Cairn tax row: Will appoint arbitrator to resolve issue, India tells ICJ

New Delhi: India has told the International Court of Justice that it will soon appoint an arbitrator to resolve the Rs 10,247-crore tax dispute with British oil explorer Cairn Energy Plc.

Cairn on March 10 sought arbitration under the India-UK Bilateral Investment Protection Agreement against the tax demand raised on a 2006 internal business reorganisation, but the government initially refused to join it, saying tax disputes are not covered under the bilateral treaty.

The British firm on September 23 moved The Hague-based International Court of Justice seeking appointment of an arbitrator on behalf of the Government of India.

Sources said the ICJ sent a notice to the government seeking its response on the Cairn plea. In response, the government earlier this month told ICJ that it will join the arbitration and appoint an arbitrator soon, they said.

While Cairn had named former Bulgarian minister Stanimir A Alexandrov as its arbitrator in the matter, the government is yet to finalise its arbitrator, sources said.

Once the two arbitrators are in place, they will then appoint a neutral presiding judge of the three-member Arbitral Tribunal.

Cairn wants the Tribunal to declare that "India has violated its obligations under the Treaty and international law" and has "failed to accord Cairn's investments fair and equitable treatment and impaired them through unreasonable and discriminatory measures in violation of the Treaty."

Besides claiming cost of arbitration, it also wants to be compensated for the loss of value of its shareholding in Cairn India which the Income Tax Department had attached following the January 2014 tax assessment notice.

The government, on the other hand, maintains that the tax dispute does not fall within the scope of the India-UK Bilateral Investment Protection Agreement.

The Income Tax Department says Cairn Energy allegedly made a capital gain of Rs 24,503.50 crore in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for USD 8.67 billion, still holds 9.8 per cent stake in Cairn India. But it has been barred by the I-T Department from selling this stake.

The value of the shareholding in Cairn India has halved since attachment.

Disputing any capital gains made out of an internal business reorganisation, Cairn in the notice states that the UK-India BIT specified that each contracting party is required to "grant to investors of the other contracting party the unrestricted transfer of their investments and returns".

This was violated by attachment of Cairn Energy's shares in Cairn India and preventing it from selling those shares and repatriating or otherwise disposing of the proceeds, the arbitration notice said