Cairn wants India to appoint arbitrator by Nov 11

| | Updated on: Nov 08, 2015

Cairn Energy of UK is willing to suspend its appeal to the International Court of Justice seeking appointment of an arbitrator on behalf of the Government of India to resolve the Rs 10,247 crore tax dispute, provided an arbitral panel is put in place by November 11.

The British oil explorer late last month wrote to Finance Minister Arun Jaitley reminding him of the Government’s promise to appoint an arbitrator “soon” to resolve the issue.

Sources privy to the development said Cairn told Jaitley that he and the Government on two separate occasions in September promised to appoint an arbitrator but no tangible progress has been made even after more than six weeks.

Cairn on March 10 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 are not covered under the bilateral treaty.

The British firm in September moved The Hague-based International Court of Justice seeking appointment of an arbitrator on behalf of the Government of India.

The Government at this stage told Cairn as well as ICJ that an arbitrator will be appointed soon.

Sources said Cairn is willing to suspend its application before ICJ if the Government was to name its arbitrator by November 11. If not, it will press ICJ to name an arbitrator on behalf of India so that proceedings can begin.

Cairn has already named former Bulgarian minister Stanimir A Alexandrov as its arbitrator in the matter. Now, an arbitrator for the Government of 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 the 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 $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.

Published on January 22, 2018

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