Cairn moves international arbitration panel against dividend freeze

IT Department officials are however cut up with Cairn Energy for taking up the issue with the arbitration panel. UK’s Cairn Energy plc has petitioned an international arbitration tribunal against billionaire Anil Agarwal-led Vedanta Limited withholding its dividend for last three years despite tax authorities saying there is no attachment in force. The Hague, the Netherlands-based three-member tribunal, which was constituted to decide on Cairn’s plea against India slapping a ₹ 10,2470000000 retrospective tax demand and freezing its assets, will hear the petition this week. Income Tax Department officials are however cut up with Cairn Energy for taking up the issue with the arbitration panel as there is no longer any attachment order and the dividend payment is a matter between Vedanta and the British firm. “Cairn India/Vedanta approached the tax department, both verbally and in writing, on multiple occasions seeking a written order so that they can continue to withhold dividend due to Cairn Energy. We did not respond to them,” a senior official said. E-mails sent to Cairn India and Vedanta Limited for comments remained unanswered. Officials said they had lifted the freeze on dividend payment by Cairn India (now Vedanta) on March 31, 2016 when its 281B Order ceased to be in effect. The same has been communicated in writing to the arbitration panel. Cairn India is the erstwhile subsidiary of Cairn Energy which it sold to Vedanta in 2011. The British firm still holds holds 9.8% stake in Cairn India but has not been paid shareholder dividend for last three years totalling about $100 million. Officials said there was a provisional freeze on Cairn Energy receiving dividend as also selling its residual stake in Cairn India during the pendency of assessment proceedings after a draft tax demand of ₹ 10,2470000000 was raised on January 22, 2014 using retrospective tax legislation. “After passing of the final assessment order on January 25, 2016, the provisional attachment of these assets was extended up to March 31, 2016, whereupon the order under section 281B expired,” the official said. Cairn Energy, which is the only company whose assets have been frozen for a retrospective tax demand, had previously approached Sebi against Cairn India/Vedanta Limited not paying dividend for last three financial years. The official said besides order on dividend, Cairn Energy is also seeking an injunction from the arbitration panel against the income tax department initiating proceedings to recover ₹ 10,2470000000 in retrospective tax. Within weeks of tax tribunal ITAT upholding levy of retrospective tax on 2006 transfer of shares by the UK firm to a newly created Indian unit Cairn India, the department had on March 31 issued a fresh demand notice of ₹ 10,2470000000 and set June 15 as the time to pay the tax, failing which it would initiate recovery proceedings. Cairn Energy is contesting the tax demand through the international arbitration and has not participated in the amnesty scheme the government floated last year by promising to waive interest and penalty if the principal tax is paid. Fearing that the tax department will proceed to takeover or sell its residual 9.8% stake in Cairn India (now Vedanta Limited , confiscate ₹ 1,5000000000 of income tax refund due and $100 million of dividend income after June 15, the British firm approached the same arbitration tribunal seeking a stay on Indian government action, they said. The official said the tax department is contesting the very jurisdiction of the panel to give direction to a sovereign nation. India, they said, is contesting that the tax cannot be arbitrated under the bilateral investment protection treaties and no international arbitration panel can decide on the legislative power of Indian Parliament to frame tax laws. Cairn has resorted to arbitration under the India-UK bilateral investment protection treaty.