British oil major Cairn Energy has called for an annual general meeting of shareholders on May 12 in London to approve, among other things, the proposal to dispose of its 9.82 percent residual stake in Cairn India.
"One of the resolutions seeks approval of the renewal of the existing authority (renewed at last year's annual general meeting held on 14 May 2015) to dispose of all or part of the Group's residual interest in Cairn India," the company said on its website, notifying the AGM agenda.
The proposal comes against the backdrop of the retrospective tax demand of Rs.29,000 crore from the Indian tax department Cairn has received, on alleged capital gains the company made in a 2006 reorganisation of its India business.
Meanwhile, Cairn Energy said on Thursday it faces a Rs.10,200 crore penalty on the retrospective tax demand.
"The Indian tax department on February 4, 2016, issued a final assessment order, levying Rs.10,200 crore plus interest back dated to 2007 up to Rs.18,800 crore," the company said in a circular on Wednesday to its investors in London.
The latest order is based on a draft assessment note of January 22, 2014, on the alleged capital gains Cairn made in a 2006 reorganisation of its India business.
The Edinburgh-based Cairn Energy still holds 9.8 percent equity stake in Cairn India through its UK Holdings Ltd. (CUHL), after it sold majority stake in it to the London-based Vedanta mining group for $8.67 billion in 2011 though it raised Rs.8,616 crore ($1.9 billion) through a initial public offering (IPO) in mid-2006.
"The aggregate amount of Rs.29,000 crore excludes any applicable penalty, which may also be applied to the final assessment (potentially up to 100 per cent of the final assessment order, excluding interest)," Cairn said.
Asserting that it would contest the assessment proceedings, the company said it was pursuing its right to appeal against the order under the Indian law on the retrospective tax and penalty, besides protecting its assets from any legal action.
The IT department notice was issued before (February 4) Finance Minister Arun Jaitley in his budget speech on February 29 made a one-time offer to waive interest and penalty if companies paid the principal amount to settle the retrospective tax disputes.
"The total assets of the Cairn subsidiary against which the tax authorities are seeking to pursue a tax claim are $477 million (including principally the group's near 10 percent shareholding in Cairn India Ltd.) and any recovery by the Indian authorities would be limited to such assets," Cairn said last month.
Cairn Energy, which in 2011 sold majority stake in Cairn India to mining major Vedanta Resources, has said it had to scale back on investments as it was barred by the Income Tax Department from selling its residual 9.8 percent stake.
"Cairn is at present restricted by the Indian Income Tax Department from selling its shares in Cairn India," it said in the notice of the AGM.
"Nevertheless, Cairn believes it is appropriate to retain the flexibility to realise Shareholder value from its residual interest in Cairn India in the event that the Company is free to make such a disposal," it added.
Cairn India stock was trading at 3.15 p.m. on Friday at Rs.149.05 a share, up 2.20 points, or 1.5 percent, over its previous close on the Bombay Stock Exchange.
