Cairn Energy PLC (“Cairn Energy”), now renamed Capricorn Energy, is one of Europe’s leading independent oil and gas exploration and development companies. Over the last few years, the Government of India and Cairn Energy have been involved in a dispute related to a retrospective tax that was imposed on Cairn Energy by the Government of India. We have, in our previous Article, summarised this dispute and the ensuing arbitration order passed in favour of Cairn Energy.

Since the conclusion of the arbitral proceedings, India and Cairn Energy have been shuttling between different proposals aimed at settling the dispute. Cairn Energy has also simultaneously been trying to enforce the arbitration award it had won against India in December 2020. Cairn Energy has since approached courts in several countries to enforce the arbitral award. The arbitration tribunal had ordered India to pay approximately $1.2 billion plus interest and cost to Cairn Energy.

In a latest update, pursuant to the Taxation Laws (Amendment) Act, 2021 passed by the Indian legislature, Cairn Energy has withdrawn all litigations in this retrospective tax case, allowing the Indian Government to nullify the previous tax demand and refund the taxes collected in this regard to Cairn Energy. Cairn Energy, in a notice published in a newspaper stated that it, “has entered into the final stage in its undertakings with the Government of India by withdrawing Indian and global appellate and enforcement proceedings.”1

Cairn Energy filed a “notice of voluntary dismissal” of its petition against India in the District of Columbia District Court on Wednesday. On the same day, it filed a similar plea for dismissal of its petition against Air India in the New York Southern District Court. Both the aforementioned petitions had been filed by Cairn Energy to confirm the arbitration award it won against India. Cairn Energy vide its petitions across several jurisdictions sought to seize the Indian Government’s assets overseas to recover the money. Cairn Energy agreed to drop litigations to seize the Indian Government’s properties in countries ranging from France to the UK, having accepted the Indian Government’s offer to settle the tax dispute relating to the levy of taxes retrospectively.

To meet the requirements of the new legislation (The Taxation Laws (Amendment) Act, 2021) that scraped the levy of retrospective taxation (subject to certain conditions), Cairn Energy has also provided undertakings indemnifying the Indian Government against future claims as well as agreeing to drop any legal proceedings anywhere in the world. The Government of India is now required to issue the requisite documentation to refund the tax collected to enforce the retrospective tax demand. Cairn Energy is expecting a refund of approximately Rs. 7,900 crores from the Government of India.

The Taxation Laws (Amendment) Bill, 2021 received the assent of the President on August 13, 2021. The bill which has now become a law amends the Finance Act, 2012 and the Income-tax Act, 1961, and nullifies demands raised on transactions prior to May 28, 2012. Tax on the indirect transfer of Indian assets will be applied prospectively from this date. The Taxation Laws (Amendment) Act, 2021 provides a framework for resolving international arbitration cases against the government, namely those filed by Vodafone Group Plc and Cairn Energy and 15 others stemming from the retrospective tax law. As per the Taxation Laws (Amendment) Act, 2021, the Government will withdraw all tax demands levied retrospectively, refund taxes collected and settle cases, if those companies withdraw challenges filed against the Government in all legal forums.

Choudhary, Sanjeev, Cairn Energy withdraws all litigations in retrospective tax case, Economic Times, January 5, 2021. Available at https://economictimes.indiatimes.com/news/economy/policy/cairn-energy-withdraws-all-litigations-in-retrospective-tax-case/articleshow/88705064.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.