Appoint arbitrator by Wednesday: Cairn tells govt

Cairn Energy of UK is willing to suspend its appeal to International Court of Justice (ICJ), seeking appointment of an arbitrator on behalf of the government to resolve the Rs 10,247-crore tax dispute, provided an arbitral panel is put in place by Wednesday.

Last month, it wrote to Finance Minister Arun Jaitley reminding him of the government’s promise to appoint an arbitrator “soon”.

Cairn, on March 10, had sought arbitration under the India-UK Bilateral Investment Protection Agreement disputing the tax demand raised on a 2006 internal business reorganisation, but the government initially refused to join it, saying tax disputes were not covered under the bilateral treaty. The British firm in September moved The Hague-based ICJ, seeking appointment of an arbitrator on behalf of the government.

The government at this stage told Cairn, as well as ICJ, that an arbitrator will be appointed soon. Sources said Cairn was willing to suspend its application before ICJ if the government was to name its arbitrator by Wednesday. If not, it will press ICJ to name an arbitrator on behalf of India so that proceedings begin.

Cairn has already named former Bulgarian minister Stanimir A Alexandrov as its arbitrator in the matter. Now, an arbitrator for India has to be appointed.

The two arbitrators will then appoint a neutral presiding judge of the three-member Arbitral Tribunal.

The bilateral treaty provides for either of parties approaching ICJ in case the other party does not appoint an arbitrator within six months of a dispute being raised.

Sources said Cairn told Jaitley that it will press ICJ for appointment of an arbitrator on behalf of India if the government did not name an arbitrator within stipulated time.

The Income Tax Department says Cairn Energy allegedly made a capital gain of Rs 24,503.50 crore in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for USD 8.67 billion, still holds 9.8 per cent stake in Cairn India. But it has been barred by the I-T Department from selling this stake.

The value of the shareholding in Cairn India has halved since attachment.

Disputing any capital gains made out of an internal business reorganisation, Cairn wants the Tribunal to scrap the notice, give it cost of arbitration and compensate it for the loss of value of its shareholding in Cairn India which the Income Tax Department had attached following the January 2014 tax assessment notice.