“The expected near-term resolution of the India tax dispute would result in a refund to Cairn by the Government of India of Rs 7,900 crore (approximately $1.06bn). In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions in order to be eligible for the refund,” the company said in a filing to the London Stock Exchange, while offering to pay up to $700 million to its shareholders.
Top Crain executives have been talking to the government for the last few weeks. Cairn may be the first among the 17 cases to be resolved and requires the government to refund tax that had been collected from the British company.
“Once we get to final resolution, part of that resolution is us dropping everything in terms of litigation. We can do that within a very short period of time, just a matter of a couple of days or something… So, we are preparing on the basis of getting this resolution quickly, all these cases being dropped, and putting all this behind,” Cairn CEO Simon Thomson told a news agency on Tuesday.
The company’s director David Nesbit, who was in Delhi, said Cairn Energy would drop its demand for damages to be paid, which was part of an award by an international tribunal. “We obviously have to forgo that. We have got to be pragmatic about it,” Nesbit said.
As part of the amendments moved by finance minister Nirmala Sitharaman, the government had made it a pre-condition for companies to drop all litigation and penalty and interest claims.
Nesbit also complimented the government for being “very bold, transparent and open” about the process, which required amendments to reverse a decision during Pranab Mukherjee’s term as finance minister in the Manmohan Singh government, which had sought to levy capital gain tax on all transactions with underlying assets in India, even if the companies were not in India.
Mukherjee moved the amendments following a setback in the Supreme Court, which had dismissed a claim made by tax authorities on Vodafone after its acquisition of a 67% stake in Hutch Essar through an overseas entity with Hutchison Whampoa also holding interest in the Indian entity through a local company.
Following the amendments, Cairn and Vodafone had challenged the decision under bilateral investment protection agreements and got a favourable ruling in international tribunals.
The government had challenged both the rulings but came under pressure after Cairn filed cases in France and the US to enforce its claims based on the tribunal award.
Sitharaman said the amendments were in line with the Narendra Modi government’s stand, but it was waiting to move then following a “logical conclusion” of the cases.