Govt files appeal against $1.2-billion Cairn arbitration verdict

Will also contest the enforcement in other jurisdictions, including the UK, US

India filed an appeal against the Cairn Energy arbitration verdict at The Hague on Monday night, challenging the $1.2-billion award on grounds of sovereignty and tax avoidance by the UK oil major.

Based on the appeal, New Delhi will seek a stay on enforcement of the award filed by Cairn in a lower Dutch court and will also contest the enforcement in at least eight other jurisdictions, including the UK, Canada, the US, and France.

According to Dutch law, India had time till mid-April to file an appeal. But New Delhi filed it earlier to be able to get a stay on the enforcement in other jurisdictions and prevent seizure of Indian assets in those countries. The verdict was given by a three-member panel chaired by Laurent Levy. The final hearing was held in Paris in December 2018.

“India has appealed against the Cairn verdict,” a source confirmed to Business Standard.

In the appeal at The Hague, India is learnt to have taken the stand that the government has the sovereign right of taxation, and private individuals cannot decide on that. Besides, it falls outside the domain of a bilateral investment treaty and beyond the jurisdiction of international arbitration. Also, the government will likely invoke international public policy, arguing that Cairn did not pay tax in any jurisdiction across the globe.

The Permanent Court of Arbitration at The Hague had held that the Cairn tax issue is not a tax dispute but a tax-related investment one. Hence, it falls under its jurisdiction. India is learnt to have contested this claim in the appeal filed on Monday.

The government lost an international arbitration case to energy giant Cairn Energy Plc over the retrospective tax legislation amendment in a December 21, 2020, verdict. The case pertains to the Rs 24,500-crore tax demand (including interest and penalty) on capital gains made by the oil major in reorganising its India business in 2006-07.

The energy major has been building pressure on New Delhi to honour the arbitration award and has so far filed a case in the US, the UK, Netherlands, Canada, France, Singapore, Japan, the United Arab Emirates, and Cayman Islands over implementation of the December 21, 2020, award. This will enable the UK firm from going forward to identify commercial Indian assets that can be seized, such as aircraft, ships, etc.

Getting a stay may take another three to four months after filing an appeal. The finance ministry did not confirm the development. 

Cairn had said in its annual results announcement presentation earlier this month that the award of $1.7 billion at the end of the year ($1.2 billion plus interest totalling $490 million) was enforceable against India-owned assets in over 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It had added that the preparatory identification of assets belonging to the Indian government has begun in multiple countries.

Simon Thomson, chief executive, Cairn Energy Plc, said its shareholders expect the company to use its strong powers of enforcement to recover the full award amount from the Indian government. “Our shareholders expect India to honour its obligations and to quickly bring this matter to a conclusion.”

Finance Minister Nirmala Sitharaman said recently it was the government’s “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.