The Indian government has been ordered to pay oil and gas company Cairn Energy $1.2 billion following an arbitration award in a tax dispute case.
Cairn Energy said on Wednesday that the tribunal established to rule on its claim against the Government of India had found in Cairn’s favour.
Cairn’s claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands, and the proceedings were under the registry of the Permanent Court of Arbitration.
The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and has awarded the oil company damages of $1.2 billion, plus interest and costs, which now becomes payable.
According to Reuters, the amount is nearly equal to London-listed Cairn’s market value of $1.3 billion as of Tuesday’s close.
A government official told Reuters that the award in Cairn’s case is so big that the government believes it cannot give it away without a challenge.
Cairn took the case to arbitration back in 2015 after the government of India demanded a payment of $1.4 billion in tax due to Cairn’s listing of its Indian subsidiary on Bombay Stock Exchange in 2007.
Cairn rejected the claim on grounds that the law under which India demanded the payment was not passed until 2012, years after the establishment of Cairn India as a separate subsidiary.
After Cairn sold the majority of its stake in the Indian subsidiary to Vedanta, keeping only 10 per cent, the government seized the remaining shares in 2014 as well as dividends that Vedanta owed to Cairn Energy.
Namely, all government and third-party approvals required under the sale and purchase agreement with Woodside have been received and Cairn expects to complete the deal prior to the end of the year.
Following the completion of this sale, the oil company will pay a special dividend of 32 pence per eligible ordinary share amounting to a return of approximately $250m to shareholders and complete consolidation of Cairn’s ordinary share capital.
The special dividend is expected to be paid on 25 January 2021 to those on the register on 8 January 2021.
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