InvestorQ : Can you tell me about the Cairn case and why it has threatened to attach Indian assets in other countries? Is that possible?
ishika Banerjee made post

Can you tell me about the Cairn case and why it has threatened to attach Indian assets in other countries? Is that possible?

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5 months ago
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Let me give you a quick back ground first. Back in 2011, Cairn UK had a sold a stake in Cairn India to Vedanta Ltd. Subsequently, in 2012 the government introduced the concept of retrospective taxation and contended that the transaction, despite being covered by the Indo-UK treaty, was liable to be taxed. While the actual tax bill raised ran into $3 billion, the government had forfeited shares, dividends and tax refunds worth $1.2 billion

However, subsequently Cairn UK had approached an independent tribunal with the facts of the case for arbitration. The arbitral court ruled that Cairn’s contention was justified and that Indian government must return the $1.2 billion to Cairn UK and also additional damages and penalties as may be applicable. India has opted to file an appeal against this ruling while Cairn has got orders from various courts to attach Indian assets.

Even as the case stands, Cairn UK has now got a ratification order from several courts including the courts in the UK, the US, France and Netherlands. When an international arbitral order is ratified by courts in a country it gives the aggrieved party, Cairn in this case, the right to attach business assets like bank balances, ships and aircraft in these countries. Cairn has already warned that it would be the next step if India did not pay up

However, in reality, the issue may be a tad more complex. While Cairn has issued the threat of asset forfeiture is easier said than done. Nirmala Sitharaman has pointed out that no international court can question the sovereign right of the government of India to tax incomes. Also, any arbitral order is valid in India only if the local courts ratify it.

Currently, the situation is that Cairn is facing pressure from its own institutional shareholders who have been unhappy with this case dragging on for so long. Cairn is clearly trying to create an image that it is on the job of recovering the monies. However, even Cairn realizes it is not as simple as walking away with Indian assets. The process can be complicated and it could strain diplomatic relations with India.

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