In December 2020, Cairn Energy plc, a Europe-based independent oil, and gas development company, won an award against the Government of India for unfairly applying the 2012 tax law on the company and the tribunal ordered a compensation of $1.2 billion-plus cost and interest. India has challenged this award on Sunday stating that it had not agreed to arbitrate over a “national tax dispute”.
To give a brief background to the case, in 2006 Cairn reorganized their Indian operations and transferred all the assets of their Indian entities into a new entity called Cairn India. Indian tax authorities failed to notice the transfer. In 2012 India introduced a retrospective tax legislation that gave the authorities leeway to reassess transactions tracing back to 1962. When Cairn Energy refused to cooperate for the same, India seized and sold shares of Cairn in its former India unit, confiscated dividend due, and withheld tax refunds to recover the tax demand it had levied two years after passing a law in 2012. Cairn Energy approached the Permanent Court of Arbitration at Hague contesting that the imposition of the retrospective tax code amounted to a violation of fair and equitable treatment protected by the India-UK Bilateral Investment Treaty (BIT). After hearing both the parties the Tribunal passed the award in favor of the Claimant.
Indian authorities vehemently protested the award stating that the tribunal exercised improper jurisdiction. The Finance Ministry in its statement said that, “The award improperly ratifies Cairn’s scheme to achieve double non-taxation, which was designed to avoid paying taxes anywhere in the world, a significant public policy concern for governments worldwide.” It has challenged the award before The Hague Court which is still pending. Meanwhile with India refusing to pay, Cairn Energy has registered the award for enforcement in none jurisdictions including the U.S. Earlier this month, it filed a plea in a court in New York for declaring Air India as India’s alter ego so it can be forced to pay the award. If the NY Court recognized Air India as an alter ego of the Indian Government, Cairn can move the courts to seek seizure of Air India’s assets in US such as fleet, immovable assets etc.