InvestorQ : What could be the implications of India being ordered to repay the dividends held to Cairn Energy PLC? What will be the government’s reaction?
Sam Eswaran made post

What could be the implications of India being ordered to repay the dividends held to Cairn Energy PLC? What will be the government’s reaction?

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Moii Chavate answered.
5 months ago
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It could be a temporary setback set-back for India as it has been ordered by a court to refund $1.2 billion to Cairn Energy PLC. This was after India lost arbitration proceedings against Cairn PLC over the taxation of capital gains on the sale of Cairn India stake to Vedanta by Cairn PLC. This deal pertains to 2011 and has been continuing to fester.

It may be recollected that pending the final legal ruling on the issue of tax payable by Cairn PLC, India had impounded the dividends payable to Cairn PLC for its remaining stake in Vedanta Ltd and the tax refund payable to Cairn. The money was held by the government in custody as a security against the outstanding tax dues.

In the opinion of the arbitration tribunal, the tax imposed was against the Indo-UK bilateral investment treaty signed by both the countries. Hence the arbitration tribunal has ruled against the Indian government in this particular case. In fact, the ruling has also asked India to refund the monies held back along with interest for the intervening period to Cairn PLC.

For the government, the response mechanism is critical. This is the second such adverse order as earlier India had also suffered a setback in the Vodafone case. The government is yet to crystallize its response to the Vodafone case and apparently they were waiting for the outcome of the Cairn case too. The nature of response will be critical to FDI flows.

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