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Current Affairs

Cairn Energy sues Air India

Date: 19 May 2021 Tags: Judiciary & Judgments

Issue

Britain-based oil company, Cairn Energy is suing Air India for seizing its assets in order to recover its $ 1.2 billion arbitration award.

 

Background

The dispute between Cain Energy and Government of India was regarding a retrospective tax law that was won by the multi-national company.

 

Details

  • The International arbitral tribunal had said that Indian government had violated the terms under India-UK bilateral treaty and imposed unfair taxes on Cain Energy, leading to losses for the company.

  • The Tribunal directed the Indian government to $ 1.2 billion as compensation for the losses faced by the company. India has challenged the arbitration award in Netherlands.

  • The company has filed suit in New York as it has identified several assets of India from which it can recover its due.

 

Why Air India?

  • Cairn argues that Air India should be jointly held accountable for India’s debts. It is responsible for several judgements related debts of the government.

  • The court will determine the economic control of the government over Air India to see if profits go to the government and also degree of control.

 

Retrospective tax issue

  • Cairn Energy decided to consolidate its India assets by transferring shares of Cairn India Holdings to Cairn India, which is from non-Indian companies to an Indian holding company.

  • Cairn India sold about 30 percent of its stake through IPO, while the rest was bought by mining conglomerate Vedanta Plc.

  • Cairn UK was not given the permission to transfer stakes of 9.8 percent in Cairn India to Vedanta as the tax officials demanded Rs 6000 crore as capital gains tax.

  • The Supreme Court said that such a measure did not attract taxes under Section 2(14) of the Income Tax Act. The government then retrospectively amended the law.

  • Cairn Energy argued that the retrospective tax law violated the UK-India Bilateral Investment Treaty, which had obligated India to treat investments from UK in fair manner.