Cairn Energy and India Dispute- An overview

cairn energy and india
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There is nothing as meticulous as law. The tendency of law to be detailed and applicable to every situation is what makes it a guiding force for any society. For the same, the laws are formulated and amended regularly. Besides compatibility, various issues come along. The dispute between Cairn Energy and the Union of India evidences the same. This article is written to study in detail the case of Cairn Energy and India in light of the impact of amendments.


It was on 16th March 2012 the government proposed the Finance Bill, 2012. The act was on various measures pertaining to foreign investment policy in relation to taxation. The act brought in a retrospective effect of a tax provision, precisely sections 2(14), 2(47) and 9 of the Income Tax Act,1961.

In simpler terms, the changes enforced new kinds of taxes on foreign transactions or investment with the retrospective effect.


India in 2015 imposed a tax liability of USD 1.6 Billion on Cairn India Ltd. The tax was on an internal transaction of 2006 from Crain UK holdings Ltd to Cairn India Ltd resulted in some capital gains. This tax imposition by India made Cairn energy Ltd. move to the international arbitral tribunal. The arbitration was initiated to address the issue.

India-United Kingdom BIT

India and United Kingdom entered into their first Bilateral Investment Treaty in 1994.  Cairn energy claimed that the tax imposition was abrupt and unfair. The arguments of Carin energy also mentioned that it was a violation of the BIT treaty of equitable treatment as mandated by other International laws.

The International Tribunal ordered against India quoting that India has breached the agreement of the treaty. It slammed USD 1.2 billion as damages to be paid to Cairn. This was not the first time India lost a tax battle over the same law. The tax authorities had slapped Rs. 22,100 crore tax to the British telecom giant Vodafone. The international arbitration nullified India’s imposition of this tax.

India’s claim and contentions

India opposed the award of the Permanent Arbitration and challenged the decision in the Singapore Court. The country claims that the international handling of the tax issue is a threat to the sovereignty of the country. Every country has the right to impose taxes as directed by law. The exercise of jurisdiction was also improper. It was contended that the tax was imposed under the taxation law of the country. The point of argument for the companies in opposition was the Bilateral Investment Treaty between the UK and India of 1994. India claimed that the issue has no relation with this agreement.

Cairn Energy has moved to various courts of the countries to seek approval of holding Indian properties as a guarantee of the payment of the award. The countries included US, UK Canada, Mauritius, France, and Singapore. It also gained rights to hold properties like vessels, aircraft and other assets. However diplomatic properties like embassies were restrained from holding.

Air India in picture

Cairn energy moving to different courts was not the only move made by them. A case suit was filed in the United States District court. The petition was filed to make Air India a party in the case. Air India was jointly made liable in the enforcement of the award. This move came out of nowhere. A strong precedent was quoted of the case named National City Bank v. Banco Para El Comercio Exterio de Cuba(Banec). Cairn Energy argued that since India has significant economic control and also ensures the funding to same, Air India can be made a valid party to realize the fund of the award.


The retrospective effect of tax law did not seem in favour of India. Statistically speaking more than 15 cases were registered against India in the matter of this retrospective ruling. The monetary dispute has also questioned the effect of retrospective rulings. It has hampered the effect and influence of the rulings where the court wants to bring in effects from the past. Also India has come long as a destination of foreign investment. The regular disputes may have harmful consequences to the image of India as a place of investment

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