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Govt. likely file appeal against Cairn arbitration award

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Govt. likely file appeal against Cairn arbitration award:


Context:

The Centre is likely to file an appeal against the $1.4 billion international arbitration award won by Cairn Energy in a tax dispute.

  • The government intends to defend its sovereign right in taxation and will file an appeal against the tribunal ordering India to return $1.4 billion to the British firm.

What’s the Concern now?

Cairn has indicated it could seize overseas assets such as aircraft and ships if New Delhi fails to comply with the arbitration award and return the value of the shares sold, dividend seized and tax refund withheld by the income tax department to recover part of the tax demand it had raised using retrospective legislation.

What’s the case?

Cairn had challenged the Indian government seeking taxes over an internal business reorganisation using the 2012 retrospective tax law, under the UK-India Bilateral Investment Treaty.

  • In 2011, Cairn Energy sold its majority stake in Cairn India to Vedanta Ltd, reducing its stake in the Indian company to about 10 per cent.
  • In 2014, the Indian tax department had demanded Rs 10,247 crore ($1.4 billion) in taxes.

What had the tribunal ruled?

  • India’s claim of Rs 10,247 crore in past taxes over a 2006-07 internal reorganisation of Cairn’s India business was not a valid demand.
  • India should pay the funds withheld along with the interest to the Scottish oil explorer for seizing dividend, tax refund, and sale of shares to partly recover the dues.
  • India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty.

How the issue reached arbitration tribunal?

Cairn’s claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands, and the proceedings were under the registry of the Permanent Court of Arbitration.

InstaLinks:

Prelims Link:

  1. What is Arbitration?
  2. Recent Amendments.
  3. About the International Court of Arbitration.
  4. About the Arbitration Council of India.
  5. Appointment of arbitrators under the 1996 Act.
  6. PCA- composition, functions and members.

Mains Link:

Discuss the significance of the Arbitration and Conciliation (Amendment) Act.

Sources: the Hindu.