It is my duty to appeal: FM Sitharaman on Cairn arbitration award

India's sovereign authority to tax cannot be questioned by anybody, she asserts

Union finance minister Nirmala Sitharaman on Friday stated the government's stand on appealing the $1.2 billion arbitration awarded which it lost against Cairn Energy, stating that it is her duty to appeal where the country’s sovereign authority to tax is questioned.

“India's sovereign authority to tax cannot be questioned by anybody. And even if it’s an award of arbitration if there is a question about India's sovereign right to tax, I will appeal, it is my duty to appeal,” Sitharaman said.

Sitharaman added that as a sovereign nation, the government of the day will have to question that. “To question the authority of a government to even tax, I’m sorry I will appeal on that,” she said.

Simultaneously, British High Commissioner to India Alex Ellis is reported to have told a select media gathering that his country expects the Indian government to provide an ecosystem that is friendly to foreign investors and quick resolution of complicated tax disputes would help.

A person close to the development said the government appeal was unlikely to change things and would entail more time and cost since the government had raised the argument of soverign authority during the arbitration proceedings. "The award is final and the merits cannot be appealed," he said adding that under the Dutch law, the grounds for setting aside an arbitral award were extremely narrow. There are five strictly limited grounds for that which includes no valid arbitration agreement, the rules for the composition of the tribunal have not been observed, the tribunal has exceeded its mandate, the arbitral award is not signed or not reasoned, and the arbitral award or the manner in which it is arrived at is contrary to public policy or public morals. "In addition, an award may be revoked if, after the award is made, it is discovered that the award is based on fraud committed during the arbitral proceedings, the award is based on forged documents or a party obtained documents which would have had an influence on the arbitral tribunal and which were withheld as a result of acts of the other party," the person said quoting the rules.

The bilateral treaty, he said, had strong provisions to enforce a successful award and the decision of the tribunal is final and binding on both parties.

The government is likely to go ahead and appeal against the arbitration award before March 21, Business Standard had earlier reported. The UK energy major has filed a case in the US, the UK, and the Netherlands on executing the $1.2 billion award.

The Indian government has already challenged yet another international arbitration tribunal’s verdict that overturned its demand for Rs 22,100 crore in back taxes from Vodafone Group Plc.

The two sides held multiple rounds of discussions last month after which the company said on Feburary 21 it was hopeful that an acceptable solution to the dispute could be found to avoid prolonging and exacerbating the ‘negative issue’ for all parties.

The government had lost an international arbitration case to Cairn Energy under the retrospective tax legislation amendment. The case pertains to the Rs 24,500-crore tax demand on capital gains made by the oil major in reorganising its Indian business in 2006-07.

Sitharaman said foreign direct investments into the country has been highest ever when asked about lack of clarity on taxation issues for investors.

“We have made our position clear as regards to retrospective taxation, and it has been repeated over 2014, 2015, 2016 and till today. So, on that score I can’t see any lack of clarity,” she said.