India Condemns False Reporting on Cairn Legal Dispute; Challenges Arbitration Award

The Indian finance ministry says it has filed an application to set aside the December 2020 international arbitral award in favor of Cairn Energy.

India's finance ministry has rejected claims in a section of the media that the government had asked state-owned banks to withdraw funds from foreign currency accounts abroad following an arbitration ruling in a tax dispute, in favor of Cairn Energy.

The government said in a press note issued on Sunday, May 23, that it "strongly condemned the false reporting" that claimed it directed the withdrawal in anticipation of the potential seizure of such accounts by UK's Cairn Energy Plc.

The Government of India said that these are totally incorrect reports which were not based on true facts. "Certain vested parties appear to have orchestrated such misleading reporting, which often relies upon unnamed sources and presents a lopsided picture of factual and legal developments in the case," the press note said.

'Government Vigorously Defending its Case'

"Government of India is vigorously defending its case in this legal dispute. It is a fact that the Government has filed an application on March 22, 2021 to set aside the highly flawed December 2020 international arbitral award in The Hague Court of Appeal," it said.

In the first week of May, some international media outlets had reported that India asked state-run banks to withdraw funds from their foreign currency accounts abroad. The report had said that India did so, thinking that Cairn could seize the money after it was awarded damages of more than $1.2 billion in a long-running legal dispute with the government pertaining to retrospective taxation.

The finance ministry reiterated that the Cairn Energy's CEO and the representatives of the company have approached the Government for discussions to resolve the dispute. Constructive discussions have been held and the Government remains open for an amicable solution to the dispute within the country's legal framework, the ministry said.

ONGC oil platform
ONGC oil platform - Representational Image Wikimedia Commons

The government also said it has raised several arguments that warrant setting aside of the verdict in favor of Cairn Energy.

No International Arbitration in Matters Relating to National Taxes

These factors include (i) the arbitral tribunal improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate; (ii) the claims underlying the award are based on an abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairn's alleged investments of any protection under the India-UK bilateral investment treaty; and (iii) 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. This proceeding is pending. The Government is committed to pursuing all legal avenues to defend its case in this dispute worldwide.

Govt. Challenges Arbitration Award

India says it does not accept international arbitration in matters relating to national taxes. The government has challenged the arbitration award saying that it has never agreed to arbitrate over a "national tax dispute". The Mint, Indian financial newspaper, also reported on Sunday that India's Finance Minister, Nirmala Sitharaman, has emphasized that international arbitration ruling on the country's sovereign right to taxation sets a wrong precedent.