Agencies
India has been ordered to return over $1.2 billion to Cairn Energy Plc after Prime Minister Narendra Modi’s administration lost arbitration proceedings in a tax dispute, its second defeat over levies.
An international arbitration tribunal ruled that the tax claim was not a valid demand and asked the government to repay the funds withheld along with interest to Cairn. India had seized dividend, tax refund and shares to partly recover the dues. The judges unanimously ruled that India’s retrospective tax demand breached the U.K.-India bilateral investment protection treaty, Cairn said in a statement Wednesday. India can appeal.
Cairn Energy surged as much as 45% in early London trading, its biggest intraday gain in almost 17 years.
Cairn Energy’s victory will be the second loss for India in an international arbitration after Vodafone Group Plc won a years-long tax dispute with the government in September over a controversial $3 billion tax demand. Unlike in the Vodafone case, the government will have to repay Cairn. India in 2012 retrospectively amended the tax code, giving itself the power to go after M&A deals all the way back to 1962 if the underlying asset were in India.
“The 2012 amendment muddied the waters for everyone,” said Chitranshul Sinha, a partner at India-based law firm Dua Associates. “Vodafone and Cairn awards should be taken as a lesson that predatorial retrospective tax policies are something which should be done away with.”
The restitution of Cairn’s claim compares with its market capitalization of $1.3 billion, and “if successful and enforced, could produce windfall-enabling M&A or a special dividend,” Bloomberg Intelligence analyst Will Hares wrote last year.
(Except for the headline, this story has not been edited by The Kashmir Monitor staff and is published from a syndicated feed.)
