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Appoint arbitrator by Nov 11: Cairn Energy to India on ICJ appeal

British oil explorer Cairn Energy of UK has expressed willingness to suspend its appeal to International Court of Justice (ICJ) seeking appointment of an arbitrator on behalf of Government of India to resolve the Rs 10,247 crore tax dispute, provided the Indian government appoints an arbitral panel by November 11.

business Updated: Nov 08, 2015 11:55 IST
Disputing any capital gains made out of an internal business reorganisation, Cairn Energy wants the 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.
Disputing any capital gains made out of an internal business reorganisation, Cairn Energy wants the 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.

British oil explorer Cairn Energy of UK has expressed willingness to suspend its appeal to International Court of Justice (ICJ) seeking appointment of an arbitrator on behalf of Government of India to resolve the Rs 10,247 crore tax dispute, provided the Indian government appoints an arbitral panel by November 11.

The British oil explorer late last month wrote to finance minister Arun Jaitley reminding him of 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.

Read: Cairn Energy files dispute notice against India over tax notice

Sources said Cairn is willing to suspend its application before ICJ if the government names 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 stipulated time.

The Income Tax Department says Cairn Energyallegedly 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 Vedantafor USD 8.67 billion, still holds 9.8 per cent stake in Cairn India. But it has been barred by the IT 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.