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Cairn’s latest move shows retrospective tax is causing great harm to India. GoI should settle out of court

UK’s Cairn Energy says it has won a French court order to freeze over $24 million of Indian government assets in the country to force GoI to make good an international arbitration tribunal order. A couple of months ago, Cairn had used the judicial system in the US to make a claim on Air India’s assets there. It’s a precarious situation that GoI finds itself in. While the root cause of this situation may lie in the ill-conceived retrospective tax amendment of 2012 introduced by UPA-2, the current government has compounded the problem.

The 2012 legislative amendment overturned a Supreme Court judgment GoI lost when it tried to raise a withholding tax demand on Vodafone International’s indirect acquisition of a majority stake in an Indian telecom firm. That law was a bad idea. It spooked international investors and did India’s reputation harm. Making matters worse, NDA pursued other cases using the 2012 amendment. Thus, Cairn got a tax demand for a 2006 transaction and between 2016 and 2018, GoI even sold some of Cairn’s financial assets to recover its tax demand. Both Cairn and Vodafone filed international arbitration proceedings against GoI for violating fair and equitable standards of bilateral investment treaties with the UK and the Netherlands, respectively. GoI lost in both instances, but has appealed.

There are two fallouts now. Countries that are members of the New York Arbitration Convention will recognise tribunal awards and allow Cairn to protect its interests. That puts GoI in a vulnerable position. Separately, GoI’s actions in another arbitration matter, its wholly owned Antrix Corp versus Devas Multimedia, are adding to the reputational damage. Devas won the arbitration in 2015. However, Antrix filed a winding up petition in the NCLT in India against Devas claiming it was formed for unlawful purposes. NCLT has ruled in Antrix’s favour. But it will only harm India’s reputation as a jurisdiction that’s not reliable. Going on about sovereignty won’t help here. GoI needs to settle out of court with these entities and bury the ghost of 2012. There’s a future to look forward to.



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This piece appeared as an editorial opinion in the print edition of The Times of India.



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