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Indian Granted Six More Weeks to Respond to Arbitration Ruling

Saturday, December, 24, 2016


India recently was awarded a six week extension to determine how to reply to the $5.6 billion claim against it by British oil explorer Cairn Energy PLC. The dispute comes from an Rs29 047 crore retrospective tax demand.

In June, Cairn filed a 160 page Statement of Claim before a three-member international panel. The claim sought to quash the retrospective tax demand on a more than 10 year old international reorganization of the company’s India unit. It also sought $5.6 billion in compensation.

Originally, India had until the end of November to respond to the claim, but at the arbitration hearing, the panel determined the country can wait until mid-January 2017 to file its response. The government had requested the arbitration be put on hold and instead requested a parallel arbitration to be settled first.

According to those familiar with the arbitration ruling, the panel did not give a position concerning India’s demand, but simply gave more time to file a response. Cairn had been issued a tax notice in January 2014 for capital gains on the reorganization of its India unit, and three months later, received a tax demand for failing to deduct those capital gains.

Cairn Energy and Vedanta, the company from which Cairn purchased Cairn India in 2011, each initiated arbitrations against the tax demands. Cairn India then initiated an arbitration in March 2015, but at a recent hearing, the government determined those proceedings should be placed on hold. Cairn Energy has filed a challenge against the tax assessment under the UK-India Investment Treaty, which provides for resolution of tax issues.