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  • Feb 20, 2021
  • India’s offer to Cairn in $1.4-bn arbitration battle: ‘Pay half the dues and move on’

    Discussions between finance ministry officials and Cairn Energy CEO Simon Thomson – and his team – continued for the second day on Friday, but it appears the government wants Cairn to settle the dispute using the Vivad se Vishwas scheme; under the scheme, the company will have to pay around half the amount due sans interest and penalties in cases where the tax department has lost a case in a forum and filed an appeal, as the instant one.

    Simultaneously, the government has also decided that it will challenge the arbitration award.
    While Cairn has filed a case in a US court to enforce the $1.4-billion arbitration award ($1.2 billion plus interest and penalties) that it has just won and this can, eventually, even lead to Indian assets – properties of Indian embassies, even possibly Air India’s planes – being attached, finance ministry sources feel that this is not going to be easy either and can be a long-drawn process. In which case, their hope is that Cairn recognises that the value of its money will keep declining and so its best bet is pay part of the taxes and then move on.

    It is not clear whether, while challenging the arbitration award, the government will also approach the Supreme Court (SC) to reject the award on grounds that it is antithetical to India’s policy. The government has done this for most awards that have gone against it, such as the Antrix-Devas one, but the response of the SC has been mixed.

    Last year, the apex court turned down a government appeal to stop a $476-mn award that Vedanta and Videocon had won way back in January 2011. And while hearing the government appeal against the $672-mn arbitration award that Devas Multimedia won in 2016 against Isro-arm Antrix Corporation, the fact that the SC asked Devas whether it would be willing to waive off the interest component of the money owed to it suggests the challenge may not hold.

    There are, on the other hand, also cases where SC has ruled against enforcing arbitration awards on grounds that they ran contrary to India’s public policy; this was the argument the government made in SC while asking for the award to be set aside.