[Aditya]

British oil company Cairn Energy Plc has initiated the process to seize Indian assets and has brought a lawsuit in the US against national carrier Air India to enforce the $1.2-billion arbitration award it won against the Indian government in a longstanding tax dispute.

The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006 it listed its Indian assets on the BSE. Five years after that the government passed retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.

UK's Cairn Energy has identified USD 70 billion of Indian assets overseas for potential seizure to collect USD 1.72 billion due from the government - a move if successful will put India in league with Pakistan and Venezuela which faced similar enforcement action over failure to pay arbitration awards.

The assets identified range from Air India's planes to vessels belonging to the Shipping Corporation of India, and properties owned by state-owned banks to oil and gas cargoes of PSUs, three people familiar with the matter said.

Cairn plans to move courts in the US to Singapore for seizure of the assets in absence of Indian government's refusal to honour an international arbitration award.

The government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague based tribunal's ruling asking the government to return the value of shares expropriated and liquidated, tax refunds withheld and dividend seized to recover a wrongly levied retroactive tax demand.

Cairn has already taken steps to have the arbitration award recognised in nine major jurisdictions such as the US, UK, France, the Netherlands, Singapore and Canada's Quebec province, where Indian sovereign assets have been identified.

Sources: Indian Express, Business Standard, Business World.

Image: Airlines.net

[condor]

Cairn's merger-ing of the entities is said to be opaque. And Govt of India says the cases are subject to India jurisdiction & courts.

The tax laws for retrospective taxation were passed around 2006. Even the Vodafone case was under the same law.

I dont understand this law at all, even in Layman terms. Hope there is an out of court settlement on this.

[srini1785]

A case history would help. On the outset, it looks like a fall out of the most medieval era retrospective tax laws. However, I am not familiar with this case. I am pretty sure all back channel talks both formal and informal are being initiated to end this bad press.

[RedTerrano]

I can't comment on Cairn and AI simply because I have no clue what the hell this is and have no urge to find out.
However one word which did catch my eye is retrospective.
How can any Govt. even pass retrospective laws? How does it even make sense?

In any civilised society, our behaviour is defined by the laws of the land. More specifically the laws currently in effect.
So how can you tell me now, something which I did say 3 years back (then legal) is not only illegal now, but I will be punished for my action back then?
In what world is this justice?

[AZT]

It's not just AI, $70 billion worth of assets have been identified and the cases span 6 countries. Govt needs to put the money they owe in a escrow to have any hope of selling AI or preventing one of the courts in any of the countries to not pass an order seizing any assets.

Pakistan and Venezuela had similar cases in the past where they owed money and foreign courts allowed seizure of assets as recovery.

[Nonstop-driver]

Here is an overview of the Cairn vs GoI case incase anybody wants to understand the underlying dispute

https://finshots.in/archive/the-cair...ase-explained/

[nirmaljusdoit]

Cairn energy has already received a fair verdict in the Permanent Court of Arbitration at The Hague. The logic of arbitrary retrospective tax was proven to be wrongly applied. It was clearly proved to be in breach of fair and equitable treatment.

Going by precedents in case of Venezuela and Pakistan, Cairn has legal recourse to seize Indian assets and there is little our government can do but to settle the damages. Prolonging the situation will only lead to bad press for India and damage our reputation as an investment destination.

Government should settle this at the earliest to soothe future investors sentiments and also reassure existing investors. When we are making a pitch for being an investment destination vis a vis China and improving our Ease of doing business ranking it is the need of the hour.

The same retrospective tax demand of 22,000 crore on Vodafone was also overturned, such high profile cases needs to be managed well and resolved soon.

[v1p3r]

After the arbitration award, the Cairn CEO came to India to try and settle the dues. He was given the run-around by our local worthies. As the head of a listed company, he is answerable to his shareholders, who won't take too kindly to a couple of billion missing.

Word is that all overseas branches of Indian public sector banks have been asked to 'secure' i.e. repatriate their funds, to avoid embarrassing seizures and lockdowns on those branches.

[Malyaj]

Contrary to what some people believe, retrospective laws (whether on taxes or other matters) are not entire laws enacted to obtain a decision in the government's favour. What actually happens is that the government issues a 'clarification' as regards the statute in question, playing on the language. What it tries to do is to say that "Hey, I always meant it this way, but you misunderstood it. Refer to this clarification". Hence from the government's perspective it is not retrospective at all, it was always the truth.

In reality it is just the government playing a bad loser. It stood as a spectator when corporations avoided capital gains tax by virtue of their tax residency. In the Vodafone case the Supreme Court judgement in favour of Vodafone was the last straw in this frustration for the government, which made it use the terrible tactic of retrospective 'clarification'.

That companies set up entities in tax havens is no secret for the governments, Indian or other. Yet they allow such companies to operate in their countries because they need the foreign investment. When the share value of these companies appreciates and the current owners want to cash out, the government wants a piece of the pie in the form of capital gains tax, on the premise that the value increment has happened as a result of operations in their country and the government should be able to tax them like they tax domestically registered companies.

If I was the owner of a company in such a tax haven, I would argue that I priced my services/ goods on the assumption that there would be no capital gains tax, else I would have priced them higher, or chosen not to do business in your country at all.

If Cairn chooses to seize any Indian asset abroad, it will lead to a cascading legal mess and both parties must be aware of it. The Hague ruling will be used more as a means to put pressure on the Indian government to come back to the negotiating table with better terms. Either way, this will be a long drawn out battle.

[srh]

What is referred to as 'retrospective law' is just a small piece added to legislation to enforce the intent & spirit of the original applicable law. The government is well within its rights to do it when loopholes get exposed/ used to nullify the spirit of the law.

It is a travesty that Indian courts allow corporates to get off the hook just based on technicalities. On other occassions, these same courts allow wide ranging dictats based on nebulous interpretation of fubdamental rights, basic structure etc...... But then that is how the gravy train rolls - huge amounts involved mean even courts can be gamed.

[nirmaljusdoit]

Some more trouble brewing for the government,

In another defiance move, the Indian government is facing a fresh challenge against the retrospective tax amendment from Earlyguard ltd, a British subsidiary of a Japanese company Mitsui & Co. Ltd.

Earlyguard moved the arbitration proceedings in February and Mitsui & Co. has now disclosed the details in its financial results, declared earlier in May, said a report by The Times of India.

The Indian tax authorities raised a demand of Rs 2,400 crores in capital gains related to a 2007 transaction where the company sold the shares of a British company, Finsider International which owned a 51 percent stake in Sesa Goa Iron Ore, a Vedanta Group company.

https://www.moneycontrol.com/news/bu...s-6910091.html

Article explaining the situation with some facts and figures
https://thediplomat.com/2021/01/the-...e-tax-debacle/

[redeff]

Originally Posted by condor

Cairn's merger-ing of the entities is said to be opaque. And Govt of India says the cases are subject to India jurisdiction & courts.

The tax laws for retrospective taxation were passed around 2006. Even the Vodafone case was under the same law.

I dont understand this law at all, even in Layman terms. Hope there is an out of court settlement on this.

Originally Posted by srh

What is referred to as 'retrospective law' is just a small piece added to legislation to enforce the intent & spirit of the original applicable law. The government is well within its rights to do it when loopholes get exposed/ used to nullify the spirit of the law.



It is a travesty that Indian courts allow corporates to get off the hook just based on technicalities. On other occassions, these same courts allow wide ranging dictats based on nebulous interpretation of fubdamental rights, basic structure etc...... But then that is how the gravy train rolls - huge amounts involved mean even courts can be gamed.

I am sorry, as a lawyer practicing primarily in tax litigation for the last decade, I beg to differ. The retrospective law is NOT meant to enforce enforce the intent & spirit of the original applicable law. The technicalities of the said transaction may go into several pages, but lets keep it simple. The Government gets into sovereign treaties with other governments to confer benefits. Every individual has a right to minimize the amount of tax they pay. Taxation is a technical subject, so any person is well within their rights to invoke technicalities.

As far as foreign investors are concerned, they do a proper due diligence before investing. Taxation is a major aspect of an investment call. What the Indian government did with the retrospective taxation in my opinion is akin to the honey trapping of these corporates. Called them in by showing a certain tax related framework and then changed the rule of the game. What would you say if the government allowed you to buy a car, completely legally and drive it, then change the rule few years down the line and say driving it was illegal and then fine you for buying the car and using it? I admit this is a lose example, but it is apt given the automotive nature of this forum.

The government of India may have a right to breach its sovereign promises in the form of its treaties, primarily because it is sovereign. Doesn't mean it should. The promises contained in the treaties should mean something. The government in the Vodafone case (was a different political party then) acted like a vengeful jilted lover and the opposition denounced it. Now that the opposition is in the power, it does not want to let go of the money and is not pursuing exactly what it denounced!


The government is well within its rights to do it when loopholes get exposed/ used to nullify the spirit of the law. A treaty is not a loophole. It was kept there by design to encourage investment. It is like the treaty with Thailand that allows manufacturers to import vehicles in India through the CBU route at a lower rate of duty than certain other jurisdictions.This is to promote trade between Thailand and India and has been deliberately introduced for mutual benefit. However, lets face facts, seeing the sums involved, the Indian government just got greedy. As far as the arbitration is concerned, it is conducted by an international center. There is no 'corporates' getting off the hook here. There is only what was promised and renegaded upon. It hurts the country on a global scale. The small piece of legislation changed the entire law. What was done is patently unfair and against international as well as domestic law.


There is no gravy train. There is a Venus fly trap that lured investors into India by giving them the option of being exempt from capital gains if they invested from certain countries. Now, that they are in the clutches, they are struggling to get out.

"On other occasions, these same courts allow wide ranging dictats based on nebulous interpretation of fundamental rights, basic structure etc...... But then that is how the gravy train rolls" - Please do not make wide sentences that have nothing to do with a technical topic. As far as technicalities are concerned, the government levies taxes technically and not with the 'intent and spirit' of law. Why should the Assessees then get the short end of the stick?


Views expressed are personal. This doesn't tantamount to legal advice. Also, though I have quoted a post, please do not construe this as an attack, personal or otherwise. That is not the intention.

[veedub89]

From what I understand about this case, it is a case of misplaced pride and ego coming from the Indian tax authorities.
They made a law, which was open to just a slight bit of interpretation and the corporates obviously interpreted it in their own favour.

Vodafone managed to get away so it was critical that Cairn does not.

Common sense suggests that if the tax man waited for 8 years to issue a claim then it shows that maybe the law was not complete or they got outsmarted. And when they realised they were outsmarted they rushed to say, "no no. we meant this all along."
OK, fine maybe you did and maybe you didn't. The clarification should be applicable from the date it was issued and not retrospectively. So going forth it is now clear what the law meant. Penalise those who still choose to violate the law and its clarification.

This vagueness in laws is quite prevalent and open to interpretation.
I am sure a lot of us here would have had personal experience with contradictions and loopholes in the laws being issued lately for the control of the pandemic.
Case in point-

"more than 2 people in a car must have masks on. But what if the second person is my wife? With whom I share a room/house. What difference does it make if I wear a mask in the car or not?"

Unfortunately babu-dom in India is severely narrow-minded.

[Nonstop-driver]

Originally Posted by veedub89

From what I understand about this case, it is a case of misplaced pride and ego coming from the Indian tax authorities.

And a lot of money. We are talking about the right to tax multi-billion transactions and interest thereon so obviously it's the greed to keep that money even after running out of judicial options.

It's like teaching a child a habit by threat. If the child doesn't follow, your threat becomes hollow. The Indian government has done everything it could and they can't hurt Cairn any further so the ball is completely in Cairn's court and with the arbitration going in their favour, they will pursue their interests vehemently.

[interest]

This is not an isolated incident. Whether this issue came up because of a delayed clarification from government or whether it was indeed a retrospective change (and I fully believe this to be a retrospective change where the government realised later on that they have been outsmarted and now they need to salvage pride), the truth is that our laws are worded extremely vaguely leaving much to the discretion of authorities and the clarifications are issued after a lot of lag. If one goes through this article (https://www.financialexpress.com/opi...g-way/2091861/), CAG data points that taxmen win only around 25% of the disputes in tribunals and courts and they themselves don't believe that more than 10%-11% of the disputed tax arrears are collectible. Such dismal figures can only be a result in two scenarios-

a) Taxmen dispute majority of the cases without applying basic sense; possibly because their legal costs are paid for by taxpayers like us and not from their pocket

b) Taxmen themselves cannot interpret the laws they have drafted and therefore they end up loosing in court

Either way, it is taxpayers who get harassed due to this lack of accountability on the part of taxmen. I remember very recently supreme court or one of the high courts chided officials responsible for GST compliance to stop attaching property at the drop of a hat as it can lead to a person's business to collapse even while the dispute is ongoing. Companies like Vodafone or Cairn can survive to fight the battle with Indian government but smaller businesses shall start to bleed if they have to wage a decade long legal battle.

What is bizzare is that the current government was actually critical of these retrospective amendments. I can understand they did not stall the ongoing proceedings due to political compulsions (suit boot jibe etc) but once the arbitration award (where even the arbitrator appointed by India ruled in favour of Vodafone) was given, Indian government should have accepted it and moved on. I wonder if they want to keep things complicated on purpose to provide them discretion later on (eg. the myriad confusions about GST rate applicable on roti vs paratha).