Govt ready to extend Vivad se Vishwas to settle Cairn Energy dispute

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Amid the international arbitration with Cairn Energy, the government is open to extending “Vivad se Vishwas, the direct tax dispute resolution scheme, beyond March 31 if the UK oil major shows an interest in settling litigation under it.
 
In the meeting with finance ministry officials last month, Cairn was offered an immediate refund of $300million in case it chose to settle the tax dispute under the ongoing scheme.
 
Under it, the principal tax demand on Cairn will go down by half to Rs 5,100 crore and there will be a waiver of interest and penalty. In addition, the Indian side had offered to return the 1.8 per cent company shares it had seized.
 
As the government had sold Cairn Energy shares of around Rs 6,500 crore, it will refund the remaining amount, the proposal said.
 
Meanwhile, India filed an appeal against the Cairn Energy arbitration verdict at The Hague last week, challenging the $1.2-billion award on grounds of sovereignty and tax avoidance by the UK oil major.
 
“The only way to resolve the dispute immediately is through the Vivad Se Vishwas scheme. Cairn will get a refund in a matter of days. The arbitration process will take its own course and will go on for years. Although the scheme is closing on March 31, India will not hesitate to extend it in case Cairn wants to participate in it. But it must show an inclination,” said a government official.
 
Cairn did not respond to the government’s specific offer. However, it confirmed on Tuesday it had received notice that the government had petitioned the Dutch Court of Appeal to set aside the arbitration award.
 
“Cairn has full confidence in its position. As previously advised, Cairn will continue to take all steps necessary in order to protect the interests of its shareholders,” the company said in a statement.
 
According to reports, Cairn is planning to bring lawsuits in several jurisdictions to pierce the corporate veil between the government and companies the latter owns in shipping, aviation, and banking to seize overseas assets to recover the arbitration award. It has moved court in the US, the UK, Canada, France, Singapore, the Netherlands, and three other countries to register the arbitration ruling.
 
However, based on the appeal, New Delhi will seek a stay on enforcing the award filed by Cairn in a lower Dutch court and will contest it in at least eight other jurisdictions, including the UK, Canada, the US, and France.
 
Under the Vivad se Vishwas scheme, payments worth over Rs 54,346 crore have been made to resolve tax disputes amounting to Rs 98,328 crore till March 10. As many as 128,733 declarations have been filed during the period to settle pending tax litigation.
 
In the appeal at The Hague, India is learnt to have taken the stand that it has the sovereign right of taxation, and private individuals cannot challenge 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 was not a tax dispute but one related to tax-related investment. Hence, it falls under its jurisdiction. India is learnt to have contested this claim in the appeal filed on Monday.
 
The government lost the case on December 21 last year.
 
The case pertains to a 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.