 5%

Cairn Energy Plc’s tax dispute with India has taken a new turn, with a war of words breaking out between the Edinburgh-based company and the Anil Agarwal-led Vedanta group. Cairn Energy has approached the Securities and Exchange Board of India (Sebi), complaining about non-payment of dividend due from its holding in Cairn India. Cairn Energy held 10 per cent stake in Cairn India, which, after merger with Vedanta, stands reduced to five per cent.

In a statement on Tuesday, Cairn Energy said it had written to Sebi and Cairn India about non-payment of dividends due to the company from Vedanta. It, however, said it had not made “any accusation” about “the conduct of officials in the finance ministry”. Media reports on Monday suggested Cairn Energy accused a senior finance ministry official of advising the Vedanta to withhold the dividend income, as it could square off the retrospective tax liability against Cairn Energy. 

A person close to developments said $51 million was due as dividend for the past three financial years. In a separate statement, Vedanta said, “The dividends due to Cairn Energy for the last three years are lying in an unpaid dividend account, as they were subject to an attachment order u/s 281B by the tax department. We would like to reiterate that these dividends are not available for use by Cairn (now Vedanta).”

In March, Cairn Energy had issued a statement saying it had access to dividend from Cairn India. It cited approval from an arbitration panel. “Cairn Energy has also been in touch with us and we have been responding to their mails/letters sharing our predicament in view of the notice now issued to them post the order of the income tax tribunal for payment of tax liability by June 15,” Vedanta said in the statement. The person quoted above said the move to approach Sebi was prompted by “unusual circumstances”. Vedanta had bought Cairn India from Cairn Energy in 2010.

According to the assessment of the tax department, there was a tax due of Rs 10,247 crore on Cairn Energy for the gains it made transferring India assets to a newly created subsidiary, Cairn India, in 2006. Both the companies have already opted for international arbitration. The 9.8 per cent shareholding in Cairn India was originally attached by the tax department in January 2014 and the company continues to be restricted from selling those shares.

The seat of arbitration has been agreed to as The Hague in the Netherlands and Cairn filed its statement of claim in June 2016 which demonstrates that applying the retrospective amendment to Cairn and seizing $1-billion worth of Cairn India shares was in breach of the UK-India Investment Treaty obligations of fair and equitable treatment and its protections against expropriation. India's statement of defence was filed in February, with evidence hearings expected to take place next January.