Finance minister Arun Jaitley's recent statement on resolution of legacy issues has given rise to suggestions that a committee on the lines of A P Shah Commission recommend on tax disputes arising out of retrospective amendments.
Cairn Plc, the earlier promoter of Cairn India, had appointed Washington-based Stanimir Alexandrov as its arbitrator in May 2015 and initiated the arbitration last week. Upon the expiry of the two-month period prescribed under the treaty, Cairn filed a request with the president of the International Court of Justice (ICJ) to have an appointment made on India's behalf. Cairn filed the request with ICJ on August 12. The Indian government had earlier not agreed to appoint its arbitrator but last week agreed to do so.
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Cairn Plc has initiated arbitration against the Republic of India under a bilateral investment promotion and protection treaty with the UK government.
The Indian tax authorities had imposed capital gains on an internal reorganisation undertaken in 2006 when Cairn India was created and listed on the Indian stock exchange. They have frozen Cairn Plc's equity shares in Cairn India, worth approximately $1 billion at that time.
Cairn in its petition filed on September 22 requested the Arbitral Tribunal to render an award declaring India has violated its obligations under the treaty and international law and that it has failed to accord Cairn's investment fair and equitable treatment and impaired the company through unreasonable measures.
The company also said the Indian government expropriated Cairn's investment in violation of the treaty, by illegally attaching its equity shares in Cairn India as well as any receivables by Cairn from the Indian entity.
It has sought compensation for India's breaches of the treaty, in an amount equal to the value of Cairn's shares in Cairn India at the time of the attachment (approximately $1 billion), subject to further adjustment, in a freely convertible currency accepted by Cairn, plus interest.
Two weeks ago, Jaitley, who was meeting foreign investors and fund houses on his visit to Singapore and Hong Kong, said his government's legacy issues included retrospective taxation, tax demand for prior periods and the conflicting verdicts of various tribunals. "You cannot have a common solution for all and therefore, each of those cases was dealt with separately. We tried to adjudicate some of them, and we had adjudications expedited," he had said on September 20.
The arbitration would, however, delay resolution of the Cairn dispute.