India to appeal Cairn arbitration ruling

India's government will appeal against an international arbitration award in favour of UK independent Cairn Energy over a retrospective tax demand against the company.

Indian finance minister Nirmala Sitharaman said that it was her "duty" to appeal any award questioning the country's sovereign right to tax.

"The issue at stake is not a matter of domestic tax law," the tribunal based in the Netherlands' Hague had said in its ruling late last year. "It is rather whether the fiscal measures taken by the state, valid or not under its own tax laws, violate international law."

The Indian government has been involved in arbitration with Indian conglomerate Reliance Industries, Shell, BP and UK-listed, India-focused resources firm Vedanta to settle upstream disputes despite domestic crude production being in decline and the country's import dependency rising to 85pc.

India has lost several arbitration cases involving the energy sector despite several appeals in Indian courts and abroad. The appeals have dragged out the settlement process, raising issues among prospective investors about the BJP federal government's commitment to honouring contracts.

"They expect India to honour its obligations and to quickly bring this matter to a conclusion and if India do not do that, and if India delay, then our shareholders expect us to pursue our strong powers of enforcement which we have to do,'' Cairn chief executive Simon Thomson said yesterday. Cairn has already moved in courts in the US, the UK, the Netherlands, Canada, France, Singapore, Japan, the UAE and the Cayman Islands to get the December arbitration award registered and recognised before seeking seizure of Delhi's assets.

Cairn's dispute with the Indian authorities revolves around a retrospective tax demand imposed after it initially sold its controlling stake in Cairn India to Vedanta in 2011. The Indian government alleged that the company failed to pay tax on 245bn rupees ($3.3bn) of capital gains when transferring its Indian assets to a new firm from subsidiaries incorporated in the European tax haven of Jersey in transactions made in 2006.

By S Dinakar